Partnered With:

DAO Primer: What are the potential use cases and tools? What's the problem?

Read this article in 20 Minutes

DAOs are more globally accessible and have lower barriers to entry than traditional companies.

Original title: "DAO Primer: What Potential Use Cases and Tools?" What's the problem? "

Original source: Lianwen

What is DAO?

A Decentralized Autonomous Organization (DAO) is a group organized around a mission coordinated by a shared set of rules implemented on a blockchain.

Compared to traditional enterprise projects, one of the biggest advantages of DAO is more transparency, because anyone can see all actions and funds in DAO, which greatly Reduced risk of corruption and censorship. Listed companies must provide independently audited financial statements, but shareholders cannot understand the company's financial status anytime, anywhere. In contrast, since the DAO's balance sheet exists on the public blockchain, you can know what happened to each transaction at any time, because the DAO has always maintained complete transparency.

DAOs are more globally accessible and have lower barriers to entry than traditional companies. Given the high level of transparency and low barriers to entry, switching costs may be relatively low even for DAO members who disagree with the rules and actions. DAOs with similar missions may need competing members who need to be incentivized under conditions that ensure as much transparency as possible, while not charging too much "rent" from the organization, so that the organization can attract top members. On the other hand, DAOs may also need to evolve quickly to meet the needs of members.

DAO Primer: What are the potential use cases and tools? What are the questions?

DAO and traditional corporate Compared. Source: Aragon

The main purpose of this article is not to go into detail about each crypto DAO, but to provide a high level overview What are DAOs, why are they so interesting, and show some potential use cases for DAOs.

DAO Example

Probably the most notorious DAO ever The DAO was launched as a decentralized venture capital fund in April 2016. Many members contribute ETH to the organization and receive DAO tokens, which in return can be used to vote on which projects to allocate funds to. The DAO raised a total of $150 million worth of ETH, but $60 million was stolen by hackers, but the "interesting" thing is that even now that The DAO, a decentralized autonomous organization, has expired, people can still see all that happened transactions because they are recorded on the public blockchain and never disappear. Unfortunately, the hacking incident has caused many people to have a lot of negative impressions and doubts on the term "Decentralized Autonomous Organization", or "DAO". In fact, DAO is an extremely powerful form of organization. It is expected that in the near future, DAO Will be active again in the encryption industry.

In fact, encryption projects themselves can be considered as a form of DAO. If these projects rely on decentralized governance to manage, it means that token holding People can vote on the direction of the project or various parameter settings instead of a centralized team making decisions alone - a crypto project with these characteristics can be regarded as a DAO. For example, MakerDAO token holders who mint decentralized stablecoins can vote on the governance system, and can also vote to set system parameters such as fees.

DAO Primer: What are the potential use cases and tools? What are the questions?

shows a MakerDAO implementation Examples of Proposals

Another example is Curve DAO, a Decentralized Autonomous Organization building an Automated Market Maker (AMM) , will generate fees and provide and share benefits for token holders who lock their tokens. The longer Curve Tokens (CRV) are locked, the more voting rights and rewards DAO members receive. Unlike traditional companies that distribute profits in proportion to equity, Curve DAO, a decentralized autonomous organization, is set up in such a way that voting rights and revenue shares are weighted based on how long token holders have invested.

DAO Primer: What are the potential use cases and tools? What are the questions?

Curve DAO

Token pledgers can directly control DAO assets through tokens, they can be anonymous, and they can live anywhere in the world. These anonymous token stakers can come together through the network and vote to allocate DAO assets for anything, including hiring employees — which is what’s happening today. DAOs can consist of many real and anonymous members who can be legally employed based on community reputation. For example, the blockquotepty Set Dollar (ESD) DAO was recently paying its community manager, Lewi, $180,000, which Lewi said was the highest paid position of his entire career. Some other blockchains, such as Tezos and Decred, have similar systems that reward contributors for their work.

DAO Primer: What are the potential use cases and tools? What are the questions?

We also saw some Decentralized Autonomous Organizations are created to fund investments or grants, let's look at a few examples:

Moloch DAO is an The DAO, which promotes the development of the Ethereum ecosystem, allows people to withdraw funds "without compensation" if the final general decision of the DAO is not agreed. The MolochDAO contract has been forked multiple times to create other DAOs.
·MetaCartel Ventures is a for-profit fund that mainly invests in the field of decentralized applications (dapps), and is an early investor in many well-known encryption projects (including Zapper and Rai). The fund members are experienced in the encryption community The BUIDLer composition.
Similarly, The LAO is another decentralized autonomous organization composed of Ethereum enthusiasts, which mainly makes early investments in some encryption projects, such as Boardroom and Aavegotchi.

MetaCartel Ventures and LAO are typical examples of DAOs with strong crypto ecosystem "deal flow" access Authority, even better than many venture capital funds, because the founders of these projects hope to cooperate with DAO members, and DAO itself represents the spirit of encryption.

Additionally, we also see DAOs catering to more specific investment opportunities, such as NFT art and virtual gaming projects. For example, Yield Guild Games is a DAO based on the "play-to-earn" business model. Investors can buy NFT in games such as Axie Infinity, League of Kingdoms, and The Sandbox.

