Full Article: What is a DAO?
Exactly as its name suggests, a decentralized autonomous organization is a group of people who are responsible for making common decisions without the interference of a centralized leader or company. Smart contracts (digital one-to-one agreements) are built on a blockchain, and they are built on top of this.
The members of DAOs are often people who buy their way in, buying tokens that are specific to the DAO. These tokens then allow them to vote on decisions that relate to how the funds that come into the DAO are spent and managed. People from around the world can form these groups.
How does a DAO work?
DAOs have the advantage that all decisions get made from the bottom up. Members own the organization collectively, so there is no hierarchy at all. Participation in a DAO can be done in many ways, but typically one of them is through the ownership of a token.
In order for DAOs to operate, smart contracts are used. Smart contracts are basically bundles of code that execute automatically regardless of whether certain conditions are met. There are numerous blockchains out there that enable smart contracts to be deployed, but Ethereum was the first to do so.
It is through these smart contracts that the DAO’s rules and regulations are established. In addition to voting rights, those with interest in a DAO can help decide or create new proposals pertaining to governance in order to have an impact on the organization’s operations.
A proposal will only be accepted if the majority of stakeholders agree to it. This model prevents DAOs from being overwhelmed with proposals. Depending on the type of DAO, the method of determining the majority may vary, which is specified in the smart contract.
There are total autonomy and transparency with DAOs. Moreover, the code of these exchanges is open-source, so anyone can see how they are built. As the blockchain records all financial transactions, any of the users of the platform can audit their built-in treasuries.
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