Crypto 101: What is DAO? Limitations and Big development potential in 2022.
DAO is growing and expanding in many fields. In this article, we will learn what is DAO. Types of DAOs? It has its limitations and potential for future development.
What is DAO?
DAO stands for Decentralized Autonomous Organization. Unlike traditional organizations (such as Facebook, Google,…), by applying code-coded rules, they can operate independently without human intervention.
DAO is a vast topic; it exists from blockchains and DeFi protocols adopting an on-chain governance model to groups applying on-chain voting and proposal mechanisms in many different fields. However, all have in common that members of the DAO can easily access and verify the recommendations and actions of the organization, and they can participate in the decisions of the organization.
DAO tend to develop with blockchain with decentralization; however, it is receiving more and more attention because of the great demand for decentralized governance and growing Crypto.
Type of DAOs.
We can generally divide them into two main categories:
Token-Based DAOs are the most popular, with power based on the number of tokens the person staking. This form is present everywhere in Crypto. From blockchains like Bitcoin, Ethereum: Miner ensures the network’s security in return for token rewards.
Until protocols like Maker DAO, Uniswap, and Sushiswap…: Token holders have the right to vote for decisions in the protocol.
The advantage of this model is that the scalability is excellent when anyone can own the token, but it is difficult to utilize resources and come to a common consensus.
Shared-based DAO represents a group or organization with a common goal in a certain field, typically Ventures DAOs that focus on investing. Members will use shares to vote on the organization’s activities.
Unlike Token-based DAO, when anyone can access the token and participate in the DAO, Shared-based DAO is usually permission and requires participants to meet certain conditions. This model has the advantage of being easy to manage and resources to be concentrated, but it is difficult to scale.
Limitation of DAO
- Security: The issue of smart contracts, once DAOs have been deployed, it is very difficult to change; operations must take place exactly as specified in the smart contract.
- Legality: The legal framework for the DAO is really unclear. If the DAO is not legally convincing, it will create a big barrier to the application of the DAO because the participants will be held legally responsible.
- Bad Decisions: DAOs allow members to vote democratically. Many decisions are complex and academic, but many voters may not understand or know what they are voting on. This can lead to bad decisions.
- Delayed: There are urgent situations that require quick decision-making. However, the DAO needs time to vote, so it could make matters worse. For example, in the case of Maker, when the market crashed in March 2020.
- Privacy: Everything being transparent on-chain is also not entirely a good thing, the fact that proposals must be put on a chain for a vote before being implemented means that the development plan is completely public. and competitors can know the future direction of the project.
- Centralized entity: An individual or organization has a higher voting power than other members. It will make Voting lose its DAO character and feel centralized.
Future of DAO
The DAO ecosystem has witnessed spectacular growth in recent years with the appearance of hundreds of new projects. The projects focus on many different areas, showing the vast potential of applying the DAO model.
In terms of DeFi, Governance is a standard use case for project tokens; the larger the project, the more valuable this use case is. Among the top projects with the highest TVL, almost all are governed by the community; decisions are proposed and voted by the project’s token holders. The DAO model has become the essential model for evolving DeFi protocols.
With DAO being applied in many other fields such as social, services, … The amount of value that DAOs hold has huge growth potential.
DAO is developing at a very fast rate and is receiving more and more attention, but there is still a lot of work to be done to make the current DAO more complete. Hope the article has helped you understand what DAO is and its future development.
If you have any questions, comments, suggestions, or ideas about the project, please email [email protected].
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.