The abbreviation “DAO” stands for Decentralized Autonomous Organization. DAO is a specific form of organization in which the coordination of activities between participants is carried out without centralized control, but using automatic algorithms.
In the crypto industry, DAO work is usually based on smart contracts, so the first infrastructure for DAO appeared on Ethereum. Today, when Ethereum has many alternatives, DAO platform creation is possible on any blockchain that supports smart contracts. Examples include Polkadot, Solana, Cardano.
The idea of DAO is much more radical than the idea of cryptocurrencies – here we are talking not only about the decentralized issue of money, but also about a decentralized management system. Smart contract technology has the potential to eliminate the need for banks, courts, and credit institutions.
There is an erroneous understanding of DAO, when a decentralized autonomous organization is understood as an entire project that is managed with the help of a DAO, which is why the Dash cryptocurrency, the Steemit blockchain media platform, the Decentraland metaverse, the MakerDAO DeFi platform, and all the decentralized crypto exchanges are viewed as DAOs. However, by DAO it is more correct to mean a decentralized management infrastructure.
Since the DAO model does not assume a centralized hierarchy, it relies on alternative approaches such as token-based membership. Typically, these governance tokens can be freely bought and traded on decentralized exchanges, or earned by providing liquidity or computing power for mining or staking. In any case, by holding management tokens, you get access to voting, which determines the organization's development strategy.
In theory, the DAO idea has many strengths. Management automation allows you to get rid of a huge staff of managers, lawyers and bureaucrats, to minimize the human factor, corruption and abuse of power.
In practice, the complete rejection of centralization, despite the technical feasibility, is still a rather utopian idea. An example of DAO is a fully decentralized online store that will sell digital products like games, art, music. DAO is also well suited for crowdfunding platforms, freelance exchanges, philanthropy and venture capital funding. However, such things as logistics, author authentication, and even the proper motivation of DAO participants are still difficult to implement on a fully decentralized basis.
The categories of decentralized autonomous organizations include DAO voting platforms, DAO curated art platforms and DAO governance platforms. Most DAOs remain in the niche of fintech, media platforms, games and metaverses, but do not enter the real sector. In addition, if a vulnerability is found in the original code, then it will be much more difficult to prevent theft than in a centralized organization.
Decentralized autonomous organizations have great potential, but so far it is difficult for them to go beyond the digital space. The DAO could become one of the key approaches to enable businesses to raise funds and resolve legal issues without the mediation of centralized institutions. This allows you to bypass both bureaucratic difficulties and create a reputation as a “people's” enterprise.
