What is a DAO?

What is a DAO?

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Upside Staff
Upside Staff
The Team at Large
Upside Staff
Published:
December 1, 2021
Last Updated:
August 16, 2022

Imagine an organization formed by strangers and run without C-Staff, executive board or hierarchy!

Is it possible? Will there be chaos?

Yes, possible in the Crypto-World, but sans chaos, completely governed by codes called smart contracts.

This is called a DAO (Decentralized Autonomous Organization), a trending popular topic in Crypto.

What is a DAO?

A DAO is an organization, more like a community, formed by like-minded people (anywhere in the world) sharing the same passion. The rules of the organization are encoded in a blockchain structure. DAOs launch tokens and each token has a vote. Every member of the DAO has voting rights and decisions are automatically made based on voting rules. There is no human intervention in decision making. If a criteria or voting quorum (already coded in the smart contract) is met, then the decision is implemented and any approved funding is immediately distributed for the proposal.

Quite simple and straight forward solution to human coordination!

For example, members of a DAO decide on hiring process, salary hikes, purchase of NFTs and even make changes to their own DAO governance policy. Profits from DAOs are redistributed to all the members or token holders. What makes DAO tokens attractive are, they have a possible increase in value or financial incentive, related to any token, as well as unique voting rights (decision making rights).

How Are Creators Using DAOs?

Creators now have the power to engage their community and build strong brands. There is no singular influence but an incredibly rare opportunity to listen to the collective voice of the masses.

DAOs make the creator economy more economically sustainable. The main players in the creator economy are creators, communities and platforms that help connect creators and communities. DAOs create high engagement value for communities, providing membership benefits like VIP access to shows and concerts, sponsorships, admission to rare clubs, merchandise and others.

A few ways that DAOs are helping creators:

1.   Investment DAOs provide easy access to funding

DAOs are similar to VCs, but transparent and global without hierarchy. The participants of the DAO decide which project to invest in.

Like PleasrDAO, that looks like a typical investment firm collecting various rare NFTs. But, the NFTs to be purchased are collectively decided by the members. The members recently purchased the sole existing copy of the album “Once Upon a Time in Shaolin” by the Wu-Tang Clan for $4 million and all the members share ownership.

2.   Improves collaboration between independent artists/creators

DAOs provide the opportunity for creators to create collective experiences, share talent, build new tools and affect efficient outcomes.

Global Designer Network DAO has nearly 100 indie fashion designers, learning and sharing their skills about fashion, 3D design and gaming.

3.   Recruit talent

DAOs make it easier for people to demonstrate their past experience and skills, making it easier for startups or creators to hire relevant talent. It also increases productivity since the DAO is formed by like-minded people passionate about the cause.

DAO Platform Aragon recruited members as jurors for its decentralized court system, exchanging ANT (Aragon) tokens for newly minted Aragon Network Juror (ANJ) tokens. Jurors make a ruling and earn token rewards.

4.   Freedom in creation

Artists are not restricted by the ideas of a select few people in the top tier. Through DAOs they also have the opportunity to understand the perception of their dedicated community.

SuperRare DAO allows RARE token holders to select artists to be admitted to the platform, decide on spaces for curators and manage treasury. Earlier, NFT artists on the platform have been chosen by SuperRare staff, but now the DAO community decides it.

Putting It All Together

To finally understand the exponential growth of DAOs and its support for creators and startups, let’s look at the Axie Infinity DAO.

Axie Infinity, a popular play-to-earn game has nearly 2 million daily active users (DAU) and $5.5 billion in virtual assets. In this play-to-earn model, players can earn by winning a battle or re-selling their ‘Axies’ in the marketplace. Axies are characters in the game, where the Axies themselves and the land they inhabit are actually NFTs. One of its rare NFT costs about $100,000. It is also possible to breed more Axies from existing ones, at a small token cost. The newly bred Axies, in most cases, more powerful, can be sold in the marketplace but there is a limit to the number of Axies bred.

It has two tokens – AXS and SLP. SLP tokens are won from the battles and AXS tokens are required for breeding and governing the Axie Infinity DAO. The Axie Infinity DAO treasury has about $1 billion. AXS DAO generates revenue through fees - 4.5% of each marketplace transaction and 4 AXS per breeding. Future revenue channels for DAO treasury are predicted to be selling cosmetics/consumables, organizing tournaments and charging an entrance fee, charging fees to upgrade Axies, issuing/selling rare Axies, and sponsorship fees.

Axie Infinity has gained popularity by merging NFTs, DAO and gaming in one platform.

This article does not constitute investment and/or legal advice, and is strictly for education purposes only. Upside is not an SEC registered investment advisor, practicing legal entity or any other type of licensed body that can legally provide investment and legal advice. Upside is not responsible for any errors or omissions in this article, due to the changing nature of laws, rules and regulations or otherwise, or for results obtained from use of the information it contains.

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