What is DAO? How does DAO work?
- 1. What is a DAO?
- 2. Background of DAO
- 3. What makes DAO different?
- 4. How DAO works
- 5. Some types of DAO
- 5.1 Token-based DAO
- 5.2 Share-based DAO
- 6. Advantages and limitations of the DAO
- 7. Some DAO applications in practice
- 8. Current Featured Projects
- 8.1 Token-based DAO
- 8.2 Shared-based DAO
- 9. Potential of DAO
- 10. Potential investment opportunities of DAO
- 10.1 Projects developed by DAO
- 10.2 Earn money through DAO
What is DAO? This is a project to help members easily access, verify and participate in the organization's decisions. So what is so unique about this platform that can develop and expand on so many Metaverses? Today, let's learn more about DAO with BHO Network.
1. What is a DAO?
DAO stands for Decentralized Autonomous Organization, a completely decentralized autonomous organization. Unlike traditional organizations such as Facebook and Google, DAO can operate independently without human intervention through the application of code-coded rules.
Moreover, DAO Governance Model On to groups applying On-chain voting and proposal mechanism on many other Defi platforms.
However, they all have a common feature: members of the DAO can easily access and verify the organisations' proposals and actions and participate in the DAO's governance decisions.
2. Background of DAO
DAO currently tends to develop Blockchain technology with a Decentralized character. However, the project is receiving more and more attention, which is mainly caused by factors such as:
The growing weight of decentralization
- Traditional financial institutions and governments in countries with many measures to control users. The big guys in many fields have too much power and abuse their power. This is the agent that urges users to go beyond their limitations and take back their rights.
Attract more and more value
- From the DeFi platform to NFT and other fields such as music, and entertainment, .. cryptocurrency is attracts a large amount of value with rapid growth. To be able to access this piece of cake more easily, creating a DAO with the participation of many parties will help to complement each other from the capital, experience to relationships and many other factors.
- For example, Ventures DAOs such as The LAO, MetaCartel DAO, and Yield Guild Game, ... when members gather together to create funds to invest in cryptocurrency projects.
Read more: What is Low Cap Coin? 5 steps to investing Low Cap Coin
3. What makes DAO different?
DAOs differed from other traditional organizations by the following outstanding advantages:
- Instead of being dominated by a particular group, DAOs used a set of rules written in code and implemented by computer networks that run shared software.
- To be able to become a member of the DAO, people join the DAO by purchasing cryptocurrency. Then, the Hold usually gives the user the right to vote on proposals and updates. Of course, that will be proportional to the amount of the Holder.
For example, BitShares is the first successful example of a DAO. It is a virtual e-commerce platform that links customers with sellers without the presence of a central authority. At the time, Bitshares was a fully decentralized autonomous company (DAC), a term coined by Founder Dan Larimer.
In particular, the DAO created on the Ethereum Blockchain platform called The DAO has caused fierce controversy due to hackers finding vulnerabilities.
4. How DAO works
Initially, Bitcoin is considered the DAO's first fully functional-programmed and automatic operation, thanks to the distributed consensus protocol. Since then, the use of smart contracts enabled on the Ethereum platform has brought the DAO closer to the public and shaped its current appearance.
To function to the fullest extent, the DAO needs a set of rules to operate. Those rules were encoded in the form of smart contracts, essentially a computer program that existed automatically on the Internet. At the same time, DAO also needs people to perform tasks that the project cannot do on its own.
Once the rules are established, DAO enters the funding phase. This is an essential part for two reasons. First, a DAO must have an internal asset class, tokens that can be used by the organization or used to reward certain activities.
Second, through investing in DAO, users gain voting rights and then the ability to influence how the project is run.
Once the funding period ends and the DAO is deployed, it becomes fully automated and completely independent of the creators. DAO is open source, which means anyone can view the Code. Furthermore, every financial rule and transaction is recorded on the Blockchain platform. This makes the DAO completely transparent, unambiguous, and immutable.
The DAO platform is up and running, and all decisions regarding where and how to spend it will be made through reaching consensus. Everyone who has purchased shares in the DAO can make suggestions regarding the project's future. To prevent the network from being spammed by the proposal, a deposit may be required to make it happen.
In essence, the DAO allows any user to exchange money with anyone worldwide. This can be done through investment, charity donation, borrowing, and capital raising,... all without intermediaries.
However, there is a huge potential problem in the voting system that even when a security hole is discovered in the original Code, it cannot be fixed. While voting is taking place, Hackers can exploit a bug in that Code.
