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What are DAOs and how do they work?


The objective of DAO is to find practical solutions to have decentralized governanceTherefore, many DeFi projects have already started to implement them in their own protocol, while others have indicated it as one of the next objectives in their roadmap.

One of the most important challenges that DeFi has to face to reach its full potential, so to speak, is related to the issue of fully decentralized governance. This is an area that is being discussed a lot, as it is not currently possible to address and solve all the problems that arise from full decentralization.

The path to full decentralization taken by the different DeFi platforms is not yet clear and regarding the administration of the protocol, which is one of the biggest challenges to date, there are few examples of companies that are running a systems based government chain.

What are DAOs?

A DAO, u Decentralized Autonomous Organization, is a comprehensive concept in support of an organization that operates exclusively in accordance with the rules imposed by the code that constitutes the smart contract under which it is programmed, which is publicly verifiable by all.

The DAO is autonomous because it operates following the set of rules written in its contract, without the intervention of anyone, except at the time of its creation. The organization is totally independent from its creators and cannot be influenced in any way from the outside.

Its degree of decentralization derives from the fact that all the decisions and actions taken are treated by the entire community in accordance with the proposals in favor of a possible update of the protocol, which can be approved through a voting system, without the presence of an authority. central. controlling the result.

When the community approves a proposal, the total amount raised by the community is allocated directly to finance its development. Members are interested in voting for a better change, as it could increase demand and use of the platform, thus increasing the value of the token they have.

The rules that members of a DAO must follow are strict because they are represented by the set of pre-programmed rules defined in the DAO smart contract that describe what can and cannot happen within the system. However, for this to work sustainably over time, it must also have some flexibility.

It is thanks to this important factor that it is possible to eliminate the need for a central authority in charge of maintaining and developing the protocol, for the simple reason that all the administration rules are written in those lines of code that cannot be modified.

At this point, choosing a broker to oversee the proper functioning of the organization would be a waste of time, effort, and money, as you are already able to do everything on your own.

The voting right of a user is represented by the possession of the call government token And thanks to this, the members of the organization can cast their votes on the decisions regarding the development of the protocol. The total supply of government tokens issued in circulation can be understood as a fragmentation of shares in the “corporate world” in which, no matter how much an individual owns, the simple fact of owning them grants everyone fair rights.

However, in a DAO there is no hierarchical structure, and this ideal may be compromised by inappropriate allocation of government tokens to a majority of a few influential individuals.

The mission of a DAO is in full alignment with its values, such as the transparency of financial transactions within the public book, founded in accordance with a concept of democracy, non-exclusion of the individual, privacy and anonymity, voluntary participation and non-aggression.

The entry What are DAOs and how do they work? It was first published on Crypto Report.

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