Riddhi D.
1:06 21st Jun, 2022

Governance in a DAO

DAO's address the issue of Governance which has troubled Economists and Political Scientists for many years.

Governance in a DAO

Similar to an organisation, the DAO to has a voting process (governance) which is made possible by their shareholders. Every DAO has certain tokens (or coins) associated with it and similar to shares, these DAO tokens give the holders the power to vote on a decision.

Furthermore, the more tokens that a person has the more votes they get. Since these tokens come with certain power and utility, they also have a price. It is because of the votes due to the tokens that a DAO can make changes, improve and evolve.

These votes can be for any decision, hiring, voting on a salary etc. Presently the DAOs are employing certain developers for writing their codes and in return, they pay them with these coins aka governance tokens. Not to forget these tokens are crypto tokens and can be traded on the open market.

Governance in DAO Zelta
Credits to chainanalysis

Just like the profits of an organisation are distributed to the shareholders via dividends. Even in a DAO, the profits are distributed among the members in the form of these tokens.

The increased profits along with the voting rights only increase the price of these governance tokens.

Benefits of a DAO:

DAOs are Trustless:

In a DAO if a major developer stops working, the DAO will continue to function, thanks to smart contracts. Even if the funding is taken away it will continue to function. The only way it can be shut down is if someone gets hold of the majority of governance tokens and votes on a decision to shut the DAO down.

DAOs are open-sourced:

The code of a DAO is out to the public and anyone can read, suggest improvements to it or even develop a more reliable code. Users can also propose ways to fix and win bounties in return.

However, these two advantages also come with certain disadvantages.

Firstly, the DAO is open sourced which means that it is prone to attacks. Hackers can run a false code, implement it and run away with the funds. Secondly there are no company secrets. With the information being readily available even the strategies for the future are embedded in the code.
This can be seen by other organisations and they can make use of the information to implement it first. Perhaps one of the most infamous cases is that of a DAO called "The DAO."

With over 150 million dollars in the Crypto liquidity pool, the security of the DAO got compromised and hackers ran away with 50 million dollars worth of Ethereum. However today the possibility of something similar happening is rare but it is possible.

Presently DAOs are mostly based on the Ethereum blockchain however a few have been established on Solana as well. A few examples of DAOs include Maker DAO, Superteam DAO, Olympus, Meta Cartel etc.

DAO Maker

A DAO Maker is a growth technology which helps people to make their own DAOs. It acts as a DAO pad which is nothing but a launchpad for DAOs. People can make use of this platform to get their DAOs set up, implemented on the blockchain and then run continuously with smart contracts. My Neighbour Alice (ALICE), now a well-known project owes its foundation to the DAO Maker.

DAO Maker Zelta

In conclusion, the concept of governance DAOs has taken the web 3 space by storm. With more and more people becoming aware of the technology we will be seeing a rise in the implementation of smart contracts in several organisations soon.

(Click here to learn about DAO Governance Token)


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