What is a DAO?

Discover what a DAO is and what it stands for as it relates to blockchain technology.

A DAO stands for “Decentralized Autonomous Organization” and is a unique aspect of crypto that has been steadily gaining popularity for years. The key difference between a DAO and another type of organization is that there is no centralized point of authority in a DAO.

A DAO can be anything and made for any purpose. Members of a DAO get voting power that is distributed proportionally, usually based on the number of “governance” tokens a user has. DAO’s can exist for a simple purpose such as a group of people with a shared interest, to being the skeleton for a corporation to organize differently from the traditional corporate structure.

DAO’s are used for many different things, with different governance models and purposes. To provide a more comprehensive understanding of DAO’s, this article will go through some examples of DAO’s, their purpose, and how they function.

Constitution DAO

Constitution DAO's are a lighthearted way to introduce the concept. The purpose of the constitution DAO is very simple, to purchase an extremely rare replica (only eleven still exist today) of the Constitution that was made in the Revolutionary war era.

Essentially, this DAO was born because this replica was going up for auction, and a cryptocurrency millionaire wanted to purchase it. While he was independently wealthy because of crypto, he was not nearly wealthy enough to purchase the replica. He decided to create a DAO to accomplish his goal.

He invited members to Constitution DAO, and together they had one simple goal: pool together enough money to purchase the replica at auction. Constitution DAO came shockingly close to winning the auction, holding the highest bid until just before the auction ended.

Right before it ended, BlackRock CEO Ken Griffin outbid Constitution DAO to buy the replica for $41 Million Dollars. While they were ultimately unsuccessful, the DAO managed to collectively pool together $40 Million dollars for their final bid. This is a very impressive feat.

NFT Club DAO

This isn’t a specific DAO like the constitution DAO, as there are many of these types of DAO’s. The way they work is as follows: An NFT Collection, or a group of collectors, create a DAO. Usually new members are required to purchase a certain amount of tokens native to the DAO to gain membership.

Once they gain membership, they receive an NFT proving they are members, and as a member they receive certain perks in return. For example, the JPEG DAO required roughly $250 in JPEG tokens to join the DAO, and in return, they gave members free NFT’s for certain events. They held a 25 days of Christmas event, in which every day each member was given a free NFT for each day of the 25 days of Christmas.

Investment DAO’s

Investment DAO’s are essentially a new way of creating and organizing a traditional investment club. These DAO’s pool together money for investment purposes for all types of investments, but usually they will involve cryptocurrency projects.

One of the major benefits to these types of DAO’s is that they do not require accreditation to join them, unlike traditional investment clubs or groups that require members to be accredited investors. These DAO’s can even be registered LLC’s, adding to their legitimacy.

Social Club DAO’s function similarly to traditional Social Clubs such as Soho House. In exchange for paying a membership fee (often in the form of purchasing an NFT or tokens) you gain access to a social network and exclusive social events and perks.

Without realizing it, you may have heard of the most famous social club DAO: Bored Ape Yacht Club. While of course, a picture of a digital ape selling for millions of dollars is silly, it’s less silly when owning that digital ape gives you access to a social circle of wealthy, well connected people (including some big name celebrities).

Island DAO

Arguably one of the most ambitious (and crazy) DAO’s is Island DAO. Island DAO successfully made an agreement with a small island nation in the Pacific Islands to create a nation state of their own on an island.

There will only be a specific number of memberships allowed, and these members are apparently going to attempt to create their own country. While this sounds both pretty awesome and pretty crazy, it’s plausible that Island DAO will turn into a crypto Fyre Festival (if you don’t get the reference, it’s a must watch documentary).

Perhaps in the future, even if Island DAO does not succeed, we will see DAO’s create their own nation states in the future.

Protocol DAO

Protocol DAO’s are some of the most common types of DAO’s and are used to govern cryptocurrency protocols. Uniswap is a great example of this. Uniswap is a decentralized exchange on the Ethereum network. The Uniswap DAO is dedicated to the decentralized governance of the protocol including updates, financial decisions, and leadership positions.

It’s almost like a corporation but instead of joining at the bottom of the ladder and having to move up, everyone is on a level playing field and can ascend to leadership positions based on individual contributions and value. The added bonus is that because anyone can join the DAO, you don’t have to successfully interview or have a resume. If you are smart, hardworking, and have good ideas, you can succeed in the DAO.

Key Takeaways

A DAO is a Decentralized Autonomous Organization
DAO’s can be created for many reasons or purposes
Anyone can join a DAO, but some have membership fees or other entrance requirements
At the most basic level, a DAO is a different way to structure an organization that is less top-down and more egalitarian

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Author:
Ken Melendez
✍️ Head of Content @ Cindicator
📊 Certified Bitcoin Professional
🔐 Blockchain Chamber - Chapter President

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Disclaimer

Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.