FlamingoDAO is a for-profit NFT-focused DAO, and they have been actively investing in NFTs, most recently spending 605 ETH (worth approximately $7.62 million) ) bought the rare CryptoPunk NFT, which also attracted the attention of the industry.

DAO Primer: What are the potential use cases and tools? What are the questions?

Some DAOs are Organized around work, such as Raid Guild, a decentralized BUILDer and designer collective organization focused on developing cryptocurrency products; MetaFactory is a decentralized autonomous organization around fashion and culture, mainly selling some creative products.

DAO Tools

There are currently many tools on the market for creating and Tools that coordinate DAOs, such as Aragon, DAOStack, DAOhaus, and MyCo, so members don't have to build everything from scratch.

DAO Primer: What are the potential use cases and tools? What are the questions?

The image above shows a Example of creating a DAO in DAOhaus

There are also tools like Snapshot which are mainly used to manage token holders , tools that make it easier for organization members to view proposal details and voting status.

DAO Primer: What are the potential use cases and tools? What are the questions?

The image above shows the Snapshot Voting page for last Yearn.finance proposal

In some DAO projects you can even buy and sell governance Voting, such as Automata. However, this concept may be controversial because it can lead to those with a lot of capital controlling votes, but I believe that the creation of such a lending system is inevitable and will only lead to a more stable project governance system.

In terms of indicators, there are also some decentralized autonomous organizations that track the DAO ecosystem, such as Deep DAO, although the data currently provided by the organization is not necessarily comprehensive, But at least you can look at a number of key metrics, such as membership numbers, proposals, and voter participation.

DAO Primer: What are the potential use cases and tools? What are the questions?

The picture above shows Deep Some key DAO metrics

Future use cases

< br>

DAO has many interesting use cases, we are only just beginning to design. With DAOs, we were able to quickly experiment with governance systems to see what worked and what didn't. For example, in the future there may be a DAO that makes decisions about the future of the organization, allowing members to place bets in the prediction market, and then use the prediction market results to make action decisions.

We will also see "meta-governance", a Decentralized autonomous organizations can not only vote themselves, but also be entrusted to vote on behalf of other decentralized autonomous organizations.

Let's take a look at a potential anonymous DAO use case: All members within this decentralized autonomous organization can be anonymous by establishing reputation, they don't have to reveal their identities, which means each member is able to work on a more level playing field and makes it easier for DAOs to reward individual contributors instead of catering to those with a large number of "fans" and higher names members of the organization.

Another interesting use case for DAOs is "shared" NFT art, where each member of the organization can vote on different attributes of a piece of art, and Alters the overall artwork based on individual attributes.

Potential Problem

Although DAO is a powerful way of organizing , but there may also be potential problems, after all, they are not an ideal system for everything. While DAOs can replace aspects of legal contracts with code and save a lot of operational overhead, in some cases, decentralized organizations, and members of organizations, may not have access to the necessary legal Protect. Also, while some DAOs may also form a legal entity behind the DAO, it can also be problematic if control over the DAO becomes centralized or vaguely defined. It is worth mentioning that on March 10, the U.S. Wyoming State Senate passed the first committee hearing and approved Bill No. 38 proposed in January 2021, which aims to recognize the legal status of decentralized autonomous organizations and Giving them limited liability company (LLC) capacity.

Depending on how it is set up, compared to a centralized leadership model (such as a company CEO who can make quick decisions when necessary), a decentralized autonomous organization can coordinate and It may be more difficult to move quickly. However, DAO can actually solve these problems, such as setting a decision quorum to reduce the length of decision making, and setting DAO member decision response requirements, and so on. This means that at the beginning of the organization when many decisions are made, there may be more centralized power between certain members, but the DAO will gradually decentralize over time. Progressive decentralization".

On the other hand, DAO "voters" also have some potential problems, such as: not all members want to vote (this is what we often call "voter indifference" ), or the qualifications and levels of some voting members are actually not up to the standard. In this case, there may be "voters" who delegate their votes to those members of the organization who are more informed and actively participate in voting, and these members also conform to the wishes of the "voters". These voting delegates are sometimes referred to as "protocol popticians" because they often seek to authorize votes from DAO members, similar to real-world politicians. As a result, we may see the emergence of some deal lobbies that will influence the decisions of the "treaty politicians". Not only that, but in the future we will even see decentralized organizations directly participating in lobbying and becoming major political institutions in society.

Finally, there is another problem. If the membership of decentralized autonomous organizations is too open, it may lead to a decline in the internal quality of the organization and more and more " noise". However, this problem can be solved through organizational screening, or setting a minimum token holding amount, etc., so as to ensure that each DAO participant shares the risk, and ultimately motivates the organization to succeed.

Resource Sharing

If you want to know more about DAO, you can read Ethereum The article by Vitapk Buterin, co-founder of Fangfang:
"DAOs, DACs, DAs and More: An Incomplete Terminology Guide", you can also share your thoughts on DAO or project information on Twitter @ljxie.

Thanks to Will Warren, Jordan Cpfford, and Brian Flynn for reviewing this article.

Disclaimer: pnda Xie is the managing director of Scalar Capital Managblockquoteent, LLC, a cryptoasset focused on ETH and Ethereum tokens investment company. This article is not investment advice.