DAO is an acronym for Decentralized Autonomous Organization, and it is something you may have seen mentioned quite a few times in the world of cryptocurrency. In this blog post, we will reveal everything you need to know about it so that you can get a better understanding.
When it comes to digital currencies, one of their chief features is that they are decentralized. What this means is that there is not a single institution that is in control, such as a central bank or government. Instead, this is divided amongst a number of nodes, networks, and computers. In a lot of situations, virtual currencies will make use of this decentralized status to reach levels of security and privacy that can’t be attained by standard currencies and their transactions.
The decentralization of cryptocurrencies is something that inspired a number of developers to come up with the idea for DAO. This happened back in 2016.
What is a DAO?
A DAO is an organization that was created to be decentralized and automated. It acts as a type of venture capital fund, based on open-source code and without there being a board of directors or a typical management structure. DAO’s are not affiliated with any specific nation-state to ensure it was completely decentralized.
The original DAO was built as a smart contract on the Etheruem blockchain. It was created because the developers believed that they could eradicate human mistakes or the manipulation of investor funds by making sure that decision-making power was put into the hands of a crowdsourced process and automated system. Fueled by Ether, the DAO was created to give investors the ability to send money anonymously no matter where in the world they were. The DAO would then give these owners tokens, enabling them to have voting rights on specific projects.
After a month-long crowd sale of tokens that saw over $150 million being raised in funds, DAO was able to launch in late April of 2016. Back then, this was actually the biggest crowdfunding fundraising campaign of all time.
How is a DAO structured?
There is a different structure for every DAO. When you join a DAO, you must agree to the code that is implemented. It is not easy for the code to be amended. If there are any changes, this will typically require members to take a vote.
In order to get voting power or members within a DAO, you will typically need to buy governance tokens, which are cryptocurrencies that are linked to a certain project. In some DAOs, it is only possible to acquire governance tokens in structured funding rounds, and sometimes, the demand is going to exceed the number of tokens that are on offer.
Although it does differ from DAO to DAO, how much weight a member’s vote has is going to typically be based on their contribution to the project. If governance tokens are not used by the DAO, other types of investment could be used.
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