Decentralization has brought many benefits to digital technologies globally. It has enhanced the security and transparency of information transfer. As a result, the DAO ecosystem is a significant part of discussions about the emergence of Web3. Decentralized autonomous organizations can help establish organizations without a centralized governing body. Regardless of the motives behind establishing a DAO, the main goal is to ensure community ownership.
There are many real-world examples of DAOs making valuable contributions to the ecosystem. What forms the basis of the DAO ecosystem, and what role will the DAO blockchain ecosystem play in shaping the future of Web3?
What are DAOs?
DAOs are entities that enable collaboration among a distributed group of individuals to achieve specific objectives. Their operations are governed by a shared set of conditions enforced on a blockchain network. The conditions, or rules, are typically integrated with smart contracts using 'governance frameworks.' DAOs can be compared to other organizations but without a hierarchical structure. Instead, they adhere to a distributed structure, allowing users to interact based on conditions specified through 'code' on the blockchain.
Another critical point to note in an introduction to the DAO ecosystem is that DAOs do not rely entirely on automation. Most of the decentralized autonomous organizations do not use automated processes for operations. Instead, they rely on subjective coordination among a group of human participants. This does not mean that DAOs are under the centralized control of a few individuals. Participants' autonomy depends on the project type and the relevant governance framework.
The DAO ecosystem
The DAO web3 ecosystem is still in the early stages of development and will take some time to become widely used. Ideas about DAOs and different governance models have been around for a while. But recently, there has been a lot more interest in DAOs, especially because of the rise of DeFi. As time passes, the DAO ecosystem will develop further, with larger DAOs splitting into smaller, specialized ones.
Many examples in the modern DAO ecosystem show how DAOs can be used for different purposes. New and smaller DAOs, such as guild or curator DAOs, have successfully coordinated their members. These smaller DAOs have been built around community channels and tools that use simple and secure DAO frameworks like Snapshot or Moloch.
Another interesting aspect of the DAO ecosystem is the growing relationships between DAOs. For example, many smaller DAOs have developed the ability to communicate with and provide different functions to larger DeFi communities and reserves. However, for these interactions to grow across different ecosystems and governance frameworks, there will need to be more transparency and standardization. This is why one of the first topics discussed in the DAO blockchain ecosystem is the classification of DAOs. Let's take a closer look at the DAO ecosystem and the different types of DAOs.
Types of DAOs
DAOs are formed to achieve specific goals, and you will come across different types based on their objectives. Here are some key categories of DAOs with examples for each.
Protocol DAOs
Protocol DAOs are developed to help manage decentralized applications. Some protocols give governance tokens to users so they can vote on decisions about the protocol. These decisions might involve changing smart contracts or protocol settings.
Popular protocol DAOs like Compound, Yearn Finance, and Aave are leading the way in the emerging DeFi sector. They are an important part of the DAO ecosystem. However, the technical nature of these decisions means that some protocols have only selected delegates with the needed knowledge and skills for governance.
Project DAOs
Project DAOs are a new addition to the expanding DAO ecosystem. They are similar to traditional organizational structures and focus on developing and delivering products and services, often with the help of incentives and token economic models. All the organization's revenues are kept in a treasury controlled by stakeholders. Additionally, project DAOs can hold governance tokens from different protocols, allowing them to become important decision-makers in external governance.
Creator DAOs
Creator DAOs are a popular addition to the decentralized autonomous organization's ecosystem due to their unique approach to fractionalizing NFTs. These DAOs work to divide non-fungible tokens into fractions, allowing various supporters and followers to own a portion of a valued asset.
Through fractional NFT ownership, new owners can participate in the asset's co-creation, promotion, marketing, and distribution, fostering collective ownership and identity. Examples of creator DAOs include RAC and Mirror, which have been pioneering experimental innovations in this field.
Curator DAOs
Curator DAOs are an essential addition to the blockchain ecosystem. They focus on curating crypto assets and NFT art as a specialized form of investor DAOs. Members of Curator DAOs contribute expertise, capital, and branding to curate various items. They can share the rewards and growth in the curated portfolio and the fees generated through curation services.
Investor DAOs
Investor DAOs are like decentralized venture capitalist firms. Their main goal is to raise funds for specific projects. They are an important part of the growing decentralized autonomous organizations ecosystem.
