What is a DAO

What Is DAO?

DAO, which is the popular and convenient acronym for Decentralized Autonomous Organization, is formed by a group of people who decide to abide by certain rules to meet common goals. However, what makes DAOs different from other systems is that these rules are written into codes of the organisation. DAOs use smart contracts, which are algorithms that work on the basis of certain criteria that are met.

How Does a DAO Work?

DAOs work on the basis of smart contracts, which form the foundational framework that dictates how the DAO will operate. These smart contracts are responsible for the functioning of a DAO without requiring any human intervention. The core team of community members comes together to create the smart contract. Smart contracts characterize verifiability and visibility, and they can be audited publicly, which allows every potential member to gain a complete understanding of the functioning of the protocol at every step.

In order for the DAO to function seamlessly, there is a need for funding. Funding is generally gathered using the token issuance method, wherein the protocol sells tokens in exchange for funds. People who receive tokens are given certain voting rights based on their holdings. The stakeholders of the DAO decide the rules, and these rules and transaction records are stored on a blockchain with complete transparency.

With the completion of funding, the DAO can be deployed. One of the most remarkable aspects of DAOs is that, once the codes are written and implemented, they cannot be changed and no member holds any special authority to make it happen. Any changes to be made have to first gather member voting, and upon reaching the consensus, the specific changes in concern are made. If there is a need for a change to be made, it is generally suggested through proposals. It is when the proposal gathers votes from a majority of stakeholders or when the proposal fulfills a certain set of rules in the network consensus rules that the changes are implemented.

What makes a DAO’s work distinct from most traditional organisations is that a DAO functions in a decentralised fashion. Additionally, DAOs, unlike traditional organizations, don’t have a hierarchy and they’re rather driven by economic mechanisms.

There is no formal contract that ties the members of a DAO to it. Instead, all the members share a common goal that keeps them tied to the consensus rules. Since the rules are written in an open-source software governing the organisation, they are transparent.