What Is A DAO?

Last Updated on March 18, 2022

One of the major features of digital currencies is that they are decentralized. This means they are not controlled by a single institution like a government or central bank, but instead are divided among a variety of computers, networks, and nodes.

DAOs fall into one of two general buckets: Those that manage open source, blockchain-based projects together and those that make investments. They can act similar to limited liability companies (LLCs), VC firms or investment firms, like PleasrDAO.

Developers believe they could eliminate human error or manipulation of investor funds by placing decision-making power into the hands of an automated system and a crowdsourced process. The blockchain can act as a backbone, keeping the structure and rules of each on-chain.

DAO’s are decentralized, which means they aren’t governed by one person or entity. The rules and governance of each DAO is coded in smart contracts on the blockchain and cannot be changed unless voted upon by the DAO’s members.

Instead of a select few having the majority of say, members of each DAO can vote on decisions together, typically on equal footing.

The most important aspect of DAOs is transparency. Every decision within the DAO is pitched, discussed, voted on and documented publicly.

Members can also work for their DAO. There are typically a number of internal jobs, including positions in token distribution and treasury management Working for ownership means working for tokens.

It’s always possible that the governance token value for a DAO may hit zero. Potential investors should do their homework first and only spend what they can afford to lose. Owning a governance token is a bit like holding equity in an early stage start-up — if it becomes successful later on, that equity will be extremely valuable. DAOs will also need to overcome many potential regulatory and legal challenges, especially in the U.S.

Despite the unknowns, those in the space think that DAOs will be disruptive to traditional structures of business such as replacing LLCs. It may not be a fit for every venture, but there are so many features and processes in any given company that can be more efficient and productive using a decentralized, trustless approach.”