The Guide to Decentralized Autonomous Organizations (DAO)

December 01, 2021 · 9 min readAttack the block

What is a DAO?

A decentralized autonomous organization or DAO is a self-governing entity run by rules encoded in computer code. It is decentralized because there is no central authority, and anyone can participate in the governance of the DAO.

Governance in general is a widely a discussed topic in academia. It's a natural fit for almost all political discourse. There are immediately dozens of questions that come to mind. Which form general organizational setup is most ideal? Is liberal democracy the need of the hour, or should socialism prevail? And then there's a question on the structure of democracy itself. Does it work for everyone's good?

Philosophers have asked these questions throughout time. And the answers vary from each person to each civilization, but they all share a common thread: they are a reaction to the unknown, a way to wrangle the inevitable or to fix what is broken. The information age is no different. Enter the DAO.

A little history on DAO

In 2014, Vitalik Buter in wrote about DAO for the first time. According to Buter, a DAO is an entity that exists autonomously on the internet but relies on individuals to perform some tasks that cannot be automated.

It is autonomous because the code dictates how the organization functions, and there is no human intervention. Today, DAOs are used for multiple purposes, such as lending, buying NFTs, investments, charity, and fundraising.

In 2020, there were 76 DAOs, which is a 660% increase since 2019.

The vision for decentralized organizations is that they have similar characteristics to traditional organizations but are more inclusive.

Their decisions are transparently made by all affected stakeholders, not just by a small elite group who may be out of touch with the organization's needs.

The developers of the decentralized autonomous organization believed that investor manipulation and human error could be eliminated from an organization by giving the decision-making power to an automated system. The organization's profit will not depend on the people who run it but on its code.

The decentralized autonomous organization is generally used for funding purposes, and it can be used to organize a group pooling in their money for investment or other projects. The investors do not need to rely on an external agency to handle their money, saving them time and effort.

Although DAO, as a concept, is still in its infancy, the growth and popularity are undeniable. A popular example is DASH, which is a cryptocurrency that users manage.

Meanwhile, Augur is a prediction marketing platform that works on the DAO principle.

Understanding DAOs with comparisons

The best way to understand what a DAO is and how it works is to compare it with popular cryptocurrencies.

Bitcoin

Bitcoin represents the most basic DAO precepts.
Blockchain is a public ledger that records every Bitcoin transaction. It is
decentralized because there is no central authority, and it is autonomous
because the code dictates how the Bitcoin network works.

Bitcoin was created to be a currency that any government or financial institution could not control. Transactions are verified by miners, who are rewarded with bitcoins for their work.

Bitcoin is a node-based decentralized, and autonomous organization. But it's not a DAO because it doesn't have complex governance rules that make up a DAO.

Ethereum

Ethereum is a blockchain-based platform that enables developers to create decentralized applications. These applications can run on a blockchain without any third-party interference.

Ethereum isn't a decentralized autonomous organization, but it can be used to develop DAOs. Think of it like Unreal Engine 4. It's not a game itself but is a framework that can be used to make video games.

Uniswap

Uniswap is the first decentralized finance protocol that has jumped the automated market makers bandwagon. What makes Uniswap different from the two examples mentioned above is its UNI governance token used to fund liquidity pools and vote on improvements on the platform.

Thus, Uniswap is a DAO. But for someone to adjust existing rules or propose new ones, they must have 1% of the total supply of UNI.

How does a DAO work?

A DAO works by following the instructions encoded in its smart contracts. A smart contract is a computer program that executes automatically when certain conditions are met.

For example, a DAO can be programmed to distribute a fund only when the total amount of money in its wallet reaches a specific
value.

DAOs are designed to mimic a typical company structure, except that the rules and regulations are built through open-source code. They are then enforced by using smart contracts.

DAOs don't have a hierarchy, as opposed to a company with a CEO, VPs, and other employees. In DAOs, every participant has an equal say in the decision-making process.

Such an organization eliminates the need for a central authority to make decisions and allows for direct participation from the members.

The code is transparent, which means everyone can see how it works and what is being done with the funds.

A vital feature of the DAO is its internal capital. The capital incentivizes the actors to ensure the organization runs smoothly. Instead of having a hierarchical pattern, a DAO incentivizes a user network to meet the organization's goals.

What are some examples of DAOs?

Here are some notable examples of DAOs.

MakerDAO

Gitcoin

Aragon

The Aragon Network acts as a digital jurisdiction that makes the rules for all of its citizens. The project uses Ethereum to create laws and automate governance by allowing tokens to vote on proposals.

Users can use Aragon to create their own fully decentralized organizations, set up representative governance with voting rights, fundraising capabilities, customizable apps, and more.

How is a DAO created?

A DAO is created by creating a smart contract on a blockchain platform. A blockchain is a distributed ledger that keeps track of all the transactions that occur on it.

