Decentralized Autonomous Organizations Explained
By Vimal Romeo, HEC Paris graduate
TLTR: Decentralized autonomous organizations or DAO’s are a new concept that the internet community has been talking about for quite some time now. If you have been adding or reading different news channels, you have probably heard about this. But there is a lot to digest and understand when it comes to DAO’s. This post will look into what DAO is, how DAO works, and finally, it also provides an introduction to CurioDAO as well.
A decentralized autonomous organization (DAO) is a decentralized form of structure without a CEO, board of executives, or government responsible for decision-making. In such a structure, the decision-making power is shared between the members who share a common goal and work in the best interest of the organization. There are governance rules for the decision-making process and these rules are programmed into the blockchain using smart contracts.
History
The innovative idea of DAO was initially coined by German computer scientist Werner Dilger in the 1990s. In his article, Dilger defined DAOs as self-sustaining autonomous systems. The idea was well ahead of its time in the 1990s. About two decades later, Vitalik Buterin came up with the idea of an Ethereum which allowed the creation of transparent and immutable codes, and it greatly facilitated the creation of DAOs.
In 2016, The DAO was created. It was the first functional entity designated as a DAO and raised around $150 million in ether at that time. Around 3 weeks after the launch, a vulnerability in the DAOs smart contract code was exploited and about $60 million was stolen. The end result was catastrophic, leading to the disruptive hard fork of the entire Ethereum blockchain as no one had the power to return the funds due to the immutable nature of smart contracts. To avoid similar events, the innovators developed improved DAO tools and infrastructure.
How DAOs work?
The rules of the DAO are established using a series of smart contracts built on top of blockchains. Memberships in DAOs are usually granted to community members who hold a sufficient number of the DAO’s native tokens or NFTs.These rules are verifiable by any potential member and the organization will act according to these rules. This adds to the transparency of DAOs and makes it a preferred way for starting organizations composed of members who are not so familiar with each other. With DAOs, the members need not trust each other completely but just trust the DAO code.
Anyone with the DAO membership can create proposals for the future operations of the entity and vote on them. If a proposal achieves a predefined level of consensus, then that proposal is accepted using the logic defined by the smart contract. The voting process can be carried out in different ways. The most common way is the “one toke one vote” system where each token held is entitled to one vote. Some DAOs support delegated voting where the members can delegate their voting power to another entity that votes on their behalf. This system is suitable for “passive members” who do not have the motivation and time to vote on all proposals. Increasingly, many DAOs are providing higher voting power to the members who lock their tokens(stake) for a longer period.
Recent Trends
In the year 2021, DAOs witnessed explosive growth. According to the analytics service DeepDAO, the total treasury of DAOs increased from $380 M to $16 B from January to September 2021. As of August 8, 2022, the number of tracked active DAOs is more than 4800 with a total treasury of around $11.6 B and an active voter base of more than 690K.
The growth of non-fungible tokens (NFTs) also helped in the adoption of DAOs
Strengths and Weaknesses of DAOs
In comparison to traditional organizations, DAOs offer a greater level of transparency, flexibility, trust, adaptability and speed of execution. The barriers to entry are also lower. This system is suited for rapid experimentation. Along with their amazing potential, DAOs still have a few shortcomings and issues to be worked upon. DAOs are susceptible to the limitations and security challenges of the underlying blockchain. With the current model, many of the DAOs suffer from power concentration where a few members holding the majority of the voting power can exert significant influence on the voting decisions.
About CurioDAO
CurioDAO is a decentralized multichain protocol for investing in real assets and intellectual property. The platform connects asset originators and real asset investors with quick and easy funding while enabling investors, storage, insurance, authenticators, auditors, and appraisers communities to directly govern and own asset back digital assets. The protocol brings the most powerful infrastructure in the market for tokenised real assets while providing a fractional NFT marketplace, gasless AMM, and real-asset-backed stablecoin within one single experience. Governance in CurioDAO is carried out by members in possession of the governance token $CGT. The voting weight of CGT is determined by the number of CGT that member puts into the voting contract. Here, a member putting a higher number of $CGT tokens into the voting contract will have higher voting power.
Outlook and Conclusion
DAOs have undergone a lot of changes in the past few years. They‘re now present in various subfields ranging from gaming to media, investments and DeFi. The emergence of various L1 and L2 blockchains increased the innovation and adoption of DAOs. As the technology matures, we can expect to see even more impactful and innovative DAOs. With their ability to create vast networks of interconnected people and organisations, low entry barriers and democratic nature, DAOs have the potential to redefine the way we work together.
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This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any instrument related to Rollapp. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Curio Group, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
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