A Decentralized Autonomous Organization is a collectively-owned, blockchain-governed organization working towards a shared mission. Collaboratively governed and code-driven, DAOs has been an emerging form of legal structure that has no central governing body and whose members share a common goal to act in the best interest of the entity. Tokenholders participate in the management and decision-making of an entity, and power is distributed across tokenholders who collectively cast votes. DAOs are often mentioned in the cryptocurrency context, but many different types of organizations may operate as DAOs in the future.
The rise of DAOs are being driven by a number of factors, including:
The increasing popularity of decentralized finance (DeFi). DAOs are often used to manage DeFi protocols, which allow people to lend, borrow, trade, , , , , , , , , and earn interest on cryptocurrency without the need for a central authority.
The increasing demand for new forms of social and economic organization. DAOs are seen by many as a way to create new forms of social and economic organization that are more democratic, equitable, and efficient.
BENEFITS OF DAOS
Decentralization. Decisions are made by a collection of individuals as opposed to a central authority that is often vastly outnumbered by their peers.
Participation. A DAO encourages token holders to cast votes, burn tokens, or use their tokens in ways they think is best for the entity.
Publicity. Within a DAO, votes are cast via blockchain and made publicly viewable. This incentivizes actions that will benefit voters' reputations and discourage acts against the community.
Community. The concept of a DAO encourages people from all over the world to seamlessly come together to build a single vision.
Speed. With a DAO, every user is given an opportunity to vote. This requires a much longer voting period, especially considering time zones and priorities outside of the DAO.
Education. A common challenge of DAOs is that while they bring a diverse set of people together, that diverse set of people must learn how to grow, strategize, and communicate as a single unit.
Inefficiency. A DAO may get bogged down in trivial, administrative tasks due to the nature of needing to coordinate many more individuals.
Security. A DAO requires significant technical expertise to implement; without it, there may be invalidity to how votes are cast or decisions are made. Even through the use of multi-sig or cold wallets, DAOs can be exploited, treasury reserves stolen, and vaults emptied.