When someone wants to create a DAO, they need to write the code for the smart contract and post it on a blockchain platform, such as Ethereum. Once the code is posted on the blockchain network, it cannot be changed.

How does a DAO work?

To understand how a DAO works, let's look at an example. If a company wants to raise money by selling equity, they need to file for a public offering with the SEC.

After going through this process, they can offer their stock for sale on a public exchange like NYSE or NASDAQ. In contrast, if someone wants to do something similar using a DAO, they have to write code and place it on a blockchain platform.

Many companies specialize in creating DAOs for people who want one created for them. These companies usually have programmers working around the clock to create a blockchain-based smart contract for the client.

DAOs can raise money from investors by issuing tokens to finance their operations.

In order for a DAO to be fully independent and autonomous, it needs at least two things:

  1. A way to limit outsider influence on the
    network.

Outside influence is limited through voting using reputation
scores (and not money) in most cases. Doing so ensures that members can't buy
votes and ensure they get projects approved that meet the specific criteria the
organization wants to focus on.

2. A form of digital cash or cryptocurrency

Without any central control. It would allow users to pay transaction fees or
exchange their tokens outside of the ecosystem.

So what are the best DAOs?

The best decentralized autonomous organizations are the ones that don't have a single point of failure, which means there is no individual or group of people who can assume control if something goes wrong.

The lack of central authority also ensures no third party can shut down the DAO.

Why would you want to create a DAO?

There are several reasons someone may want to build a Decentralized Autonomous Organization. For example, some organizations are too small to have an extensive formal structure but still need one to function properly.

Creating an autonomous organization makes it easy for these companies to set up rules without being bogged down by bureaucracy and hierarchy.

Similarly, other firms don't currently need complex organizational systems because they only exist on paper (or in the digital world).

However, as they grow and expand their operations, they will need to establish a more formal structure. A DAO can help these businesses by gradually implementing a hierarchical system as they need it.

DAOs can also be helpful for online communities that want to manage their resources collectively. A group of friends could create a DAO to manage a shared bank account. The DAO would track how much money each person is spending and ensure everyone contributes equally.

The Very Good Thing About DAOs

All of the finance, tech and, let's just say it, nerdiness, surrounding DAOs can obscure a very real humanitarian application. DAOs can be used for charitable purposes. A group of people could come together to create a DAO that donates money to different charities periodically.

They can use the DAO to pool their money and donate to a variety of causes without having to set up multiple bank accounts or trust
funds.

Popular DAO building tools

Here are some popular platforms that can be used to build DAOs.·  

  • Alchemy: Alchemy, a blockchain development platform, allows you to create DAOs that provide a high level of security and privacy. It provides its own cryptocurrency to incentivize development on the platform by paying for tasks with the ALCH token.

  • BoardRoom: BoardRoom is an open-source environment that enables people or organizations to run their own decentralized autonomous organization on a private Ethereum blockchain.·

  • Eris:Eris lets you manage human resources, finance, logistics, procurement, and other organizational structures using blockchain technology in order to create a digital workplace ecosystem. Thus, it helps eliminate many of the limitations present when managing cross-company activities between partners, contractors, and vendors, which would otherwise require extensive paperwork and manual coordination.

  • Gnosis Safe: Gnosis Safe is a decentralized, trustless storage system for tokens and other digital assets built on the Ethereum blockchain. It allows you to securely store your tokens without having to worry about losing them or someone else gaining access to
    them.

  • Snapshot: Snapshot is a token-based
    voting platform that enables people to create, manage and vote on proposals. It
    also provides a secure way of storing tokens without the need for a centralized
    authority.

What are common types of DAOs?

There are three different types of decentralized autonomous organizations:

For-profit DAO: Such an organization raises capital through token sales (much like how companies issue stock) and then sells products or services on their own platform. One example of this is Slock, which can be used to share your things securely with others.

Non-Profit DAO: These organizations raise capital by collecting donations from individuals on the web and use those funds strictly for charitable purposes. For example, Dash has used this model effectively as they aim to solve problems facing cryptocurrency users.

Governance DAO: These DAOs are focused on managing the governance of a specific organization or community. It can include tasks such as voting on new proposals, approving budget changes, and punishing rule breakers. Tezos is an example of a governance DAO that is currently in development.

Benefits of decentralized autonomous organization

A decentralized autonomous organization offers many benefits when compared with traditional organizations.

  • It's transparent and unbiased:

Traditional organizations rely on human managers and workers to make decisions.
These humans can easily become biased depending on their interests or
intentions, which might affect the decision-making process within the
organization. However, DAO possesses no such problem as humans do not make any
decisions. Everything is purely automated. The decisions will always be
impartial regardless of whoever makes them.

