In this article, we’ll try and understand what exactly are DAOs and how they are used. Additionally, we’ll look at some real-world examples of active DAO projects.
The hype surrounding cryptocurrencies and Web3, in general, has been monumental over the last few months. And while most people are already familiar with NFTs, there is another term that has been rising in popularity.
And that term is Decentralized Autonomous Organization or DAO for short.
What exactly is a DAO?
In layman’s terms, a DAO is a smart contract that is agreed upon by people who share similar interests. Those people then decide on a collective goal (the organization’s purpose) and raise funds (native tokens) for it accordingly.
Naturally, you might be wondering how a DAO is different from a traditional business contract? Well, for one, the people participating in a DAO partake in collective decision-making. Any changes proposed within the DAO community have to be approved by the people who have invested in the project.
The rules and goals for each DAO project are decided upon individually. However, every project will eventually have to be published as a smart contract.
How does a DAO work?
Before we take a look at real-world examples of DAO projects, let’s understand how they work.
1. Smart contracts as the backbone for rules and goals
A DAO is based on a smart contract, with no single point of authority that can influence it. When a smart contract (DAO) is created and deployed, the only way to alter its “regulations” is through a community vote. Because the smart contract has to be defined using code-based logic, any attempts at changing the rules will fail unless the changes are decided upon through a vote.
Likewise, the money collected by the DAO cannot be spent unless it has been approved by its members. This is also the definition of a decentralized project. Because the contract lives on the blockchain, it is visible to anyone who has the address of the contract.
2. Native tokens are used to fund the DAO
After a smart contract is hardcoded and deployed to the blockchain, the DAO can start collecting funds for the project goals. This is done through native tokens, a form of currency that is tied to the smart contract associated with the DAO itself. Once users begin to invest in the project, they will be able to earn special rights: voting, feedback, and potential goal setting for future ideas.
The inner workings of each DAO project are going to be unique because of how smart contracts are written. As such, the best way to learn more is through examples.
Examples of DAO Projects
For this section, we will focus on highlighting existing and successful DAO projects.
I think that for a lot of people, crypto as a whole still feels like a foreign subject. So, the best way to learn is to see how something is implemented in a real-world scenario.
Generally, a DAO falls into categories like protocols, philanthropy, publishing, social media, and others. But, overall, the possibilities are endless. You can browse the DeepDAO directory site to get a much broader glimpse of active DAO projects.
The directory also includes samples of proposed changes for the project and how members have voted on them. Alternatively, DAOList provides a similar service, though it doesn’t include examples of proposals.
And now, let’s look at a few specific projects.
AssangeDAO
Julian Assange is one of the world’s most well-known journalists, but also the founder of WikiLeaks. After publishing several papers on the war crimes performed in the Afghan war, both Julian and WikiLeaks began to face adversity. Namely, major credit card companies and payment processors stopped validating donations for the WikiLeaks platform.
And over the years, the platform has had to innovate in new ways to accept support and donations from people looking to help.
One of those ways was cryptocurrency.
And, in recent history – WikiLeaks has taken it a step further. On December 10th, 2021 – Julian Assange teamed up with the digital artist Pak to form the AssangeDAO. The DAO is based on a dynamic NFT project dubbed ‘Censored‘. Specifically, the dynamic NFT is called Clock – a display of the number of days that Julian Assange has been imprisoned for.
The total funds raised for the DAO was over 17,000 Ethereum, which translates to roughly $50 million US dollars. Once the fundraising part was over, the AssangeDAO itself bought the NFT. As such, the money collected through the project is going straight to the WikiLeaks fund.
This project highlights how grassroots movements can deal with uncertainty in situations that are being controlled by outside sources.
VitaDAO
One of the misconceptions about crypto is that it is only useful for buying things online. And projects like VitaDAO do a pretty good job at proving such a case otherwise.
VitaDAO specializes in providing the means for biotech scientists to attract funds for longevity research. But, unlike traditional grants or government-backed investments – VitaDAO creates an IP-NFT for each project that it invests in. IP-NFT stands for Intellectual Property – Non-Fungible Token.
