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Blockchains are already transforming our financial system, as we can see with DeFi (Decentralized Finance).

However, blockchains are not only useful when it comes to finance.

With the invention of blockchain technology came the concept of decentralization i.e. something that is not controlled by a single individual.

The invention of Blockchain also brought another idea to disrupt regular centralized organizations into decentralized organizations called DAOs.

You see, regular centralized organizations could be a company, business, or community that operates with the CEO as the head and central authority.

He makes all the decisions with a small group of people called board members and gives no room for input and transparency for everyone that is part of the organization.

DAO, on the other hand, stands for Decentralized Autonomous Organization. These are organizations (a group of people in a business or community) that govern themselves using computer programs and codes called smart contracts and, as such, have the ability to function autonomously, i.e., without the need for a central authority or single individual.

With a DAO, these groups of people can come together in an agreement to abide by certain rules for the purpose of achieving an objective or goal.

Those rules are often written by a core team of community members into the smart contracts that run when certain conditions are met.

These smart contracts are open and can be verified as well as publicly auditable, thus laying a solid and trusted foundation for the operations of the DAO.

The code is also open for any potential member to understand how that particular DAO will operate fully at all times.

Once the code has been set, it can no longer be altered without a consensus (i.e., a general agreement) obtained through a vote by members; which means there is no specific authority that has the power to change the rules of the DAO. It is entirely up to the token holders to decide.

The computer program used to create a DAO is called "Solidity," and deploying it on a blockchain like Ethereum activates the DAO.

A code of a DAO, once deployed, requires Ether (ETH) to engage in transactions.

A DAO cannot accomplish anything without ETH; hence, the first item of business for a DAO is to have as much ETH as possible.

ETH can be given to the DAOs using the smart contract address during the initial creation phase stated in the code. Once funding is completed, the DAO is ready for deployment towards a specific goal.

The goal of a DAO can be anything from collecting rare NFTs in the case of Pleaser DAO to the management and control of a stablecoin in the case of MakerDAO and DAI stablecoin.

DAOs operate on a decentralized ranking; that is, everyone who is a token holder has a stake, and no one person owns or controls the entire thing the way a regular organization with a CEO would.

All the members of a DAO can access information about the organizations actions and finances alongside vote on decisions affecting the DAO using the tokens they hold.

Thus, there is no central authority of a DAO; instead, power is distributed across tokenholders who collectively cast votes.

All members must first join a DAO by purchasing its native cryptocurrency to become a member.

Funds gotten from the sale of the token issued by the DAO are used to fill up the DAOs treasury.

Token holders receive voting rights in exchange for their money, which are usually proportional to the tokens they hold.

DAOs are community-led organizations that are fully autonomous and transparent because smart contracts lay the rules alongside control the organization treasury.

Smart contracts also execute on the agreed upon decisions, and at any point, even the very code for voting and setting up proposals can be publicly audited.

Generally speaking, community members create proposals on certain issues. Proposals that are put forward are voted on by token holders using the governance token.

Proposals that achieve some predefined level of consensus are then accepted and enforced by the rules embedded within the smart contract.

The concept of a DAO is to promote oversight and management of an entity similar to a corporation.

However, the key to a DAO is the lack of a central authority; the collective group of governance token holders act as the governing body.

Voting power is often distributed across users based on the number of tokens they hold. For example, a user that owns 100 tokens of the DAO will have twice the weight of voting power over a user that owns 50 tokens.

DAOs often have treasuries for keeping tokens that can be issued in exchange for fiat.

Members of the DAO can vote on how to use those funds; for example, some DAOs with the intention of acquiring rare NFTs can vote on whether to liquidate treasury funds in exchange for NFTs.

There are several reasons why a group of individuals may want to pursue a structure of a DAO for an organization.

Some of the benefits of this form of management include:

With DAOs, decisions impacting the organization are made by all of the members as opposed to a central authority.

Instead of relying on the actions of one individual (CEO) or a small group of individuals (Board of Directors), DAOs decentralize authority across a large range of members.

The concept of a DAO encourages people from all over the world to come together to build a single vision. With just internet and a device, tokenholders can interact with other owners wherever they may live.

Within a DAO, votes are cast via blockchain and made publicly viewable. This requires users to act in ways they feel is best, as their vote and their decisions will be made publicly viewable.

Individuals within a DAO may feel more empowered and connected to it when they have a voting power and a direct say on all matters.

Unlike a formal organisation, where trust is the primary motivator for bringing people together, DAO members trust the code.

