DAO derives from one of the major features of digital currencies - the decentralization factor. It means this kind of currency cannot be controlled by a union hub like a government bank with a board of directors and executives. DAO’s rules are run in code and enforced by computers, networks, nodes. This process enables DAO to transparent its operation and maintains security. In this short note, Imma jot what I know in bullet items.
What is DAO
- stands for Decentralized Autonomous Organization
- owned by members, rules are set & executed through code and governed by code
- remove management layer -> structured by using a tech-democratic approach
- decisions in DAO are voted by investors/ stakeholders
How DAO works
- members are issued tokens -> represents the shares of DAO → more token = more control.
- tokens in DAO are used to vote for a certain decision. consensus is made through smart contracts -> digital paper trail.
- resolves the principal-agent problem. revenue from investment is transparent.
DAO vs. Traditional Venture Capital Fund
- Traditional VC Fund: Decisions are made by BOD, and executed by lower layers
- DAO: Works in a flat structure. Votes are counted based on the amount of tokens.
Hope this simple memo is enough for an eli5 version of DAO. For further exploration, you may visit MakerDAO, Constitution DAO, Augur or Decentraland. Let me know if you got any input 🤙