  • Doesn't require trust:

A DAO works through smart contracts that define how it should run and operate completely independent from external influence without requiring anybody's approval or endorsement for its existence. Because of this, it doesn't have to place its
trust in any other person or entity.

  • Lower costs:

A decentralized autonomous organization has minimal overheads and fewer intermediaries as compared with traditional organizations. Thus, they can be run at a fraction of the cost.

  • Flexible:

A DAO can quickly adapt to changes in its environment as all changes are decided by the code that governs it. As DAOs don't have physical limitations, they can grow infinitely.

  • Faster action:

Decisions are taken by the majority opinion when needed. Therefore, no single person is allowed to make decisions that affect everyone else in the system.

  • Doesn't discriminate based on social status or power:

A DAO doesn't give credit to any person who simply claims something is their idea without showing proof. It puts everyone on an equal footing as there are no owners, managers, or workers in a decentralized autonomous organization. Everyone has an equal say over decisions that need to
be made. 

  • Works continuously with optimal resource
    allocation:

Unlike human-led organizations where work can stop if someone
goes on vacation, a decentralized autonomous organization continues working
even when developers don't put in time due to various reasons, like illness or
personal problems.

What are the challenges DAOs face?

There are several challenges that currently face decentralized autonomous organizations:

Scaling

As blockchain technology grows more popular, the number
of transactions per second that a DAO can handle will become increasingly
important.

Unfortunately, most current DAO models are not scalable and could quickly hit their limit if they experience rapid growth;

Security

One of the benefits of using blockchain technology is
that it creates a tamper-proof record of all activity that can be easily
verified.

However, this is only true if the system has been set up correctly and requires a high level of technical knowledge to maintain. It also means most DAOs will require at least some manual oversight from developers.

Incentives

In order for a decentralized autonomous organization to work effectively, there needs to be an incentive structure in place so that people are motivated to contribute their resources.

Unfortunately, it's unclear how this would work for a non-profit organization that doesn't have a profit it can distribute or a governance organization where power is not tied to influence over resources — at least until new models are developed.

Apart from these challenges, another common question that arises is whether it's possible to run an organization without any kind of human intervention.

To what extent can we rely on automation for decision-making?

It's likely we'll see meetings, in some shape or form, happening in a DAO, as asynchronous collaborations, to be more precise. Let's take a closer look at how async collaborations can work in a DAO.

Understanding async collaborations

Asynchronous collaborations are interactions among people or groups of people to accomplish a goal that can take place at different times. They are not time-based and occur whenever the collaborators feel it's necessary.

What are the three major types of asynchronous collaborations?

Decision-making: These could be used for voting on decisions that affect the whole group, e.g., voting for updates to be made to the protocol, adding/removing members from DAO, etc.

Knowledge-building: These are collaborative tasks like writing projects, brainstorming ideas, discussing specific topics, or sharing information with each other throughout a project's lifetime.

Resource-building: These collaborations involve sharing resources like data, tools, code, money, etc., among
collaborators.

The beauty of async collaborations is that there's no need for everyone to be available at the same time in order to get things done.

It's possible for people from all over the world to participate in projects without having to worry about meeting in person or coordinating their schedules. It also eliminates the need for a central authority figure who can make decisions on behalf of the group.

Use cases of async collaborations

There are several ways that DAOs can use asynchronous collaborations to get things done:

Task-based: In this model, tasks are assigned to specific members, and they are responsible for completing within a certain timeframe. Task-based collaborations are useful for situations where there needs to be a quick turnaround for important decisions, as well as for tasks that don't involve making any choices.

Crowdsourcing: Collaborators can submit ideas and suggestions on how to solve specific problems. If the DAO is looking for ways to improve upon or fix bugs in its code, crowdsourcing could be a way of collecting a large number of suggestions from developers all over the world who are familiar with similar software projects. It may also serve as a useful tool for collaboration during the research and development phases of specific
projects.

Software swarms: These could enable multiple users to come together online and work on an idea by sharing their expertise with each other.

How can a DAO team collaborate asynchronously?

Asynchronous collaborations aren't entirely different from traditional software development methodologies but have a different set of challenges that typically require attention upfront.

To get the most out of the DAO framework and ensure everyone is on track relatively early in the process, it's necessary for all stakeholders to establish a shared understanding from the outset.

In traditional software development projects, this shared understanding takes place mostly during formalized meetings where information can be exchanged and discussed quickly. It also often happens over email, wikis, or other centralized platforms anyone can contribute to.

In a DAO, the meetings are likely to be asynchronous and less formal. Nevertheless, they still need to have a structure. Here's how you can ensure the success of your meetings.

Build alignment

Irrespective of the type of meeting you're holding, it's important to recognize what you'll be discussing before you can go ahead with the actual meeting. Are you meeting to make upgrades to an existing plan? Are you meeting to come up with a new plan?

