Decentralized Autonomous Organizations (DAOs) blockchain and cryptocurrency have been a contentious issue in the world for some time.
In the case of Slock.it, from their first day, the German startup that DAO has brought, for the current iteration, DAO has the potential to create or break the crypto and decentralized financing (DeFi) industry and education will be the deciding factor.
If recent events remain anything to go by, misunderstandings about the true nature of the technology behind most DFI projects may be due to a lack of regulatory transparency. Recent conversations between McDao representatives and Senator Elizabeth Warren prove that regulators do not firmly understand how DFI space or DAO works.
In the dialogue, the senator not only showed a lack of interest in the organization but also a representative claimed that a lot of time was spent trying to convince the anti-crypto senator that McCardao and the inactive 2016 DAO are different entities.
U.S. Senator Warren, who is a vocal crypto skeptic, has expressed concern about the rapidly growing stable market, advising U.S. banks to ban the holding of stable currencies.
Lack of understanding of how DAOs, such as Macardao, work, how do regulators perceive the sector? In this article, we take a look at the different DAOs developing in the DFI space and how they meet their purpose and provide a primer that will help you understand better.
So, what is a DAO?
Simply put, a decentralized autonomous organization is a concept for a blockchain-specific entity that is created and jointly owned by its members. For governance, such firms will rely on the decision-making protocols included in the smart agreement, unlike conventional firms using central leadership systems.
Since smart contracts are impersonal, the organization can be further controlled by a horizontal structure that can be managed without a growing hierarchy. DAO members may decide to have a built-in treasury that comes with limited access to authorized members who meet predefined conditions.
Apart from the centralized governing body, the members of the DAO can propose and collectively decide which proposals should be implemented through the voting system. Smart contracts can help throughout the voting process and automatically implement changes based on voting.
What makes DAOs different?
In its core part, a DAO is designed to address permanent head-agent dilemmas.
This problem is a common challenge that occurs when an agent (a centralized entity or an individual) falls into a situation where they have to make decisions that meet the group’s (main) different goals, priorities and needs without compromising their own interests. .
Although this dilemma exists between government and non-government organizations around the world, the DAO’s goal is to address this challenge rather than a centralized form of decision-making with an unreliable system based on autonomous smart contracts.
Smart contracts can be programmed in such a way that the incentives of all members of the group are grouped together in a coded format built into the blockchain.
With a properly executed DAO, all stakeholders in the organization will be able to participate in group governance and decision making.
How DAO works
Although DAO’s underlying processes vary from one platform to another, the general formula is where a series of smart contracts are placed. These smart contracts can be programmed for future change if an incentive program is needed to help DAO grow and expand new functionality.
A DAO can be created for virtually anything from a freelancer network to a charity and even a political government. Smart contracts create or break DAOs because they facilitate transparency and enable the company to operate autonomously without intermediaries.
Once smart contracts are created, tested, and fully employed, DAO funds are needed to encourage members to manage and maintain the organization. Most DAOs will use a token that gives holders the right to vote and rewards for participating in the maintenance of the platform. By setting up supervised smart contracts and a funding system, the DAO can launch and its future can be controlled by members of the organization.
DAO’s real world example
There are various examples of DAOs that exist today. Technically, Bitcoin can be considered the earliest version of the DAO, as its network grows through community agreements between its mining and node operators – also, there is no central governing entity.
The Bitcoin network can be considered as the first example of DAO. It is managed by a network of participants (minor and node operators) who coordinate their activities for their own interests as well as the whole activity. However, it lacks a complex governance system, which has become a common feature of all DAOs, and by today’s standards, it would not really be considered a DAO.
The Dash Cryptocurrency project may be considered the first real effort at DAO. It is the first known DAO, at least by today’s standards, since its governance system allows stakeholders to vote on how the treasury is used.
Dash was first launched in 2015 and operates on a network consisting of a collection of 5,000 master nodes distributed worldwide. The dash blockchain started as a bitcoin fork, but has since evolved into a privacy-centric cryptocurrency.
DAO, the now inactive decentralized autonomous body at Etherium, was designed to act as a decentralized venture capital fund for decentralized applications (DAP). DAO was developed by Germany-based startup Slock.it as an open source platform. At the time of its launch, DAO was able to collect 12.7 million ethers (ETHs) worth about 150 150 million at the time.
The idea was that DApp developers would present their ideas to the community and receive funding if approved. Although DAO is one of the most funded crypto projects to date, hackers were able to exploit the flaw in its smart contract in less than three months of launching. It is important to note that the bug or bug in the smart contract was not in Ethereum’s blockchain but was an application developed by Slock.it and placed on Ethereum’s network.
As a result of the incident, the Ethereum community chose a hard thorn to attack, while different voices retained the old chain that is now the Ethereum classic.
Like DAO, Makardao is a decentralized company built on the Ethereum blockchain.
A DFI nding protocol project run by the Maker Foundation was first made public in 2015. Project Multi-Collateral Die Stablecoin 201. Launched in November of the year.
According to The Maker Foundation, Dye’s stable value makes it an effective digital asset for providing loans and hedging against crypto volatility. However, the dai differs from other stable currencies, as its value is only gently determined with the US dollar. This means that there is no central entity with dollar reserves that returns dai tokens. Dai McArda also uses securities in the form of etherium-based assets stuck in smart contracts on the platform.
As each dye token is generated, the value of the etherium-based assets locked in the smart contract must be higher than the dye issued to orrow recipients. This makes it possible for someone to lock in more volatile assets and accept midwives, which is a more stable asset.
Uniswap is one of the most successful DAOs in the DeFi space. Following the successful launch of the Decentralized Automated Marketing Protocol in 2018, the team is about to launch a governance token that will transform Uniswap into a decentralized community managed by its users. Now, Uniswap users can not only provide liquidity in decentralized exchange but also submit governance proposals on the platform.
The risk of DAO
DAOs are a fancy organizational structure that challenges traditional theological organizations, thus attracting numerous regulatory, operational and legal challenges.
For example, given that the members of a DAO can distribute in different jurisdictions, dealing with border agreement agreements and relations can be quite challenging. In addition, given that DAOs are governed by smart contracts, it may be time consuming to gain sensitivities from DAO stakeholders.
Also, malicious actors can exploit potential loopholes in the smart contract code to compromise DAO’s security and effectiveness, as was the case with DAO in the 201 DA.
The journey ahead
Although the principles behind a DAO are designed to enable an ideal and fully decentralized organizational structure, the DAOs that are built on the underlying technology are not perfect. At the moment, existing DAOs still rely on a certain level of concentration for effective decision making, especially in the early stages of DAO development.
But despite the new phase of DAO development, the concept represents a world-changing governance structure that can introduce fairness and transparency to multiple industries.
When properly implemented, DAOs can also introduce decentralized forms of control and legal compliance, thus advancing the policy of decentralization in multiple areas of society.