What is a DAO? Decentralized Autonomous Organizations

What is a DAO?

A Decentralized Autonomous Organization, or Decentralized Autonomous Organization, is an organizational form that uses aspects of blockchain technology such as smart contracts to provide the organization with immutability, security, transparency and autonomy.

This type of organization is governed by smart contracts, which are programmed to make decisions in the face of certain programmed situations in a completely autonomous way, so they essentially dictate the rules of the operation of the DAO. The advantage of using blockchain technology is that these programmed algorithms will be totally transparent, and they will also be immutable from the moment they are published, which promotes the native decentralization of these platforms to prevent anyone from using their power to embezzle the organization.

That is why DAOs represent a great technological innovation that allows the democratization of power in organizations, the elimination of barriers, and above all, joint and fair cooperation towards the same objective.

How does a DAO work?

Every DAO works under 4 important aspects that give it the differential characteristics compared to other organizational formats.

The first aspect is the ability to program actions and have them executed according to certain parameters, which gives them the ability to act autonomously without the need for an individual or group to exercise power over other individuals in the organization.

The second aspect is consensus, which implies that all decisions taken by the organization that are going to have a direct or indirect effect on the community are chosen through the consensus of all members. No individual in the organization or external factor can influence the outcome of the decision contrary to the consensus.

The third aspect is the creation of a governance token that ensures a means to sustain the operation of the DAO. In addition, the token is useful within DAOs and can take the form of economic rewards for certain actions beneficial to the organization, or as an exchange mechanism between members of the community.

The fourth and final aspect is that everything done, created, decided or implemented in the organization is recorded thanks to the blockchain, making the organization fully transparent with its actions, that they are public and their security is guaranteed.

The pillars of a DAO

The pillars for a DAO to work perfectly are the following.

• It must be based on smart contracts, which allow you to benefit from all the advantages offered by blockchain technology.
• Having a clear mission, this type of organization is generated for the achievement of an objective, for which the community works and they provide value in whatever way possible, to bring the organization closer to that objective.
• Governance is essential to have a wide variety of opinions when making a decision by consensus, which is why the existence of a token involves different voting powers, the token can be delivered as a contribution of value to the organization, or it can be purchased on an exchange.
• The assets of the community are shared, in this sense and thanks to smart contracts, the assets of the organization belong to everyone and to no one at the same time.
• There are no barriers to demographic entry, knowledge or social position, and often you only have to have the governance token and little else.
• The community is the most important thing, it works and provides value to bring the DAO closer to the desired objective. Whether you're a marketer, programmer or lawyer, you can always add value to the DAO and nourish the community.

Example

It is normal that this concept may seem a bit abstract, so let's give a practical example that helps to visualize what a DAO is and how it works.

Let's imagine a company, which has a budget, and they must decide what to spend the budget on. The different proposals can be submitted through smart contracts, and then a democratic vote will be taken for the smart contract, or proposal that interests the most. It will be the most voted proposal that will receive the necessary budget automatically, so that there can be no abuse of power or other embezzlement of company funds.

In the same way, in the face of any economic unforeseen event, programmed smart contracts would take action autonomously without the need for an individual to control the situation.

Advantages and Disadvantages

Like everything in life, DAOs also have certain advantages and disadvantages.

Advantages

• The decentralization characteristic of a DAO allows the elimination of borders, and with it the elimination of all kinds of barriers to entry to the community.
• Its governance allows the creation of an organization without any kind of hierarchy, which helps all participants to contribute ideas and value equally.
• Its transparency on blockchain helps other potential members of the community to be interested in the purpose or programming of smart contracts and want to provide value or ideas to improve the DAO.

Disadvantages

• Programming a DAO is a very complicated task, and an error in its programming can lead to a violation of the system and thus the theft of the organization's assets. Something that has already happened in the past as in The Dao.
• Currently, as it is such a novel technology, there are many countries that do not have a clear regulation against this type of decentralized organization, so in the future certain political measures could arise that would go against its functioning and would force the organization to cease its activity.

Conclusion

After carrying out an analysis and exemplifying this concept, we will agree that this is a very interesting technology that can revolutionize organizational systems to make them more transparent, secure and without corruption. However, certain modifications will be necessary to adapt the DAO model to different organizations.

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