A Decentralized Autonomous Organization (DAO) in Web3: What is DAO and how does it work?

Without a solid understanding of cryptocurrencies and decentralized finance, DAO is just another confusing topic you defer until you gain clarity. However, Decentralized Autonomous Organizations operate without a central leadership structure.

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In technical terms, DAOs refer to independent entities that operate exclusively on transparent regulations coded and established through a smart contract. Its design aims at offering a decentralized and automated way of managing affairs, eliminating the traditional limitations of bureaucracy and hierarchy.

The regulations of an organization are stored within smart contracts. Community members will vote on recommendations to effect alterations or enhance the protocol. To obtain their voting rights, participants must obtain the DAO's native governance tokens. To shape its future, it is also required for them to possess some equity in the DAO.

How can DAOs govern in the absence of ownership?
Even though DAOs are frequently praised for their decentralized characteristic, achieving a consensus can be a challenging aspect. DAOs choose their consensus mechanisms from a variety of governance structures that are pre-selected, in ways like;

• On-chain democracy allows members to directly cast their votes on proposals. People who possess a greater number of tokens receive a greater degree of significance for their vote in comparison to others.

• Similar to the aforementioned method, direct off-chain democracy involves votes that are proportionately weighed according to the members tokens.

• A system based on the voter cost equation is followed by quadratic democracy.

• In the representative democracy system, representatives appointed by DAOs vote on-chain to approve proposals submitted to the mechanism. Initially, the members cast their votes for the representatives who will eventually convey the opinions of the participants during voting.

Where Web3 and DAOs Coexist Harmoniously
A new creator economy is being formulated by DAO and Web3. Decentralized Finance (DeFi) utilizes DAOs on the contrary to provide complete customer advantages. A structured organization and diverse markets can be reached by utilizing the DeFi platform.

There are several advantages that come with integrating DAOs into the web3 realm. These are some:

• DAOs enable a genuinely decentralized governance of a specific community, without a central authority.

• Every detail from the basic regulations to individual transactions is meticulously documented on a completely authenticated public ledger, ensuring transparency.

• Smart contracts facilitate automation in DAOs by allowing prompt execution without any delay. Every time it is necessary, smart contracts execute themselves with ease.

• The DAO's participants have autonomous voting rights on community proposed proposals in a community driven manner.

What causes the high concentration of ownership in Web3?

DAOs aim to enable a decentralized management system for enterprises, ventures, and societies by utilizing the internet as a fundamental element and blockchain technology as the supporting infrastructure. There is enormous potential for transparency and decentralized decision making. By adhering to an anonymous decision making process, it distinguishes itself from typical organizations.

After launching a DAO, the founders usually generate a fresh form of digital currency called 'Governance Tokens'. Stakeholders and participants are allotted the tokens. When utilized, every token adds to a vote.

Although DAOs operate with anonymity, they face difficulties in preserving their decentralization objective. The reason for this is exclusively due to the considerable concentration of DAO ownership.

In Conclusion
With the continuous evolution and increasing adoption of DAOs, more tooling services and advocacy groups are emerging. Its future and goals will be determined by the growth in the coming decade.