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What Is A DAO?

Published on
June 22, 2022
MonsterArmyMonsterArmyMonsterArmy

What Is A DAO?

One of the essential things you should know about blockchain networks is Decentralised Autonomous Organisation (DAO). To make it easier for you, they are like an inner circle of business associates, but in the crypto world. They are not a physical organization because they are written in computer codes to make a program. DAOs have been around for almost as long as blockchain itself. Continue reading because everything you need to know about them will be explained here.

Why DAOs are Created

These organizations are developed to help you use blockchain technology better because they use digital records to monitor your relations on the internet. As a member of a DAO like MonsterArmy, you have a stake, and your opinion is important because no central body controls it. The group votes on all proposals sent before deciding from time to time.

One of the several purposes of these organizations is that members can put money together for charity or purchase a business together.

Before explaining how these organizations work, we'll give you the example of the first DAO ever that almost ruined Ethereum in 2016 and caused Ethereum to split. This DAO raised $150 million but got hacked and lost $50 million weeks later. The money was returned as crypto some weeks after.  

How Do They Work?

As said above, it is an online community of people where decisions are made together because there is no position higher than another. You can be a part of a DAO mostly when you buy some tokens in particular. They use a software program to determine if you have met the conditions and then match you with other traders on the network.

Also, the organization's rules are developed with the same software, allowing you to join the decision-making after you have been qualified for the network. There is voting on every suggestion by members, and most members must support it before it is accepted. Different DAOs have different ways of determining that most members have supported an opinion.

Also, as a member of a DAO, you stand to gain from the investments made by the organization, either in small shares or when the token adds value. Likewise, because it is a joint investment, you also share the loss with other members.

Disadvantages Of DAOs

As you know, everything in life comes with two sides. A few faults have been linked with the operation of these organizations. For instance, MIT reviewed DAO, and they revealed that the general decision-making process of these organizations is not safe. A DAO was hacked in 2016, and this proved the review right.

Also, they don't have any legal backing, which means that, as a member, you might face countless issues with the law, like in 2017, when the US government filed a report against a DAO for selling uncertified tokens to Ethereum.

Conclusion

Looking at everything highlighted above, you'll have understood the important knowledge you need about DAOs. It is an advancement that helps the growth of the crypto market but has a few disadvantages. Although these disadvantages might seem significant, there is still so much time for the system to be adjusted for the better.