What is a DAO

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Imagine walking into a bank one day, but when you get to the front of the line, there isn’t anybody. In fact, come to think about it, there isn’t a single employee in the whole bank, but everything is working perfectly! What’s going on?

As outlandish as that might sound, that is the promise of Decentralized Autonomous Organizations (DAOs), which are institutions that live on blockchains and can mimic the function of major corporations, but without almost any staff at all.

This is done via “smart contracts”, which are bits of code that perform certain actions when given a specific input. And if you chain enough of these operations together, you can suddenly mimic entire business models!

Better still, these services can then be tweaked and managed by the same people that utilize them. They can even be run in a democratic manner, where anyone gets a vote, or people get a vote in proportion to their contribution to the system.

DAOs are fundamentally transparent institutions as all the rules are provided by smart contracts and have the potential to fundamentally reshape how we organize large groups in society. 

How it works

Through the use of smart contracts, a DAO can work with external information and execute commands based on them without needing any human intervention. A DAO is usually operated by a community of stakeholders incentivized through some kind of token mechanism. 

The rules and transaction records of a DAO are stored transparently on the blockchain. 

Rules are generally decided on by stakeholders’ votes. Typically, the way decisions are made within a DAO is through proposals. If a proposal is voted on by a majority of stakeholders (or fulfils some other rule set in the network consensus rules), it is then implemented.

Benefits of DAOs

Users can benefit from DAOs in a variety of ways such as:

  • Transparency - Users on a DAO can clearly see the code that governs the network as well as any transactions that take place on the blockchain. This provides users with a high level of transparency when compared to a centralized network. Smart contracts are also audited by cybersecurity companies to ensure they follow all the protocols.
  • More efficient organization - Instead of using a central trusted third party to execute operations on the network, DAOs use predefined code and conditions to automatically carry out these contracts. This eliminates many of the costs and security risks that come with relying on a third party.
  • An autonomous structure - DAOs offer members a unique opportunity to submit proposals and ideas for improving the organization. Thanks to the autonomous structure of the DAO, any member can submit a proposal, regardless of their stake in the network.

Problems with DAOs

The main issue with DAOs at the moment is that they live in an uncertain regulatory landscape. They’re neither illegal nor legal, they’re tolerated, and therefore they inhabit a legal grey area.

There are ways around these issues, but they mainly rely on bolting on previously existing structures to DAOs so that the law interprets it similar in function to what it is intended to be. 

Nevertheless, as these are analogue solutions for a digital world, these ways around the problems are expensive and don’t exactly cover every expression or capability of DAOs.

Until there is a clear legal framework under which they can operate, the industry remains a shadow of its potential self. 

Conclusion

DAOs seemingly manage to produce something from nothing - leadership without leaders!

The technology is impressive, and it shows great potential. But in its present form, it is extremely limited as there are no clear guidelines of what might be considered legal or illegal in the future.

As such, there are many innovators out there that haven’t entered the space because of fear and uncertainty. 

This is what the WACEO was created to address. We are a non-profit organization that is helping DAOs lobby to regulators for their interests, and we also help design frameworks so that blockchain organizations can legally operate today despite the regulatory uncertainty.

DAOs hold the promise of a better world, but this will only happen if we work together to achieve that potential!

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