Have you heard about the DAO and Ethereum controversy?
No!? Well, it is something like this.
According to The Economist, by May 2016, the DAO was holding 14% of all the Ether tokens. Around the same time, a study addressing DAO’s various security flaws was published.
Later, in June, hackers used the same weaknesses to attack the DAO. They stole 3.6 million ETH. At the time, 3.6 million ETH was equal to $50 million.
There was a significant and controversial debate among DAO investors regarding this incident. Some investors are advocating alternative solutions to the attack, and others are demanding the permanent dismantling of the DAO. A few days later, the hard forking of Ethereum occurred in part because of this incident.
Following the controversy, several significant digital currency exchanges removed the DAO token, thereby ending the DAO’s intended dream.
That’s the summary of the whole controversy.
Despite all that, the DAOs are making a comeback. They indeed have a bright future ahead, and I don’t want you to miss it. So, the goal of this article is to teach you everything about DAOs. And as a bonus, I am going to give you a basic guideline on how to create a DAO.
So, let’s dive into it!
What is a DAO?
Imagine collaborating with a stranger on the other side of the world, setting your own rules, and making your own decisions within the framework of a blockchain. This is what the DAO is. “DAO” is short for “Decentralized Autonomous Organization.” Let’s break it down!
As we can see, a DAO is an organization that is decentralized, meaning it has no central regulator and is autonomous. So, instead of having a small governance team, the rules of the DAO are set in code and a network of computers enforces them.
This implies that the rules are uniform across the board and are unchangeable, so there are no loopholes. As the code itself is the law, the enforcement of its rules does not require a regulatory authority.
The decentralization of the DAO ensures that it remains democratic instead of being hierarchical. What does that mean for you? It means that if you are a participant, there can be no implementation of changes without considering your vote.
The software can tally the votes by itself without any human involvement. This removes the risk of mismanagement and tampering with vote counts, thereby enhancing transparency and trust.
Now that you have a better understanding of what DAOs are, we will look at how to create a DAO.
How to Create a DAO?
The DAO is part of the backend development of various projects in the crypto world. Some people often consider Bitcoin to be the first functional DAO. It has rules set in code, is autonomous, and works on consensus.
The DAO provides many benefits, like better governance, transparency, and accessibility. With that said, a DAO still needs setting up and funding before it can reach its target audience.
Keeping that in mind, here are the important steps to creating a DAO:
- Start by figuring out what the underlying smart contract is and then creating it. Smart contracts are very extensive and cover a wide range of things. If some settings are missing from the contract during the development stage, the only way to change them later is through the voting process. The procedure can be tedious and time-consuming, especially if the setting is an important one. Therefore, the underlying smart contract needs to go through multiple tests before being open to the public.
- The next step is funding. Funding is important not only for the launch of the project but also for its development. Most DAOs secure funding by selling tokens. The sale of tokens is also important for the governance side. The quantity of tokens you own often determines your electoral power.
- The last step is the launch of the DAO. Once the DAO becomes a part of the blockchain, the development team can not make any changes without the voting process. This is where the rules go online, hence, creating a DAO in the true sense.
Now, your DAO should be operational.
After this, the DAO should work as per plan, and if there are any changes, they will need the vote of the whole network to put them in place.
Next, we will look at the current usability of DAO.
How are we using DAO today?
As of now, investors and tech-enthusiasts are using DAOs for a wide variety of purposes, like:
- Decentralized Financing
- Buying or selling of NFTs
I will give you a couple of examples to make DAOs more understandable.
DAOs can accept donations from anywhere in the world, and then members can decide what to do with the funds.
The second example is a real-life one. Imagine becoming a co-owner of a song by some big artist, just by being a part of an organization. When Jenny DAO obtained its first NFT in May 2021, its participants experienced something similar. It was not just any NFT, it was an original track by American DJ Steve Aoki and 3LAU.
Its members oversaw the purchase of the NFT, and the Unicly smart contract provided the vault for the storage of the NFT.
That is the real usefulness of DAOs!
Next, let’s look at some of the successful examples of DAOs with a bright future.
DAOs to look out for
Those of you who have read this far and are considering investing in the DAO, I have a few potential candidates for you:
1. Decentraland DAO
First, on my list is Decentraland. It is the first metaverse with complete decentralization. In the metaverse, there are real estate areas, gardens, and art galleries that display various NFTs. It is a complete universe with infinite possibilities.
The Decentraland DAO is a milestone in the development of the metaverse. Every decision or change in the Decentraland is only made after the consensus of the whole network.
Have you heard of Patreon? Yes, that is the one I am referring to. The rally is Patreon with a twist. Unlike Patreon, Rally allows both the artist and their fans to make money.
Rally is a decentralized system that targets content creators and artists. It allows the creators to monetize their work through tokens on the platform.
Then, as a fan, you can invest in the artist’s token. As the popularity of the creator or artist grows, so will the value of the token. Hence, it provides value to both the artist and their fans.
The rally still has a long way to go, but it has everything necessary to be successful.
3. Friends With Benefits (FWB)
It’s not what you think.
FWB is a project that aims to gather creative people who are passionate about sharing their ideas or who want to meet new artists, under one roof.
It is a closed community of creators and to be a part of it, you have to invest in the FWB token and then apply.
So, in my opinion, it has an interesting name, the concept is right, and the future is bright.
In 2021, NFTs were all the rage, and in 2022, DAOs will take over. The DAO is better, more reliable, powerful, and more transparent than any traditional governance model.
Although crypto has already changed the world in various ways, I believe that the DAO is going to be the next big change. And with the rising popularity and success of Metaverse and DeFi, this change is going to come sooner than we can imagine.
So, be ready and never stop learning.