5. Some types of DAO
Here, BHO Network will introduce to you the popular types of DAO that are Token-based DAO and Share-based DAO
5.1 Token-based DAO
The name Token-based has also been mentioned. enough to prove that Token plays a core role in this type of activity. Specifically, for Blockchains similar to Bitcoin or Ethereum, ... Miners must perform network security and will receive Tokens as rewards.
Meanwhile, in protocols like Uniswap, Marker DAO, and SushiSwap, ... Token holders will have the right to vote for any changes or decisions in the protocol. To date, Token-based DAO is the most popular type in the crypto industry.
5.2 Share-based DAO
Share-based DAO can be understood as an organization working towards some common purpose. Here, participants will use their shares to participate in voting. Share-based DAO is different from Token-based DAO in that not everyone can Token.
Instead, this type will only require users to participate in meeting the conditions that have been set. In Share-based DAO, participants can participate in voting directly through sharing, and can also leave with a proportionate share of the fund.
An example of a typical name for a Share-based DAO is MolochDAO. This is a protocol that provides capital for projects on the Ethereum platform. With MolochDAO, participants will have to complete a proposal from the protocol side to assess whether these members have enough expertise and funding.
This helps MolochDAO to see if participants are eligible to be able to fund potential projects.
6. Advantages and limitations of the DAO
So what are the advantages and limitations of the DAO project? Let's find out together now.
- Thanks to the application of Blockchain, organizations can create a peer-to-peer collaboration environment among members without an intermediary.
- The only model DAO that can create that trust is the Code because the Code is public and transparent. Every member can check and authenticate.
- Its non-hierarchy also characterizes model DAO. Every member involved in the project has equal access to the organization's resources and voting processes. Rules and contracts are also executed automatically.
Currently, DAO still has the following limitations:
- Confidentiality: Smart contract issues, once DAOs Once implemented, it is very difficult to change. The activities must take place by what is specified in the Smart Contract. In addition, the security of Smart Contract is also one of the crucial issues, typically The DAO Hack.
- Legality: project DAO is still unclear. If DAO is not legally convincing, it will create a big barrier to DAO because the participants will have to bear legal responsibilities.
- Wrong decision: DAO allows members to vote democratically. Many choices are complex and academic, yet many voters may not understand what they are voting on. This leads to bad choices because most people do not know the decision involved.
- Often delayed: emergencies, waiting for a vote to pass can have adverse consequences for the DAO. For example, in the case of Maker, the market crashed in March 2020. Property loss would be huge if it were still waiting for the voting to be completed before implementing measures.
- Privacy: Everything must be transparent on-chain is not entirely suitable. Proposals must be put on a chain for voting and then implemented means that the development plan will be fully public and the Competitors may know the project's future roadmap.
- Centralized Entity: An organization with a higher Voting power than other members will create a Centralized feeling right in the Voting of the Protocol.
7. Some DAO applications in practice
Model DAO is increasingly widely applied in almost all fields. Present-day society. Some DAO applications typical.
Some applications are represented in Metaverse, such as:
- Bitshares: Bitshares offers good self-management for an advanced voting system. The processing time is only 3 seconds and the Defi platform is built-in.
- Bitcoin: This is DAO by the way Bitcoin works is based on majority consensus.
- Dash: Dash works on the monetary incentive of the stakeholders that are Masternodes. Members will also have the right to vote when purchasing Dash and participate in decision-making according to established rules.
- Marker DAO: This is a small part of the extensive Marker Protocol system. This operating system is based on combining two crypto assets, Dai and MKR. Dai holds the mission of allowing transactions to be carried out without needing a third party such as banks or governments, providing participants with voting rights.
- Bit DAO: BIT is a Governance Token with the right to propose and vote. BitDAO has the goal of building a decentralized crypto economy for everyone. This is a protocol managed through the BIT Holder.
In DAO is also applied in a number of other areas such as:
- Non-profit organizations: Individuals can receive anonymous donations on the size of members anywhere in the world. Voting members will use this donation.
- Audit Firm: Enables better automated, innovative and secure project management to help improve audit practices.
- Government: model DAO will help strengthen supervision, audit and voting on the implementation of contracts, processes, tenders, etc.
8. Current Featured Projects
Below are the DAO so that users can better understand how the DAO platform actually works.
8.1 Token-based DAO
Typical DAOs include Ethereum and Compound.