Guild DAOs
The DAO web3 ecosystem has also focused on guilds as a valuable addition. Guild DAOs help coordinate talent to provide high-quality contracted services to buyers. Freelancers and individual users can use guild DAOs' distribution and marketing channels to connect with top projects. Projects can also find suitable talent for specific jobs. Guild members can contribute code, collaboration, content, educational programs, products, or contracts.
Community DAOs
Community DAOs significantly impact the DAO ecosystem as they can be tailored to the interests of specific individuals or groups. In the case of community DAOs, DAO tokens can be used to establish boundaries within a certain social jurisdiction, and members can benefit from perks within a closed network.
The DAO infrastructure
The comprehensive introduction to various types of DAOs demonstrates the diversity within the DAO ecosystem. It's important to recognize that the ecosystem of decentralized autonomous organizations relies on specific infrastructure to thrive. For the different types of DAOs within the ecosystem to progress, they require a diverse range of tools.
These tools are essential for shaping the infrastructure stack for DAO ecosystems. Moreover, the DAO infrastructure stack significantly contributes to the ecosystem's adaptability by facilitating the development of new governance mechanisms. Here is an overview of the common tools found in DAOs.
Governance Frameworks
The most important aspect of the DAO ecosystem is its governance frameworks. These frameworks are built on smart contracts, which are used to enforce the rules of decentralized governance through a blockchain network. The smart contract code outlines the parameters for distributing power, as well as the best practices for executing processes and casting votes within DAO governance frameworks.
Controllers
The infrastructure stack of DAOs is incomplete without including controllers. Many governance frameworks use a controller to facilitate direct interaction with governance contracts through user interfaces. Typically, the same team that develops the governance framework also creates the controllers. Controllers can offer data and APIs to facilitate easier extraction and indexing of information, as well as provide comprehensive features.
Treasury
In the DAO ecosystem, members need to come to specific agreements regarding treasury and capital allocation. The treasury is a key aspect of the DAO blockchain ecosystem, as it focuses on the secure and transparent storage of member funds. One common approach to defining the treasury in the DAO infrastructure stack is the use of smart contract-based multi-sig wallets. These wallets require a minimum number of people to approve a transaction before it can take place. Additionally, some DAOs prefer to store treasuries in smart contracts.
Work
The technical infrastructure supporting DAO ecosystems relies heavily on work. When we talk about 'work' in a DAO, we have to think about the talent and contributions involved. Developers are creating new tools to measure the labor and output of different DAO members. Additionally, the ecosystem needs to address complex identity and trust issues.
Aggregators
The last component of the infrastructure of DAO web3 ecosystems is aggregators. These aggregators serve to bridge the gap between the governance frameworks and various tools. Their main role is to simplify the infrastructure and middleware, ultimately enhancing user experiences.
Crypto wallets in DAOs
Secure crypto wallets serve as more than just digital storage, they are a gateway to the blockchain world, enabling you to interact with various DAOs and engage in decentralized activities."
Here's how crypto wallets help DAO participants:
1. Token storage and management
Your crypto wallet safely stores the tokens representing your stake in the DAO. These tokens aren't just digital coins; they're your voting power and proof of membership. For example, if you're in a DAO that funds renewable energy projects, your wallet might hold "GreenEnergy" tokens. The more tokens you have, the more say you get in deciding which projects to fund.
2. Voting and proposal submission
When it's time to make decisions, your wallet becomes your voting tool. In most DAOs, one token equals one vote. With your wallet, you can:
- Cast votes on existing proposals
- Submit your own proposals for consideration
- Delegate your voting power to other members you trust
Imagine you have an idea for a new marketing campaign for your DAO. You'd submit this proposal using your wallet, and other members would then vote using their wallets.
3. Security considerations
Security is crucial in DAOs, and your crypto wallet is your first line of defense. Choosing a wallet with robust security features is important to protect your assets and voting rights.
For optimal security, consider using a hardware wallet like Tangem. These physical devices store your private keys offline, making them highly resistant to hacking attempts. With Tangem, you can participate in DAOs with peace of mind, knowing your digital assets are protected by bank-grade security.
Final thoughts
The overview of important elements in the decentralized autonomous organization ecosystem showcases that DAOs are a progressive concept. With the exclusion of hierarchical control over an organization, DAOs can serve as the foundation for creating organizations of the future. However, the importance of each tool in the infrastructure stack and the variants for DAOs prove that anyone can contribute their efforts to DAOs.
Most importantly, decentralized autonomous organizations are an integral part of web3, the future of the internet.