And there are quite a few advantages that IP-NFT provides:
- Attract funds for your project without forming a foundation or registering a patent.
- Involve people directly with your research, including actual patients. Likewise, because the project is built in an open space you get better exposure.
- Manage the progress and research submissions through an open-to-all approach.
And this also has long-lasting implications for when the research bears fruit. Because the IP-NFT is still tied to a DAO (and a smart contract), the peer members can decide on pricing, availability, and further data exposure.
The LAO
Back in 2016, a number of Ethereum users launched what was at the time known as “The DAO“. The project attracted a rather large following while also breaking numerous records for a public crowdfunding campaign.
Unfortunately, the project experienced a critical security vulnerability and eventually saw its downfall. If you want to learn more, I recommend reading Laura Shin’s article in Forbes Magazine.
This also sets the premise for “The LAO” project. It is built to replicate the same features (venture capital fund), with the goal to help promote and sponsor the Blockchain ecosystem.
The way it works is similar to what we discussed earlier. You can participate in the project by purchasing investment tokens with Ethereum. And, depending on the amount invested – earn special rights like the ability to vote on which projects to support.
Additionally, because “The LAO” works as an investment fund, you also get to enjoy proceeds. E.g., If the project supported by The LAO turns a profit, you may be eligible for returns. This is dependent on how many LAO Units you hold or have invested.
Tornado Cash
One of the unique aspects of Blockchain is that all transactions are public.
Generally speaking, your identity is preserved and hidden, but transaction history is not. This has some upsides, such as making it easier to identify fraudulent transactions. However, there are genuine cases in which you’d like to have your transactions untraceable.
Enter the Tornado Cash DAO protocol.
This protocol provides a completely decentralized solution for making private transactions on the Ethereum network. And it’s quite simple to use in practice:
- Connect with your wallet, create an ETH deposit and specify a secret note.
- Tornado Cash will create and deploy a custom smart contract which accepts withdrawals.
- You use a new wallet to withdraw the deposit from the smart contract.
This is also known as the Zero-knowledge proof (ZKP) method.
And when it comes to Tornado Cash, this is further enhanced by the fact that the service operates as a DAO.
Not even the Tornado Cash developers are able to interact with the smart contracts because it lives entirely on the blockchain.
I think the picture is quite clear. Whereas a traditional organization emphasizes a hierarchical structure, a DAO is more flat and democratic in nature. Likewise, the voting rules are not dependent on a single person but the very people who invest in the project.
Here are some other exciting DAO projects to check out:
- Metaverse DAO: Provides a unique Farm-as-a-Service approach. Earn crypto rewards from an array of blockchain networks while maintaining a single native token.
- Aave: Aave is a DeFi protocol that you can use to borrow or lend crypto in exchange for digital-asset collateral.
- Blockster: A crypto-based media platform that emphasizes user-generated content. The platform has its own token (BXR) which is the backbone of all the advertising present on content pages.
- Aragaon: A platform that specializes in providing open-source tools for building and deploying DAOs. Includes tools for making governance more accessible.
The space is still ripe for innovation. And I expect in the coming years, we will see many more creative ways in which a DAO can be used for decentralized business.
The future of the DAO concept
We’re still living in the early stages of Web3 development. It’s fair to say that the adaptation of DAOs has not gone mainstream just yet. But, I would attribute that to a slightly difficult barrier to entry. Not everyone is experienced with writing code-based smart contracts. And, least of all, have the capacity to maintain them at scale.
But as we saw in this article – certain projects are able to attract a somewhat monumental following. And, people aren’t just interested because a project is for a good cause. The idea of democratic governance is appealing. And DAOs make it accessible for the average Web3 user to have their voices heard.
I expect that the structure for a lot of the open-source projects will change dramatically. At the moment, the foundation of DAOs is that anyone can be involved, so as long as they invest in the native token. However, having thousands of people negotiate the correct course of action for a project will eventually start causing problems.
