DAO stands for “Decentralized Autonomous Organization” and describes a group run by its members with no single leader in charge. Web3 DAOs are completely decentralized and open to public scrutiny at any time since smart contracts establish the ground rules and carry out the agreed decisions.
In a blockchain project, the Web3 DAO has complete control over the project’s direction. What are the pros and cons of being part of a DAO?
How does a Web3 DAO work?
Step 1 – A small group of community members uses smart contracts to establish the DAO’s rules. These smart contracts provide the basic architecture on which the Web3 DAO will run. To ensure that future members thoroughly understand how the protocol functions at any given stage, they are extremely transparent, verifiable, and publicly auditable.
Step 2 – Once these rules have been codified on the blockchain, the DAO must determine how to obtain capital and delegate authority. Token distribution is a common method for accomplishing this. It allows the protocol to generate revenue to stock the DAO with the coins necessary to run operations.
Step 3 – Token holders receive voting rights in exchange for their financial investment. When the needed funds are raised, the Web3 DAO can be enforced. Once the code has been released to production, it can no longer be altered except by a unanimous vote of all members. ONLY the collective agreement of token holders can modify the DAO’s rules.
Pros and Cons of Web3 DAO
A decentralized autonomous organization is rising as a feasible organizational structure over conventional forms of business. In the conventional structure a select few individuals, or even a single individual, have supreme power over a company. DAO allows all the participants in the company to have equally distributed powers. Of course this novel structure comes with pros and cons so let’s cover them.
DAO Pros
- Web3 DAO allows more people to have their voices “heard.” Blockchain-based solutions are fully automated to enable transparent voting while also carrying out the will of the group’s members.
- The system is open and transparent. This is made possible by blockchain technology.
- Web3 DAO is economical. It allows for the automation of systems, eliminating the need for managerial personnel. This will result in salary cost savings for the project’s organizers.
- Automation of the system allows for rapid production. Thanks to DAO, you will no longer have to wait for human personnel to review your application and locate the relevant data for your operation.
- Error rates are low because humans aren’t involved in the technical aspects. With CAD, users are spared the anxiety that a distracted human manager can cause terrible mistakes.
- Membership is more accessible in Web3 DAO than board membership in traditional corporate organizations.
- Many also regard the DAO’s transfer of power and assets to project participants as an advantage because it prevents the DAO’s creators from fleeing with the investors’ money.
DAO Cons
- The security of a Web3 DAO cannot be guaranteed by its developers.
Developer blunders in the coding of decentralized autonomous organizations can have terrible consequences. The origin of Ethereum Classic is a great case of this. In 2016, hackers broke into The DAO within the Ethereum project and stole all of its funds. The developers had to coordinate a hard fork to address the issue. This resulted in the blockchain for the project being divided into halves, creating Ethereum and Ethereum Classic (the original blockchain).
A fraudulent undertaking can be disguised as a decentralized autonomous group. Before signing up for a Web3 DAO platform, you should do your research.
- Majority rule
Although a decentralized approach to project management diminishes the potential for public coups, the possibility is still present.
- Lengthy decision-making process
Unfortunately, the system is only sometimes able to collect votes on time. Many users also consider the “dehumanization” of the system as one of the innate problems in autonomous decentralized systems. Due to their inability to think critically, automated systems often struggle to manage projects effectively in times of crisis or other out-of-the-ordinary circumstances.
The Specifics of Web3 DAO Governance
The actual governance methods of DAOs vary considerably from one another, so let us discuss use cases.
Uniswap Governance
Like many DeFi protocols, Uniswap is a decentralized exchange managed by a DAO.
Anyone who holds UNI, the Uniswap governance token, is a member of its DAO. Users can participate in government by voicing their ideas publicly, presenting arguments for their proposals, or transferring their voting rights to another address.
Holders have recently voted on whether to finance a grant program and whether to incorporate a new blockchain. These are both examples of the variety of alternatives that can be proposed.
However, two phases—temperature checks and consensus checks—must be passed before a proposal can be considered serious.
- The community’s “temperature” can tell you if there’s enough of a push for change. After two days of voting, the winning side is the majority with a threshold of 25,000 yes votes in UNI.
- A consensus check is a method of formally beginning a conversation about a proposed action. A majority vote of at least 50,000 UNIs is required to pass by the end of the five days.
If both measures are met, a proposal can be put to the vote. The governance forums will be open for debate on the plan for the next week. If at the end of that period, the number of “yes” votes exceeds 40 million and the number of “no” votes is less than 40 million, the proposal will succeed and be executed after a two-day time lock.
Dream DAO
Although only some Web3 DAOs are similar to Uniswap in operation, most use voting systems and chat servers quite similar to Uniswap’s Snapshot and Discord. Even if Dream DAO‘s aim and governance procedure are unique, its DAO system is no exception.
The non-profit organization Civics Unplugged built Dream DAO, intending to make a difference. It was created to fit Gen Zers worldwide with the skills, resources, and support network they need to use Web3 for the good of humanity. SkywalkerZ token holders oversee the governance process. These utility tokens (NFTs) serve as both incentive tokens for donors and as a means of distributing power inside the organization.
When a donor buys a SkywalkerZ NFT, a new SkywalkerZ is created for a future GenZ member to join as a voting member and gain influence in the DAO at no cost. The buyer retains ownership of the NFT and can apply to join the DAO as a voting member. They can also pass it on to the Gen Zer they funded.
Dream DAO allows its target audience to have a say in the decision-making and immerse themselves in Web3. It also allows them to positively exploit blockchain technologies by removing financial barriers to participation in DAO governance.
Conclusion
Web3 DAO is a safe, transparent, and easy method for investors to pool funds. This way, they can back startup projects in their early stages, where everyone gains from the project’s success.
Given how easy it is to start, startups can put more energy into expanding their operations this way. Companies can also expand internationally by getting investors from all over the world. This will increase the company’s reach and revenue. Continue to find out more about Web3 and NFT DAOs.