- Ethereum is a DAO that works with the Proof of Work mechanism. Incentives enjoy Fees and Block Rewards for miners (also known as Miners). In return, Miners need to perform operational activities such as mining new blocks, confirming transactions, and securing them to ensure network security.
- Even when upgrading to the Ethereum 2.0 platform with Model Proof of Stake, this principle remains unchanged as Stakers will be the party confirming the transaction and guaranteeing to ensure network security in return for Incentive.
- Besides, Miner will also have the right to Vote on Ethereum's development proposals. It can be said that the future development of Ethereum will depend on the decisions of the components in the DAO.
- Compound platform which is a very successful Protocol for On-chain governance. By allowing Token Holders to participate in the voting process of proposals in the Protocol. Together with the launch of COMP Token on June 15, 2020, Compound has a clear growth plan that can continue to maintain its position as the leading Lending Platforms.
8.2 Shared-based DAO
The LAO is a Shared-based DAO outstandingThis is the most active project among decentralized investment funds, established in April 2020. Currently, The LAO has completed 35 investments, most of which are projects on Ethereum such as Gitcoin, Lido Finance, and Zapper,...
9. Potential of DAO
Ecosystem DAO has witnessed tremendous growth in recent years due to the appearance of hundreds of new projects. Projects focusing on diverse fields have shown the vast development potential of the application of the DAO.
Regarding the DeFi platform alone, Governance is a standard Use Case for the project's Tokens. The bigger the project, the more valuable this use case is. Among the Top projects with the TVL, almost all of them are managed by the community.
In particular, the project's Token holders propose and vote on the decisions. Model DAO has become a must-have for evolving DeFi Protocols.
DAOs hold more significant values, only in terms of the Ventures DAO, the number of assets in the Treasury has surpassed the billion-dollar mark. Along with that, the fact that DAO is applied in many other fields such as Social, Service, ... The amount of value that DAO holds has excellent potential for growth in the future.
Read more: What is NFT Marketplace? How to create NFT Marketplace
10. Potential investment opportunities of DAO
DAO is still in the finishing stage, entirely new but has a breakneck development speed. As an investor, this period is an excellent opportunity to find potential investment branches and open up a position for yourself. Some typical possible investment branches.
10.1 Projects developed by DAO
This is the most direct investment method. To be able to evaluate a DAO can be based on several criteria such as:
Do the leaders of the DAO have a good project development orientation?
- While DAO is for everyone, that doesn't mean there aren't influential characters in DAO. Proposals have a significant impact and, at the same time, directly influence the development of the DAO.
- For example, in Compound, the figures influencing the decision of the DAO are all VCs, famous people in the cryptocurrency world. The vision and knowledge of these people have helped Compound to have development plans in the past time.
Is the DAO community strong or not?
- Network Effect plays a significant role in the development of any project. It is no coincidence that $DOGE sits on the Top of the highest capitalization projects in the market. When communities thrive and support each other, projects can go a long way.
Some examples of projects with a DAO so far include Olympus DAO (OHM), SushiSwap (SUSHI), Gitcoin (GTC),... Just by surfing the Discord group, the project Telegram, it can be seen that the community is powerful and most people are actively involved in the project's proposals.
10.2 Earn money through DAO
Like other projects like Yield Guild Game, Ancient8, etc., participants can plough the Game or rent out NFTs and accounts to earn profits. DAO is now opening real job opportunities for its users.
Or it can be said that playing Axie Infinity has become a side job for many Filipinos. Here you can arrange your time to look for profitable and money-making opportunities to help create additional sources of income.
Participating in DAOs will also help you gain more experience, resources and support from the community, thereby helping to accelerate a more profitable rate.
Find a service provider
This is probably the part users need most when looking for investment opportunities. Instead of filtering projects about Trend, you can find people who provide the necessary services for that Trend project. Thus, reducing the search scope and having a high Upside is possible.
Services required for DAO include:
- Infrastructure: Snaoshot, Aragon, Gnosis Safe,.
- Frontend & Analytics: Tally, DAOHAUS Boardroom.
- Payment: Superfluid, Sablier.
- Discussion: Telegram, Discord.
- Identity: ENS, IDX.
There are many other services available.
- What is Mempool? How does Mempool work?
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The above article BHO Network has provided you with all the information about “what is DAO?” as well as the salient features of the project. Hope the above sharing will help you find the opportunity for yourself to invest in DAO or not. If you still have questions about the project, please follow the next articles at website to update the latest information.
Published on December 03, 2022
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