- Decentralized Autonomous Organizations (DAOs) pique interest among the crypto community.
- DAOs allow investors to participate in protocol governance simply by holding the project tokens.
The cryptocurrency and blockchain world is swarmed with new projects by the day. One of the latest ones, DAOs, seems to be shaking things up and is even getting the attention of renowned investors, such as Mark Cuban.
But what exactly are they? And since the first one was such a flop, should crypto investors pay attention to these projects?
What is a DAO?
DAO is an acronym that stands for Decentralized Autonomous Organization. Just as the name suggests, these organizations have no central authority. Instead, they run on code agreed upon by the organization’s developers.
They come in all shapes, structures, and models, depending on the team behind the project. However, we can categorize them as an organizational construct of people on the internet who collectively own and manage an internet-based business.
Since these organizations don’t follow a hierarchical leadership model, the entire community is involved in any project decision-making, which is made possible by ownership of the project tokens and providing voting rights.
Further, most DAO projects are open-source so that anyone in the community has access to the contract code. In this way, transparency is a significant selling point for these organizations.
How do they work?
These organizations are blockchain projects that rely on technology and cryptocurrencies to work efficiently. They operate through smart contracts that enable them to become autonomous by establishing the DAO’s rules. Thus, these companies, unlike traditional ones, rely on computers and code to perform basic operational tasks without needing an intermediary.
DAOs allow token holders to participate in the governance of various blockchain protocols. Every token represents a vote, and those with higher stakes get higher voting rights.
As such, token holders get incentives for staking their assets and say on the DAO’s improvement. All decisions have to be approved by the community voters so that the platform’s code is changed, causing a change in the entire company.
DAO as an investment vehicle for crypto enthusiasts
Most crypto investors have heard of The DAO, the massive flop that led to Ethereum’s hard fork. And while most risk-averse investors will steer clear due to this hack, perhaps it’s time to review our stance on such companies.
The explosion of Decentralized Finance (DeFi) in 2020 has renewed interest in DAO projects with good measure. The crypto industry has taken strides since the 2016 hack, and decentralized companies may be worth adding to your portfolio.
One of the most respected figures in the investment world, Mark Cuban, tweeted that the future of businesses and corporations could take a different turn now that decentralized organizations are taking over. He added that entrepreneurs that enabled this in their businesses were set to make money.
It is worth noting that DAO tokens are easily more valuable than other moon coin projects you may come across. This is because they offer both voting rights and potential profits to the holders.
Further, the trustless nature of these companies makes them ideal for any investor who would want to do business with like-minded people across the globe. Thanks to the open-source code, you don’t have to trust the other person behind the screen; you have to trust the code.