You should define what will be discussed in the meeting. Let's take a very simple example. If you tell everyone that there will be a meeting about "next quarter's launch," it will come across as a very vague description of what the attendees can expect the meeting to be.

Instead, be specific as to what you would discuss in the meeting about the launch. Maybe this is a meeting about the launch of a new product with a particular demographic in mind, or maybe it's a meeting to discuss the way you want to pursue expansion.

Share context

Sharing context before a meeting is imperative because missing context may cause the meeting to deviate from its intended goal.

Anyone who schedules a meeting with others should be responsible for informing them of the necessary context before the actual day of the meeting.

Even if you're not responsible for sharing context, make sure you inform your co-workers with all the knowledge they need to have about what's being discussed or decided in your next meeting.

With grok, you can run effective meetings by giving your peers the gift of context. Regardless of your methodology, you can include remote employees and collaborate across a wide range of channels to ensure everyone is on the same page.

Suppose you want to have a 1:1 with the programmer to make changes to the DAO's smart contracts. Grok lets you have actionable conversations with your team, surface bottlenecks, and review goals.

Make it interactive

Collaborating asynchronously has its own challenges. It can be challenging to accurately convey ideas without having everyone together in a room. In such a setting, people didn't feel compelled to contribute their ideas.

For many people, conversations come naturally as they know they need to make themselves heard, or others can simply read them like an open book. But talking about something on a platform isn't the same as having a conversation with your teammates.

Fortunately, grok has a wide assortment of templates that you can use to maximize your team's time. Have you ever wondered how industry wonk's meetings go? Do you want to follow the same template for your meetings? Grok's got you.

By following a blueprint, you can outline clear sections that need to be discussed and come up with actionable talking points. You can make the meeting more interactive as people can jump in with their ideas as the meeting progresses.

Even better, you can use grok to host meetings. It will keep one eye on the clock and the other on the agenda to make sure you're discussing everything that needs to be discussed in the predetermined time frame.

The best part? grok does the same for you, even if you use a virtual meeting platform of your choice.

Proposal Inverter mechanism for DAO collaboration

When it comes to DAO collaboration, the idea is often limited to meetings within a DAO. But what about DAO to DAO collaborations? Like any regular organization that undergoes mergers and partnerships, or hosts stakeholder meetings, a DAO can also collaborate with another DAO.

DAO collaboration tools are essential for DAOs to maintain a high degree of efficiency and transparency. However, the use of these tools can be improved through the implementation of a proposal inverter mechanism.

The proposal inverter is a funding primitive enabling multiple individuals or groups to collaborate on common proposals. In doing so, they facilitate cross-DAO initiatives, including shared research and co-funding.

The proposal inverter mechanism offers decentralized HR functionality initiatives shared between DAOs. It has pre-negotiated contracts and semi-automated payment flows.

Doing so would allow proposals to be quickly reversed in the event of community opposition, preventing gridlock and ensuring that decisions are made in the best interests of the DAO as a whole.

The benefits of such a mechanism are clear. By allowing proposals to be easily overturned, it becomes much harder for dissenting voices to hold up proceedings.

It would help to ensure that all members of the community have a say in decisions that affect them, thus fostering greater transparency and engagement.

Is innovation possible with this model?

Many people are skeptical about innovation in hybrid and remote teams, believing that only in-person environments can spark creativity.

However, this is not the case. There are a few key things to keep in mind when fostering an innovative environment in a hybrid or remote team.

The first is that creativity is not just about coming up with new ideas. It's also about implementing those ideas and seeing them through to fruition. Team members need to be able to work collaboratively and be open to feedback.

How to join a DAO?

As mentioned earlier in this guide, the number of DAOs is increasing every year. Decentralized autonomous organizations are a new model for business, comparable to how the internet was a new model for communication.

Joining a DAO is quite simple. Follow these steps to get started.

1.  Find the DAO of your choice on DeepDAO or DAOlist.

2.  Read the foundation charter or the beginner documentation of the DAO.

3.  Join the Discord or any other community chat. You can introduce yourself to other members and explore the potential of the DAO here.

4.  Decide how you want to contribute to the DAO.

5.  Draft a proposal and submit it to the forum for drawing attention.

6.  Buy the DAO token, such as $ANT, before submitting a formal proposal.

7.  Buy the $ETH token from LocalCryptos or Coinbase. Send it to any Web3 wallet of your choice.

8.   Go to Uniswap or 1inch and connect your Web3 wallet to it. Swap the $ETH for $ANT.

9.  Once the time for discussion has ended, make the required changes to your proposal. Submit it for a formal vote on Snapshot or Aragon Voice.

10.   Repeat steps 4 to 7.

Compared to joining legacy organizations, becoming a part of a DAO is quite easy since you do not need to go through an extensive review process. You simply read the information on the web, connect your wallet, and you are good to go.

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