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Blockchain DAO

Learn about the Decentralized Autonomous Organization (DAO), how does it work, importance of DAO in Blockchain, applications of DAO.
Submitted by Vaishnavi Srivastava, on February 02, 2022

The phrase "Decentralized Autonomous Organization" (DAO) refers to an open-source blockchain protocol governed by a set of rules written by its elected members that automate specific tasks without the use of intermediaries. It's a blockchain-based system that allows individuals to organize and manage their affairs. Users must adhere to a set of self-executing public blockchain regulations. The system is not governed by a single political party. Users can also get funding from the DAO by pitching their ideas to the community. Now that you've grasped the fundamentals of DAO development, let's look at how it fits within the blockchain.

How does DAO work?

These smart contracts establish the DAO's rules. Those with a stake in a DAO then get voting rights and may influence how the organization operates by deciding on or creating new governance proposals. This model prevents DAOs from being spammed with proposals: A proposal will only pass once the majority of stakeholders approve it. How that majority is determined varies from DAO to DAO and is specified in the smart contracts.

DAOs are fully autonomous and transparent. As they are built on open-source blockchains, anyone can view their code. Anyone can also audit their built-in treasuries, as the blockchain records all financial transactions. The DAO's regulations are established by these smart contracts. Those who own a share in a DAO are given voting rights and can influence how the company functions by voting on or proposing new governance proposals.

This methodology protects DAOs from being inundated with suggestions by requiring that a proposal be approved by a majority of stakeholders. The method for determining that majority varies from DAO to DAO and is described in the smart contracts. DAOs are completely self-contained and transparent. Anyone may see their code because they are built on open-source blockchains. Because the blockchain records all financial transactions, anyone may audit their built-in treasuries.

Importance of DAO in Blockchain

A DAO aids in the safe and efficient operation of a network by removing the need for manual intermediation by its members. Participants are not bound by a legal contract, but rather by incentives in the form of native asset tokens that encourage them to work together toward a common goal. A DAO serves to speed up network decision-making and activities by eliminating the need for third parties, lowering administration costs dramatically.

Applications of DAO

Here are a few examples of how a DAO might be used:

  1. In non-profit organizations: You can accept membership and contributions from people all around the world using DAO, and the respective organization can decide how to spend the funds.
  2. Another great example of DAO use in the freelancer sector is forming a network of contractors who are prepared to pool their finances for office space and software subscriptions.
  3. Pool investment: A venture fund can be established to pool investment resources and rely on businesses to support it. Money that has been refunded can later be distributed to every DAO member.
  4. DAOs are very functional in a variety of financial fields, and users can use them legally in the appropriate scenario. All you need is a DAO membership to get started.

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