One of the biggest advantages of cryptocurrencies is that they are decentralized. This means that there is no central agency like a bank or government that can control the industry. Furthermore, all transactions rely on Blockchain technology available for all to see.
Thanks to decentralization, DAO meaning crypto enjoys security and privacy, which is not available when it comes to fiat currency transactions like USD, INR, EUR or others.
Inspired by this idea, a group of technology developers proposed the creation of a DAO. DAO is an entity with no central leadership.
To help you learn more, here is a detailed explanation:
What is a DAO?
DAO stands for Decentralized Autonomous Organization or DAO meaning NFT. A DAO is basically a community-led entity with no central authority.
DAO is fully autonomous and transparent. As it is supported by smart contracts, it lays down the ground rules. It also runs depending on decisions and at any time proposals, votes and even the code itself can be publicly audited.
The main idea behind the DAO is to make it governed by individual members, who can collectively make critical decisions about the future of the project.
In a DAO, community members can create their own proposals about future protocol operations and then come together to vote on each proposal. The proposals that get the highest votes are accepted and enforced by the rules instantiated in the smart contract.
Overall, the main idea behind a DAO is to give community members the ability to decide the future roadmap of a project. Decisions made by community members will decide how the company will use its funding and resources.
How does a DAO work?
DAO rules are established by a core team of community members using smart contracts. These smart contracts are responsible for establishing the fundamental framework by which the DAO will operate.
These smart contracts are highly visible, verifiable and publicly auditable. So any member can understand how the protocol is working at each step. This makes DAO transparent in nature.
The rules are established and formally written into the Blockchain. The next step is funding. The DAO needs to understand how to receive funding and how to govern community members.
This is achieved by issuing tokens to community members. The protocol sells its tokens to raise funds and fill the DAO treasury. In addition, individuals obtain certain voting rights by purchasing DAO tokens. These voting rights are generally proportionate to their holdings.
Once funding is complete, the DAO will be ready for deployment. Once the code enters the production phase, the DAO can no longer be changed. However, it can only be changed when there is a vote by community members.
There is no special authority that has the power to modify the DAO rules. Instead, it is entirely up to the token holders or community members to decide what the future roadmap of the DAO will look like.
Benefits of DAOs
DAO crypto tokens are being used a lot for purposes like investing, charity, buying and creating NFTs, fundraising and more. For DAO examples, the Decentralized DAO includes a decentralized urban planning committee in the Metaverse, where they decide on content moderation, LAND policy, and auctions.
Also, there are some benefits of using DAO in the real world. Such as:
Decentralized, Automated and Transparent:
One of the main benefits of DAO is that it is decentralized and transparent in nature. Members gain full ownership to maintain the protocol.
Furthermore, DAOs are automated as they are supported by smart contracts. Thus, all decisions made by community members are carried out automatically. Unlike traditional companies, there are no third parties that can handle the company’s operations. It also eliminates all third-party transaction costs and the organization just “pays” for existing on the Blockchain. As a result, they enjoy profit margins.
In DAO smart contract example, token holders have the power to make a decision. This power is proportional to the tokens held by a member. But it does not give any member more rights or privileges. Token holders are entitled to make changes that further develop the protocol. This democratizes the protocol.
Potential Investment Returns
Owning a DAO governance token is like holding equity in early-stage startups. If the project succeeds at a later stage, your equity becomes extremely valuable and brings a huge profit. Then, as a DAO member, you are rewarded with a fixed percentage of transaction volumes on the exchange.
Now you have a basic idea about why DAO is important and how getting involved with a DAO can be profitable in the long run.
Also Read: What Is Arbitrage Trading In Crypto?