What is a DAO and How Does it Work?
Historically, we have seen new business models emerge every 40-50 years. We are fortunate to be in the midst of another transition. DAOs (Decentralized Autonomous Organizations) are one business model fundamentally reshaping how people coordinate and deliver solutions to problems. While many large institutions have forgotten that we are humans first and that they were incorporated for noble missions, organizations that follow the DAO business model are the ones who are bringing people and humanity to the forefront of their missions. As of March 2022, there are around 216 DAOs with a cumulative valuation of nearly USD 10 billion.
Decentralized Autonomous Organizations typically have the following features :
A) DAO has a horizontal structure by design; there is no management hierarchy in the DAO business model.
B) The DAO business model allows everyone from its community to participate in organization-wide decisions through governance processes and voting.
C) DAOs have decentralized ownership – founders or CTOs share ownership with community members.
D) DAOs are open-sourced and completely transparent.
The DAO business model follows a similar pattern to cooperative societies but is more effective with a democratic set-up of protocols and tools at their disposal. DAOs need no managers or hierarchy – every member has a say in decisions that impact the organization through protocols, forum discussions, and voting with tokens. Minor decisions within workstreams can be taken without getting everyone involved which makes organizations that follow the DAO business model agile and decentralized at the same time.
AMM & DeFi DAOs
The first type of DAO that we will be discussing is the Automated Market Maker (AMM) and Decentralized Finance (DeFi) DAO business models. These types of DAO provide decentralized financial services to users using smart contracts. MakerDAO, for example, is a decentralized finance (DeFi) project which allows users to leverage assets to generate Dai. Another great example of these types of DAO is Aave Protocol.