With the rise of blockchain technology and cryptocurrency exchange in India, an open-source organisation has emerged that is controlled by the community i.e. Decentralised Autonomous Organisation (DAO).
What is DAO?
The Decentralised Autonomous Organisation is established when a group of similar-minded individuals from different parts of the world come together. It is an entity where there is no presence of central authority.
Here, the decisions are undertaken wholly by the members of the community and votes or any action is showcased by a transaction on the blockchain.
How does a DAO protocol work?
As the Decentralised Autonomous Organisation (DAO) is managed from the bottom-up, people who own a stake in it may have the voting power to influence the working of the institution by deriving conclusions or creating new government manifestos.
DAOs function through smart contracts, which sets up their rules of operation. These smart contracts are often determined as blocks of codes that are deployed automatically when a set of certain standards are attained. As these DAOs are based on open-source blockchain, they are pellucid and independent and thus can be observed by any user or participant. Furthermore, the users can also examine their built-in treasuries since the blockchain has the documentation of all the financial matters taking place within the Decentralised Autonomous Organisation (DAO).
Why is there a need for DAOs?
As the world is progressing towards a digital age and distancing itself from the same old traditional methods, there has been an increase in the occurrence of internet transactions all over the globe. DAOs being a member of the internet world are becoming considerably better than traditional organizations in all aspects. Here are some of the reasons why a DAO is outdoing its competitor:
- Since traditional firms function within an organisational structure, their decision-making procedure is slow as the matters are ranked according to levels of importance, whereas in a DAO, all decisions are ascertained based on votes. Thus, the decision-making procedure is quick.
- In traditional firms, the voting process is performed manually whereas, in DAO, complete transparency is present during the voting process, as a smart contract manages it.
- All actions or events carried out under Decentralised Autonomous Organisation (DAO) are fully transpicuous. In a traditional organisation, only the parts authorised by the law are announced.
Disadvantages of DAOs
Although DAOs are regarded as perfect, at the same time they are drawing in criticism due to certain aspects such as:
- Lack of a proper organisational framework
- Unsound security measures due to flaws found in smart contracts
- Poor legal policies
To permit applications to transform themselves into fully decentralised DAOs, the Decentralised Finance (DeFi) platform uses DAOs. For instance, as an early example of a DAO, the Bitcoin (BTC) network measures through community agreements, even in cases where there hasn’t been a proper meeting between the network members.
By today’s quality standards, the BTC network is not considered a DAO. DeFi launched its own governance token in 2020. Minted through a liquidity mining process, these DeFi coins would be rewarded to anyone if they interacted with the protocol. Nowadays, many other projects are trying to adapt to this model, and some are still looking to achieve complete decentralisation through DeFi for their projects.
Built on the Ethereum blockchain, Decentralised Autonomous Organisation (DAO) as new imminent technology is consistently facing obstacles and developing into a more profound version of itself. Not only this, DAO has the capability to change the corporate governance once it begins taking steps to resolve all its problems. This will in turn bring more people together from worldwide.