Blockchain technology has brought about a significant change in the traditional organizational structure. Typically, traditional organizations are run by a central authority that makes decisions on management, operations, and actions. However, the decentralized nature of blockchain technology enables delegation of management and coordination to all members of an organization, thereby removing the need for centralized control.
Decentralized Autonomous Organizations (DAOs) are community-driven entities that do not require a central authority or coordination. All members of a DAO have management and coordination power, allowing them to make proposals, cast votes, and make decisions in the best interest of the organization. This is in contrast to traditional organizations where decisions are made by a select few at the top.
Here are some of the benefits of running an organization in a decentralized way:
Transparency: When all transactions and activities are recorded on the blockchain for public viewing, it enhances trust and accountability in the organization. This also makes operations more transparent and easily auditable.
Decentralized decision-making: A DAO is governed by its members through a consensus mechanism. This eliminates the need for a central authority, which can be biased and may not represent the interests of all stakeholders.
Community-driven: A DAO brings together people with similar interests to work towards a common goal. This encourages collaboration, innovation, and participation among the community who can work together to identify the organization's goals, implement new ideas, and make collective decisions.
Cost-effectiveness: DAOs operate autonomously and do not require expensive infrastructure, administrative overheads, or intermediaries, making them cost-effective and ideal for startups or small organizations.
Scalability: DAOs are highly scalable and can accommodate changes in membership or goals. This makes them flexible and adaptable to changing market conditions, making them ideal for fast-growing or evolving industries.
How does a DAO work?
Smart contracts enable the programming of the functions of a DAO, including governance abilities such as proposing, voting, and finalizing proposals. These functionalities are readily available on the blockchain and are executed by members of the community, not by a central authority.
DAO members usually invest their funds in the form of tokens to achieve a common goal. These tokens represent their proportional voting rights, and some DAOs give members with a higher token count more voting power. When majority of the stakeholders support a proposal, it is automatically executed through a code that is triggered. This approach is generally seen as positive since members with more significant financial stakes in the DAO are more motivated to act in its best interests.
DAO members usually invest their funds in the form of tokens to achieve a common goal. These tokens represent their proportional voting rights, and some DAOs give members with a higher token count more voting power. This approach is generally seen as positive since members with more significant financial stakes in the DAO are more motivated to act in its best interests.
DAO members can make proposals to spur project growth and promote a sustainable future. Here are some proposal areas that are common in a DAO:
- Technical proposals: These proposals suggest technical improvements or changes to the network to further enhance the security, performance, or functionality of the protocol.
- Treasury proposals: These proposals suggest changes to optimize the project's treasury to better secure its long-term future.
- Community proposals: These proposals allow members to request funding to engage and grow the community.
The metaverse is an interconnected virtual ecosystem that provides users with real-world experiences. As more users from diverse backgrounds join and connect in the metaverse, there will be a growing need for a decentralized community AKA DAOs to facilitate efficient development.
The following are some of the applications of a DAO in the metaverse:
1. Overall governance: DAOs enable a decentralized governance model in the metaverse, where community members lead the decision-making process by voting and reaching a consensus. For example, Decentraland is a DAO that allows members to vote on decisions regarding wearables for user avatars, land auctions, and grants for property development. Each member's voting power is calculated based on their total balance of MANA, NAMES, and LAND in their connected wallet.
2. Shared ownership: DAOs enable users to participate in shared ownership schemes for NFTs, where community members can pool funds to invest in them.
3. Fundraising: Community members can use the tokens they purchased to fund and support the development of the metaverse project.