The Purpose of the DAO

DAOs have been gaining quite a bit of popularity within the last few years. This is because the DAO model is an inherently safe design when it comes to internet collaboration. It requires a great deal of trust to create and fund projects with a group of people. It takes even more trust to collaborate on and fund projects with people whom you’ve only interacted with on the internet.

This is where the DAO comes in. DAOs are open-source projects, meaning the code is 100 percent transparent and verifiable by anyone. Furthermore, all the projects being conducted within a DAO are completely visible to each of its members.

How DAOs are Used

DAOs can be used for a variety of applications, although most DAOs fall into three categories. Charities are the most common of them all. Using a DAO for charity makes it easy to not only collect donations from all around the globe, but disperse the collected funds in a completely transparent way.

Ventures and Grants

Venture fund DAOs are amongst the most profitable. DAOs can be used to gather and pool investment capital, which is used to fund various ventures. How these funds are dispersed is determined by a community vote. If most of the votes are in favor of dispersing funds to a venture, then the funds will be allocated. In many instances of ventures and grants style DAOs, repaid money is often redistributed amongst the members of the DAO.

Freelancer Networking

Freelancer network style DAOs are a fantastic tool for both growing and evolving small businesses. In this type of DAO, contractors can pool their funds and resources such as software subscriptions and office spaces.

How DAOs Work

DAOs are heavily rooted in smart contract technology. All DAOs contain a smart contract that records, organizes and maintains the groups treasury. Once a DAO’s smart contract is deployed on a blockchain, the only way to change the rules of the DAO is through a community vote. Voting is the key to how DAOs are able to remain entirely decentralized.

In the simplest model of a DAO, only certain members of the community can vote. These community members are called “governors.” Governors can disperse funding by way of multi-signature wallet to projects as well as each other. If a governor were to attempt to withdraw funds from the DAO’s wallet, the smart contract wouldn’t allow the transaction to take place.

Elections for DAO governors take place quarterly, or every three months. Furthermore, anyone can apply to be a governor of a DAO. DAOs sometimes evolve to the point where the community completely consists of different people than the original group that started it in the first place.

Conclusion

DAOs have quickly become one of the most important aspects of DeFi. We’re even seeing more traditional businesses take on some of the most successful aspects of the DOW model. DOWs are a positive step in the right direction, and we encourage all of you to look into and maybe even participate in some of these awesome projects!

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