Decentralized Autonomous Organizations – Understanding These Institutions
If you have been in the Web3 space long enough, there is a very chance you have heard the term “DAO” before. It is the abbreviation of Decentralized Autonomous Organizations. Despite their popularity, many people do not exactly know what DAOs are. Even those who think they understand do not know the key principles guiding these organizations.
Considering this knowledge gap, Tectum educates people on what Decentralized Autonomous Organizations are. This is important, especially because a DAO will govern and resolve disputes in the Three Protocol project.
Decentralized Autonomous Organizations: Key Components
Before outlining the key components of a DAO, we need to define what these organizations are. Decentralized Autonomous Organizations comprise individuals who share a common interest, have joint resources for sustainability, and adopt a distributed decision-making process that operates on predetermined rules.
Considering the definition above, DAO must have the following components:
- Shared or common interest
- Joint resources for sustainability
- Distributed decision-making based on predetermined rules
For a better understanding, below is a breakdown of each of these components:
Shared or Common Interest
Like every organization, DAOs must have a reason for their establishment. Why were these organizations created in the first place? What do the founders aim to achieve through this system?
There are a million reasons why individuals or corporations may choose to create decentralized autonomous organizations. One of the common reasons is to build a community for a specific project. Using the Three Protocol as an example, the project can establish a DAO to give more participation and ownership rights.
Recent studies have shown that people invest more in projects with DAOs. It gives them a significant level of authority via voting rights. These incentives tend to increase participation, as community members tend to see the project as theirs.
Meanwhile, DAOs can be established to invest in projects with potential. Think of it like a venture capital of sorts. Members of the organization vote to decide whether they should add any investment to the association’s portfolio.
Not all DAOs are about projects and investments. In recent times, decentralized autonomous organizations are becoming more popular. These clubs focus more on helping their members get an in-depth understanding of various Web3 concepts.
Joint Resources for Sustainability
The next component is the presence of joint resources. A collective portfolio is arguably the most important component of what makes a DAO. A DAO will be no different from your regular society or club without combined capital. This factor is present in every DAO, regardless of their aim.
The pooled assets and leadership structure (which we will come to in the next component) determine the voting power of each member. Besides determining the decision-making process, funding also helps to sustain the DAO.
Decentralized autonomous organizations engage in various activities continuously. This includes offering grants to members, expanding their scope, and engaging the community. Even educational DAOs must fund their “learning materials” and other resources necessary for the institution’s growth.
Distributed Decision-Making Based on Predetermined Rules
The final component of DAOs is the decision-making process, usually based on predetermined rules. For transparency and conformity, the organization builds this system on a blockchain.
Decentralized autonomous organizations combine smart contracts and blockchain technology as binding agreements. The smart contract contains predetermined conditions that members of the DAO must meet during the decision-making process. For a better understanding, let’s put things into perspective.
In this context, let’s presume that DAO members get 1 vote for every 100 tokens they have. The smart contract ensures that anyone with 200+ tokens can only vote twice. This system ensures that nobody can cheat or change decisions in their favor.
Benefits of Decentralized Autonomous Organizations
Earlier in this article, we mentioned that people typically participate more in a decentralized autonomous organization. This brings us to one of the first advantages of DAOs – transparency and trust.
Increased Transparency and Trust
DAOs have well-laid-out principles and codes of conduct that guide their practices. These guidelines are embedded into blockchain technology and smart contracts. This way, the regulations remain unchanged, and every member has to abide by them.
This transparent mode of operations reassures everyone that their interests is protected. In turn, DAO members trust the system as it will remain uncompromised.
Decentralization and Security
Like blockchain technology, DAO operations and management are decentralized. This means that everyone is an equal contributor to the ecosystem. One of the benefits of this system is that it bolsters the organization’s security.
To bypass security and gain access to the system, cybercriminals must get the access code of most members. Different decentralized autonomous organizations with their diverse mode of operations. Some DAOs may use a 60% vote as part of the smart contract.
This implies that the hacker must bypass the safety measures well enough to disguise as 60% of the DAO members before voting. Furthermore, they must adequately understand the smart contract and voting system. This involves knowing the voting power of various members and how to reach the required percentage.
Cost-Efficient Operations
DAOs operate efficiently through decentralized decision-making, where members vote on proposals. Each decision undergoes a transparent process, ensuring fairness and accountability
Smart contracts automate execution, saving time and reducing errors. Clear governance rules foster collaboration and swift resolutions. DAOs embrace diverse perspectives, enhancing problem-solving and innovation.
Decentralized Autonomous Organizations: Three Protocol as a Case Study
As mentioned earlier, Three Protocol has its decentralized autonomous organization. However, this DAO will take on a different role.
Three Protocol is an ecosystem comprised of various decentralized marketplaces. Unlike technology, humans can be more demanding. Conflicts will arise and people will have to resolve them. More so, service delivery may not always occur on-chain. This is where the DAO comes into play.
Three Protocol’s decentralized autonomous organization will be tasked with settling disputes among users of this ecosystem. For a better perspective, let’s use the decentralized job marketplace as an example.
A client hires a graphic designer for a job. Along the line, the client decides he cannot pay the designer because the delivery is not up to standard. The DAO will intervene by investigating the issue and reaching a fair conclusion.
This example confirms the diversity of DAOs and how they can be used for countless purposes.
At the moment, it remains unclear how Three Protocol will form its conflict-resolving decentralized autonomous organization. However, members will certainly comprise stakeholders who own $THREE tokens will be considered for this position.
Interested individuals can purchase $THREE from MEXC and Uniswap exchanges. People can also monitor the token on CoinGecko and CoinMarketCap to learn more.
