[Terminology] What is DAO in Crypto?

by GameAZ
0 comment

Decentralization is one of the core elements of cryptocurrencies. In other words, they are controlled by a network of technologies rather than by a single entity such as a government or a central bank. Current cryptocurrencies (Tokens) have been exploiting this Decentralization to achieve a level of anonymity and security that traditional money and transactions cannot. In 2016, a group of development engineers came up with the idea of ​​an autonomous decentralized organization, or DAO. So what is DAO? How does it work and its potential? Let’s find out with GameAZ.

1. What is DAO in Blockchain and Crypto?

DAO (Decentralized Autonomous Organization) is an autonomous decentralized system. This is an organizational model that operates independently without the intervention of the Central Authority. In addition, the operating model of the DAO does not require an organizational structure (Director, Deputy Director, …).

Blockchain and DeFi Protocols using On-chain Governance Model for organizations to apply governance through On-chain voting (Voting) in various fields are examples of DAOs. Members of the DAO can easily view and check the recommendations and direction of the organization, and participate in the decisions of the DAO.

Through DAO Landscape 2021 with existing segments including: DAO Operating Systems, Protocol DAOs, Investment DAOs, Grants DAOs, Service DAOs, Social DAOs, Collector DAOs, Media DAOs. There are now over 100 DAOs managing over $10 billion in assets.

What is Dao

2. Working principles of DAO

DAO aims to adopt an organizational structure based on Open Source Technology and is enforced by smart contracts (Smart contracts). Contracts are executed when specific pre-programmed criteria are met. So What is DAO Working Pincple?

The DAO is trying to promote a decentralized network of users to align the interests of the organization and its members. One of the key features of a DAO is that internal funding is used to incentivize and ensure that the organization runs smoothly:

2.1 Funding phase

Once the basic set of rules is established, DAOs typically enter a fundraising phase where anyone can contribute.

2.2 Governance

The DAO operates at the end of the fundraising period. Users participate in operations by making all necessary decisions within the organization. Users can vote for ideas by owning and locking cryptocurrencies into a voting contract.

Voting rate corresponds to the number of locked cryptocurrencies. Participants are rewarded with additional cryptocurrency for participating in voting on proposals based on specified network consensus rules.

3. What is Highlights of DAO?

On the blockchain, the regulations and financial transactions of the DAO are recorded on the Smart Contract in a simplified way by eliminating the requirement for a third party. A DAO corresponds to an information contract. Smart contracts store the organization’s set of rules and data. Because DAOs are open and publicly visible, no one can modify the rules unnoticed. Although we are used to organizations with legal status, the DAO can function as a general partnership without it.

Unlike traditional organizations, DAOs are run democratically. Members of the DAO must vote on any proposed amendment instead of a single party (depending on the structure of the company). DAOs are mainly funded from tokens distributed to the community, so they will be run by the community, while traditional companies are run by CEOs, boards, and active investors. , etc The operations of traditional companies are private, only the organization knows what is going on

In general, there are two ideas you need to understand about the difference between DAOs and traditional organizations:

DAOs use a set of rules of source code (code) and are implemented with a common software network instead of being governed by an individual or a group.

Users can join a DAO by purchasing the Token of that DAO. Through owning Tokens, users have the right to participate in deciding on proposals or updates through voting. Voting power depends on the number of Tokens that person holds.

4. What is types of DAO

4.1 Token-Based DAO

When it comes to Token-Based DAOs, it plays an important role in how the DAO works. Because Tokens are considered the lifeblood of the cryptocurrency market, they are present in all aspects of the market From blockchains like Bitcoin and Ethereum – where miners secure the security of the network in exchange for shares. reward tokens to protocols like Maker DAO, Uniswap, and Sushiswap – where token holders have the ability to vote on protocol decisions.

The advantage of this type is that the scalability is really good because anyone can hold the Token, but the disadvantage is that it is difficult to use resources and reach a general agreement.

4.2. Share-Based of DAO

This can be understood as an organization working towards a common goal based on the allocation ratio of each individual. Participants will use their stake to vote in this situation. Contrary to Token-Based DAO – where anyone can use Token to participate in DAO, Share-Based DAO is usually licensed and requires users to meet specific criteria before being able to participate.

The advantage of this model is that it is simple to maintain and the resources are centralized; however, it is difficult to scale to a larger scale. When participating in a Share-Based DAO, participants can vote directly by making a donation, and they can also leave with a proportionate portion of the fund if the DAO is successful.

5. Current outstanding projects

GameAZ will cover some popular DAOs below to help you understand how they work in practice:

5.1 Token-based DAO

5.1.1 Ethereum

Ethereum is a DAO with Proof of Work mechanism, i.e. incentives to enjoy fees and block rewards for miners, in return miners need to perform operational activities such as mining new blocks, confirming transactions, securing guarantees. network security.

