What Makes DAOs Effective?

How about a business on the internet managed by its community members? Sounds interesting, right?

In the world of decentralized finance, there exist such a business called DAOs or decentralized automated organizations which have built-in treasuries that no one can access without the group's permission. Proposals and voting are used to make decisions, ensuring that everyone in the company gets a say.

No CEO can spend money on their own whims, and no risk of a shady CFO tampering with the accounts. Everything is out in the open, and the DAO's spending restrictions are encoded into its code.

This article will discuss various reasons which make DAOs Effective.

Transparency

A blockchain records the financial transactions and rules of a DAO. This eliminates the requirement for a third party to authenticate the transaction, allowing smart contracts to streamline those transactions. A smart contract determines the firmness of a DAO. 

The smart contract holds the organization's storage and symbolizes the organization's regulations. Because DAOs Effectiveare transparent and public, no one can change the rules without others noticing.

Trust the DAO’s code and not any individuals involved!

The entire market valuation of all DAO tokens was $21 billion in January 2022. During the same time span, the ecosystem's total number of DAOs was 4227.

Democratized structure

The distinctive selling point of DAOs Effective, according to proponents, is that they are democratic, with no hierarchy and all members having a say than regular corporations. Any modifications to a DAO must be voted on by all members, rather than enacted by a single party depending on the company's structure.

DAOs "aren't regulated by one person or institution," according to CNBC's money correspondent Taylor Locke, which is why the D in DAO stands for decentralized.

Nearly 497.8k active voters and proposal producers are among the 1.7 million governance token holders as of January 2022.

With 307.7k governance token holders, Uniswap was the most popular, followed by Kusama with 235.1k and Decentraland with 215.1k. Nearly 42% of all governance tokens in circulation were held or issued by the three DAOs combined.

According to deepdao.io, the DAO ecosystem has made a total of 47.1k decisions and approximately 2.5 million votes since its debut in January 2022.

Membership

DAOs Effective based on shares is more permissioned, although they are still very open. Any potential member can submit a proposal to join the DAO, usually exchanging tokens or work. Direct voting power and ownership are represented by shares. Members can withdraw their fair share of the treasury at any moment.

A proposal for membership is required by MolochDAO so that the group can determine whether you have the appropriate skills and capital to make educated decisions concerning potential grantees. The DAO is not available for purchase on the general market.

Another option to engage in the DAO is through token-based membership. Generally, these governance tokens can be traded on a decentralized exchange without requiring authorization. Others must be gained through liquidity or other 'proof-of-work' methods. In either case, simply holding the token allows you to vote.

MKR, the MakerDAO’s token, is widely traded on decentralized marketplaces. As a result, anyone can have voting power over the Maker protocol's destiny.

Deepdao.io found that around 182 of DAOs have a treasury value or AUM of around $10 billion as of 9th February 2022. Uniswap, with a market cap of $6.75 billion in January 2022, was the largest DAO token by market cap.

Ethereum community

For a variety of reasons, Ethereum is the ideal platform for DAOs Effective. Even its owners cannot change the smart contract code after it has gone live. This enables the DAO to follow the rules that were programmed into it. 

The Ethereum community has shown to be more collaborative than competitive, enabling the rapid development of best practices and support mechanisms for DAOs.

Ethereum is the most widely utilized token in the DAO Ecosystem, according to deepdao.io. Nearly 97 of the 181 DAOs listed on DeepDao used Ethereum.

Universal application

Any business model with DAO-like aims can help the organization automate its tasks. For example, a novelty keychain business with ledger-based inventory can develop a smart contract that triggers each item's unique reorder based on previous client demand. The smart contract will generate, submit, and specify the delivery date for an invoice for the store's relevant supplier.

The ultimate goal is to create an organization that does not require any human input and can function well, and makes thoughtful structural changes without being prompted.

On April 30th, 2016, the first DAO was launched. It was simply known as "The DAO." Through the sale of tokens, 'The DAO' raised almost $150 million (at the time) in 21 days from 11,000 investors. It was later shut down due to vulnerabilities in its code.

Cost-effectiveness

DAOs are the most efficient and equitable business model yet devised. They strengthen the flaws of both traditional centralized enterprises and blockchain projects, the former being vulnerable to central points of failure, intermediaries, and conflicting stakeholder interests.

A true DAO has only one interest to safeguard the company. It does not require any workers or executive management, allowing it to provide a service without regard for salaries, mediators, or even profits.

Businesses may operate on the tiniest of profit margins, needing merely to cover their operating costs—nothing more.

DAOs: Is it possible to manipulate a decentralized economy?

Despite the fact that the system is meant to be devoid of human influence, decentralized initiatives are not without meddling — particularly from the development team. This group of people, in particular, has complete control over the codes that make up smart contracts and, as a result, decides what is and is not integrated into them.

In a genuine sense, the smart contract creators serve as the board of directors of a typical corporation. This also means that the smaller a blockchain project's smart contract developer teams are, the easier it is to influence the system.

In other circumstances, the smart contract could be the primary target of a cyberattack. It is the most vulnerable component of a decentralized project, primarily if it isn't constructed to withstand attacks.

The otherwise decentralized network becomes extremely susceptible when a smart contract is hacked, exposing a key vulnerability in the decentralized economy.

Hence, the decentralized economy remains highly centralized until computers, rather than humans, will have more control.

Related Article: Kimbal Musk Says Most DAOs Are Not Actually Decentralized