What is Decentralized Autonomous Organization (DAO)?
To position Islander as a learn-to-earn & affiliate marketing platform promoting crypto adoption, Islander is not only a place where retail investors can find and learn from potential projects but also provides informative news. Currently, our primary goal is to serve as a springboard for the top initiatives in the Avalanche ecosystem. So, with this “Avalanche How-to” series, we will provide you with the fundamentals of this potential ecosystem.
The next post in our “Avalanche How To’’ series is about Decentralized Autonomous Organization (DAO).
Before diving into DAO, the first question is Have you truly entered the blockchain sphere?
When the internet first appeared, its compatibility with the real world was revolutionary. At the time, the new technology made routine tasks faster, easier, more convenient, cost-effective, smarter, and more enjoyable. People have since, for example, purchased plane tickets directly on the airline’s website instead of queuing for hours at ticket counters. The blockchain, however, is even more robust: it assists in the recreation of the real world in the internet space, or, more ambitiously, in the reconstruction of the real world — to offer novel experiments and solutions.
We learned in our previous DeFi series how blockchain has created a new financial space on the internet. That space not only performs the functions of the traditional financial system, but also puts to the test the traditional idea of a decentralized system: a transparent peer-to-peer financial system that is anonymous and cost-effective. This concept has been around for a long time, but it has yet to be implemented due to natural limitations in the real world (where not everything is made public) or internet limitations (primitive and insecure). Blockchain, on the other hand, is the ideal space to experiment running the world in a completely different way.
With the advent of blockchain technology, people can now dream of decentralized bureaucratic organizations: what if a group of like-minded people could safely collaborate together with equal power and without administrations?
So, why do we need such an organization?
There are ambitious goals by a large number of people, and they must be met over a long period of time. This therefore requires organizations that can collaborate to build or achieve greatness for all.
Many people, however, mistakenly believe that an organization and its hierarchy are the best — naturally — without realizing both are compromises. For example, creating bureaucracy to ensure a clear division of tasks and powers would be wasteful, creating power niches and barriers that would affect the overall performance of the organization and potentially cause harm. Alternatively, to ensure that organizational documents are transparent, revenue and expenditure transactions must be reported in full and in detail, and plans must be approved and signed by the leaders. This entire process is obviously time-consuming and costly; and even when done properly, it can hardly completely eliminate the risk of budget frauds.
Hence, we should not believe that the current organizational designs are optimal and that the constraints cannot be changed. They are simply a means of balancing risks and benefits. As long as new foundations are supported, there is always a basis and possibility to design organizations in a different direction, with new risks and benefits of course.
Blockchain is one such tool.
Therefore, DAO — Decentralized Autonomous Organization comes into play.
There are two unrecognized backlogs: (1) it will be difficult to find a such organization in the real world due to physical constraints, and (2) the internet is reliable enough to form safe and sustainable organizations with common goals.
Most of the time, people regard these two issues as self-evident and easily solved. Blockchain, on the other hand, addresses these issues at the same time, with DAOs being a quick and safe way to connect with like-minded people all over the world. It not only solves the problem of connecting with more people (instead of a few real-world relationships), but it also makes those connections more effective and secure.
By the book, DAOs are similar to businesses, with smart contracts designed to optimize the operation (such as investment), and ownership distributed to all members. This company will not have a CEO, the corporate treasury will not be managed by anyone, and all decisions will be based on the voting results of all of its members and all operational data will be managed independently and publicly. In such an organization, no CEO will be inclined to make decisions in his favor (or simply wrong decisions), and no CFO will be able to commit budget frauds. All activities of a DAO are open, democratic, and equal.
For this reason, when participating in a DAO, investors do not need to put their trust in the project team; instead, they should be more interested in the information of the smart contract, which specifies what decisions that DAO can make (e.g., buying NFTs), how it should make decisions (e.g., voting rules), and so on. All DAO members will have vision and control over how the organization operates, and can therefore think twice before participating. This is therefore an opportunity to open up new directions for new global collaboration targeting different niches.
Each DAO is a direct democracy organization, requiring votes from all members to make decisions; which are automatically verified by algorithms, thereby eliminating the need for an intermediary to count votes. Algorithms automatically calculate revenue and expenditure, and most importantly, all of these activities are fully informed, transparent, and public.
However, DAOs have a few drawbacks:
Organizational models of direct democracy with absolute majority power are not always effective. Indeed, there has never been a case in history where a group of public investors outperformed the market.
DAOs eliminate human mistakes but suffer greatly from algorithm-related technical flaws, such as poor initial design or security risks.
Members come from a variety of countries with varying legal systems, and so the legal issues have yet to be resolved.
Today, people have formed DAOs to jointly manage an investment fund, donate to charity, or purchase any item… Large projects are also oriented to become DAOs once they can operate independently. This is much akin to major GameFi projects where members will have complete control over the future ecosystem.
Then, what about Avalanche DAOs?
To begin, investors can create their own DAOs and hire like-minds from around the world for any purpose. Avalanche allows everyone to create their own DAOs with Avalanche.
Alternatively, they can join existing Avalanche DAOs:
Everest DAO: The first and most prominent DAO on Avalanche where members can decide the future of the Avalanche ecosystem.
Force Dao, Kassandra DAO, Magnet DAO, Pollen, and Olympus DAO are community-run investment funds with different objectives.
It should be noted that the incorporation of blockchain technology into an organization does not guarantee efficiency. Investors must have knowledge to determine which DAO is the best fit for their needs and has the design they believe will work effectively.