With Ethereum 2.0’s Proof of Stake mechanism, investors will still be required to confirm transactions and secure the network in exchange for rewards. Besides, miners have the right to vote on Ethereum’s development proposals (EIP), it can be said that the future development of Ethereum depends on the decisions of the components in the DAO.

5.1.2 Compound

Compound is a successful chain governance protocol. By allowing Token holders to vote on protocol proposals and launching COMP Tokens on June 15, 2020, Compound has established a clear growth strategy from which to maintain its position as a of the leading lending platforms.

5.2. Shared-based DAO

5.2.1 The Lao

The LAO is the most famous initiative among Decentralized Investment Funds. Founded in April 2020, The LAO has made 35 investments, the majority of which are in Ethereum-based companies such as Gitcoin, Zapper, and Lido Finance. Among the Decentralized Funds, the LAO is the most active.

5.2.2 MolochDAO

MolochDAO is a prime example of this type. This is a protocol that facilitates the provision of funds for initiatives on the Ethereum blockchain. MolochDAO participants will be asked to complete a solution proposal on top of the protocol to determine if they possess the required knowledge and funding. This information helps MolochDAO determine if participants are eligible to receive funding for proposed initiatives.

6. Pros and Cons of DAO

6.1. Advantages of DAO

Since there is no centralization, everyone has equal rights. This minimizes the possibility of traditional organizations being manipulated.

  • The DAO prioritizes openness and publicity. All automatic, no human intervention required.
  • The DAO allows investors to send money anonymously from anywhere in the world.
  • The DAO gives token holders the right to vote on viable projects.

6.2. Disadvantages of DAO

Confidentiality: With regards to smart contracts, once launched, DAOs cannot be changed as operations must be performed exactly as described in the smart contract. In addition, the security of smart contracts is also an important issue, typically The DAO hack.

The legitimacy of the DAO is not really clear: Participants will be held legally responsible if the DAO is not convincing

Wrong decisions: The DAO offers democratic voting even when many voters do not grasp or do not know what they are voting for. Due to ignorance, most people make poor choices.

Delay: The DAO can also experience an emergency if it has to wait for a vote on adoption. If measures are not taken before the referendum is completed, the damage to Maker’s assets will be enormous

Project Information Disclosure: The project’s development plan must be made public for users to view and vote on later, which allows competitors to grasp the future strategy of the project

In fact, the current voting power is still centralized because the majority of votes are concentrated on project members

Example: Uniswap proposes to sell $20 million UNI Token to create “DeFi Education Fund” to influence legislators on behalf of legislators. In any case, the number of “Yes” votes is too high, reflecting the degree of Centralization in governance.

7. Projection of DAO

7.1. Current DAO Application

Up to now, DAO has been used to invest, raise funds for charity, raise capital, borrow and buy NFT without intermediaries. For example, a DAO can receive donations from anyone worldwide, and its members can choose how to buy.

Jenny DAO bought her first NFT in May 2021, a song by famous male DJ Steve Aoki. Jenny DAO is a Metaverse entity that owns the NFT. Owners can track NFT purchases, and the Unily protocol smart contract operates the cash flow.

Example: Currently, anyone can become a co-owner of artists’ music using cryptocurrency through an online organization.

7.2. Future potential

The current development of DAO is tied to Blockchain and Decentralization. Moreover, traditional institutions have recorded many cases of abuse of power and manipulation of assets causing enormous damage to the entire project and investors. The DAO model is gradually expanding as more and more projects operate based on Share-Based Token worldwide.

In addition, the cryptocurrency market is growing rapidly and has a great impact on the lives and income of a large number of users. Not to mention, this marketplace allows customers to quickly access and benefit from several options, such as DeFi, NFT, and more. The DAO exists and operates as a resource for people all over the world. Users can gain experience, improve their financial situation, and more.

7.3. Investment opportunities

Similar to Yield Guild Game, Ancient8 and other projects, players can earn money by playing games or renting accounts or buying/selling NFTs. DAO is creating the possibility of genuine monetization opportunities for its community. If you are interested in playing Axie Infinity as a side business, you can schedule your time to hunt for such earning opportunities to supplement your income.

Participating in DAOs allows you to gain experience, resources and community support, increasing your rate of return..

8. Summary about DAO

Despite concerns about legitimacy, security, and structure, some analysts and investors predict that decentralized autonomous organizations (DAOs) will continue to stand out, perhaps even replacing them. replace traditional businesses. Hopefully, GameAZ”s in-depth analysis information about “What is DAO” will provide much useful data for you.

->>> More knowledge for Newbie: TERMINOLOGY

If you have any questions, comments, recommendations or project ideas, please email: [email protected]

Disclaimer: This website’s content is offered as a general market overview and does not constitute financial advice. GameAZ recommends you to conduct additional research before to investing.

You may also like

Leave a Comment