While DAOs may sound liberating and progressive, there are a few roadblocks that you must consider before jumping right in:

DAOs are still coded, and codes are sometimes vulnerable to hacks, like in the case of The DAO that was hacked and $60 million of ether was stolen in 2016.

DAOs are new innovation that is still in its infancy and requires a more critical perspective.

Also, the majority of DAO-based products are still out of sync with their centralized and offline counterparts.

The most common type of DAOs are known as protocol DAOs. They operate by offering tokens as a means of ownership and governance for its protocol (smart contracts).

When tokens are used as voting requirements for implementing any changes in the DAO, such DAOs structure could be referred to as protocol DAOs.

For example, MakerDAO, who owns DAI stablecoin, votes on proposals to the DAI project through its Maker governance token.

Other examples of protocol DAOs include the decentralized exchange Uniswap DAO, which rewards native governance tokens called UNI to liquidity pool providers.

The UNI tokens can also be used to vote on governance-related decisions as it affects the Uniswap DAO.

Other notable protocol DAOs include Aave and Yearn Finance.

2. Collector DAOs

This is a type of DAO that collects, sells, and issues NFTs. As NFTs have grown in popularity and adoption, they have become a large part of the crypto investments.

The main goal for Collector DAOs is to acquire NFTs from chosen collections or artists.

A good example of a collector DAO is Pleaser DAO. It is a DAO famous for being the owner of Wu Tang Clans album Once Upon A Time in Shaolin and the Doge Meme NFT.

Another popular example of a Collector DAO is ConstitutionDAO, which was formed in an attempt to buy a copy of the U.S. Constitution.

Though the DAO failed at acquiring the asset, the DAO proved a collection of like-minded individuals could form and pursue such endeavours.

Flemingo DAO is also yet another example of a collector DAO, which collected incredibly expensive NFTs from digital artists Cryptopunk in 2021 for $800k USD.

3. Investment DAOs

Investment DAOs are DAOs focused on generating a good return on investments.

It is basically a group of members who pool their funds to generate the maximum possible return on their investment.

Traditional investment firms put investment power in the hands of a relatively small group of money managers of VC funds and hedge funds.

Investment DAOs offer anyone holding its governance token the ability to make decisions regarding its investments.

Profits from investments are distributed either via airdrops to governance token holders or through a staking mechanism. By staking your governance token, youll then receive a share of rewards that you can withdraw from the smart contract.

Some of the top examples of investment DAOs include MetaCartel Ventures, which is a sub DAO of MetaCartel DAO, focused on investments in new dApp projects. Others include The LAO and BitDAO.

4. Social DAOs

Social DAOs intend to bring like-minded people together, coordinated around a token.

By organizing around a token, members have the incentive to create a valuable communityshare insights, host meetups, and throw great parties, etc.

The leading example is Friends with Benefits and its $FWB token. To join, members must submit an application and acquire 75 FWB tokens.

Entry comes with access to a community full of prominent crypto builders, artists, and creatives as well as exclusive events.

As more people understood the benefits of joining the FWB community, the token appreciated, sending the $FWB price from $10 to $75, and therefore, membership cost from around $750 to around $6,000.

You can think of social DAOs as exclusive clubs where you can gain membership by purchasing a specific amount of DAO tokens.

Bored Ape Yacht Club NFTs is also another top example of a social DAOs.

You can buy a BAYC NFT and become a member of an elite club with many celebrities as well as an NFTs link to a distinct bored ape profile picture.

5. Educational DAOs

Educational DAOs are built on strong communities while also providing the foundation for web3 through courses, learning materials, and lecturing events.

What is even more special about these DAOs is that students learning through these DAOs also earn ownership and will have a say in the direction of the DAO.

One educational DAO slowly gaining popularity is SMC DAO which is community of people focused on providing educational interactions, tutorial videos and courses on cryptocurrencies and NFTS as well rewarding students and tutors with DAO tokens and points for learning and adding value.

With several use cases in real life, DAOs are becoming the best option adopted by many organizations to mitigate the operational cost and achieve a shared vision.

The main advantage is transparency and security as they are smart contract enabled, thus providing a good level of security and trust.

Its no wonder DAOs are already becoming very bold and valuable, especially with a market valuation of close to $13 billion.

Uniswap (UNI) is leading the charge, with over 2,750,000 members in the ecosystem.

DAO ecosystem tokens like MKR, UNI, CRV, and soon SMC DAO tokens are tokens investors should be worth paying attention to.

Even billionaire Mark Cuban believes that DAOs have a good chance at becoming the future of modern businesses in the long run.

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Decentralized Autonomous Organization (DAO) | by SMC Research | Dec, 2023 - Medium