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Welcome to No Bad Questions, a series that helps answer some basic questions about blockchain, crypto, and web3.
What happens when a group of people want to buy the constitution, or supply aid
to a nation at war? They set up a DAO — a new way of setting up an organization
But what exactly is a DAO? What is “governance?” What does it all mean?
Don’t worry. This guide will help walk you through some basics of a DAO so you can start getting organized yourself.
What is a DAO?
DAOs are how groups of people control shared assets on the blockchain.
In the simplest terms, a DAO, or “decentralized autonomous organization,” is a way people can organize through the blockchain. They do that by giving members access to special tokens, which allow people to vote.
What do you mean by “assets on the blockchain?”
Assets can actually be pretty broad here, according to TK TITLE Sebastian Bors at Solana Labs. “An asset,” he says, “can be anything.”
Some of the more notable examples of assets include the attempt by a DAO to purchase an original copy of the Constitution to a DAO that managed donations to Ukraine , but an asset can also be something a little bit more abstract. An asset can be the rules of a community, or the direction of a video game metaverse.
Think of a DAO as more of a way to organize people towards a common goal.
How does a DAO differ from a traditional organization?
There are a lot of advantages to organizing as a DAO instead of, say, a traditional organization, says Bors. A key difference? Total transparency. “Everything that is the DAO is defined as the contract on the chain,” he said.
Say you and a group of people wanted to raise money for a good cause — let’s say fighting climate change. Traditionally, someone would set up a fundraising page and designate one person or account as the one who controls it — linking that person’s bank account, email, and so on.
Normally, that requires a lot of trust. You have to be able to trust that this
person is who they say they are, they’ll do what they say they’re going to do
with that money, and that institution that the money ends up going to is one you
actually want to support.
DAOs build trust with transparency. With a DAO, Bors explains, “you have athe clear governance structure that can decide what happens with the funds that are collected.”
A DAO organized to help fight climate change would be linked to something called a multi-signature wallet, which is controlled by the members of the DAO instead of just one person. Anyone who is part of the DAO gets a governance token which allows them to vote not only on proposals for the multi-sig wallet, but also directions the community will take. Will you donate the money in the wallet to fund refrigerant destruction? Will you use it to purchase — and then shut down — a coal power plant?
Wait, what’s a multisignature wallet or governance token?
A multisignature wallet is a wallet that requires more than one private key to make decisions. This may be a bit extreme, but think of launching a rocket — it requires multiple keys to turn the ignition and take off.
A governance token, on the other hand, is the key for that rocket launch. If you have a key, you can have a say in how the wallet, project, or community is run. Essentially, it gives you a say in decision making._ _
Can the average person use a DAO?
DAOs are a great way for normal people to organize towards a shared goal, but DAOs are still in their early days. Many of the tools for voting and organizing are still somewhat technical. Similarly, legal recognition of DAOs is still somewhat limited (the only state in the U.S. where you can legally incorporate a DAO is Wyoming, for example).
But the space is rapidly evolving and there are several teams and projects in the Solana ecosystem that are making DAOs easier for the layperson! The opportunities here for individuals are growing rapidly, said Bors. He thinks that small scale DAOs will help families protect their assets from the current one person, one wallet crypto setup. He describes a potential example of creating a “family locker” DAO for him and his wife and kids as a way to better protect their digital assets better than the current one individual, one wallet set-up.
“Everybody has one vote, and we put all the tokens that we own together. So that means that if anything happened to me, my wife and kids can still have access to that.”
Why are DAOs important?
DAOs can exist on a spectrum, Bors says. On one hand, you can have the simple examples above like a charity DAO or a family locker — but the possibilities are endless.
“It can be like the future of any company that you can create, because DAOs make this transparent structure where everybody has ownership in the organization.
There is still exploration, new ideas, and solutions coming everyday,” Bors says. “We are all in this fantastic exploration stage right now.”
Sounds like a good opportunity to do some experimenting.
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