What is a DAO?

The meaning of its acronym is Decentralized Autonomous Organization, it refers to a revolutionary way of organizing and running organizations, making use of smart contracts and blockchain technology to provide transparency, immutability, autonomy and security. Origin of DAOThe person who postulated this concept was a German computer science professor named Werner Dilger, it was in 1997 where he did a paper entitled Decentralized autonomous organization of the intelligent home according to the principle of the immune system. In it, he dealt with a self-sustaining and autonomous system that at the time was impracticable due to the nature of people, however, after the advent of the blockchain, the project gained strength to become a reality.

What are characteristics of DAO?

The organization is governed by a set of rules encoded in software called smart contracts.

There are no directors, managers or employees; everything is done by computers.The organization is not controlled by a single person; its decisions are made by all token holders.

How does a DAO work?

A DAO is an organization that operates without any human managerial, operational or administrative involvement. It is a model for the future of work and governance.

It is built from defined rules for its operation controlled entirely by computer algorithms that are managed through smart contracts, the absence of a centralized authority is supported by the voting process that its members starring this means that no one can take the attribution to act on behalf of the DAO if it does not have the approval of others. And no one can change the smart contract when it is already active, as everything is publicly recorded and verifiable on the blockchain.

Similarly, these smart contracts can be as simple or complex as you choose to program them. But they will be transparent and immutable as soon as they are published on the blockchain. This will make it possible for everyone to review their operation and the rules that have been programmed into them, with the certainty that they cannot be modified in the future. DAOs depend on a series of mechanisms that guarantee their operation at all times. The first of these mechanisms is related to the ability to program actions and have them executed according to certain parameters. With this, the DAO gains the ability to execute actions autonomously. Viewed more simply, this programming would be the set of rules governing the DAO, and the most common way of programming such action is by means of smart contracts.

The second mechanism is a consensus protocol. Its function is to ensure that the decisions taken within the DAO are taken by consensus of its parties. No factor external to the network and those directly involved in it can alter or cause them to make decisions.

Next, DAOs have a third mechanism that relies on the issuance of a token or medium of exchange. The purpose of this mechanism is to guarantee a means of financially sustaining the DAO. It also allows users to gain voting power and at the same time to be a mechanism of exchange and economic reward.

Finally, they have a fourth mechanism whose purpose is to record everything that happens in the DAO. This task falls on the blockchain, where all the information is stored to be accessed publicly and guarantee its security. The union of these four elements is what allows a DAO to function at all times.

What is a governance token?

A governance token is a digital asset that represents a share in the future profits of an organization. Governance tokens are often used to incentivize specific behaviors or actions within a decentralized autonomous organization (DAO).

The most common use case for governance tokens is to align incentives among stakeholders by offering them the opportunity to share in the financial success of the project. In this way, governance tokens can be thought of as shares in a company, except that they are not issued by traditional stock markets and their value does not depend on the dynamics of supply and demand in secondary markets.

Advantages

It makes it possible to create organizations without any hierarchy. Everyone who is part of the organization can contribute ideas and vote for them, thus decentralizing the organization.

Its level of transparency is very high. This is because a DAO inherits from blockchain technology its ability to record all actions performed and make this record public, as well as to see the source code of its operation.

Decentralization allows DAOs to offer services globally which eliminates borders and democratizes access to services that otherwise would not be available to many people.

They greatly facilitate the creation of organizations, since they only need to be programmed in a blockchain and from that moment on, it starts to work. This saves money, time and paperwork, something necessary for the traditional registration of organizations or companies.

Disadvantages.

The programming of a DAO is a task of great responsibility and must be programmed without errors and assumptions, it must be something mathematical and logical without gaps since any discrepancy could generate loss of a lot of money or the fall of the project.

The DAO breaks with traditional organizations so it is not accepted by regulations in many countries, this is largely due to the fact that blockchain technology and cryptocurrencies still do not have a clear regulation.

Where to use the DAO organization?

The truth is that it can be used in any project or organization since it is not based on a way of working, the focus is on the way to govern an activity, project or organization, even many of its characteristics break with what we are used to see and participate in traditional companies.

Suppose we are going to apply this theory to control the organization of a sports club with members and facilities.

Traditionally a sports club has members who are people who gather to enjoy some facilities or recreational activities of their preference. These facilities need to be constantly maintained. Each member pays a semi-annual or annual fee to maintain the operation of the courts and services.

The club would have standards and rules that determine the operation and payments to be part of it, all these features would be programmed in smart contracts and all members would generate a contract to send the funds that would make them part of the organization (governance tokens), in turn, these funds would not be in the hands of one person, or two, but would be in the hands of everyone and no one at the same time.

The smart contract would have them blocked pending democratic decision making, remaining visible in a transparent manner.

The repairs or improvements would be generated through a request, after which the partners could decide for a certain period of time in a democratic way the budget that interests them, unlocking the funds only to the budget with the highest vote.

In this way not only expense budgets, but also items for improvements, tournaments and even the management and distribution of benefits and use of shared areas could be managed in a democratic, transparent and immutable way with rules known by all.

My thoughts.

Thus, DAOs represent a powerful technological innovation. One that seeks to redefine the way in which different parties cooperate. This is because they allow the creation of autonomous, self-managed, transparent and more efficient organizations.

DAO members make decisions in a transparent and decentralized way, and smart contracts execute these decisions.

A member can create a proposal suggesting a treasury investment or program improvement. DAO members then meet to vote on the proposal.

If a predefined quorum votes in favor of the proposal, it is accepted and executed by a smart contract.

As a result, the DAO structure provides a linear organizational structure. Each DAO member has equal weight in the community and the opportunity to lead and make decisions.