A DAO is born!
By: Vittorio Minacori
Tags: Dao, Smart Contracts, Ethereum, Blockchain, Erc20

What is a DAO?

A DAO (Decentralized Autonomous Organization) can be seen as the most complex form of a Smart Contract, where the bylaws of the decentralized organization are embedded into the code of the Smart Contract, using complex token governance rules.

At today’s evolutionary stage, a DAO materializes as a Smart Contract (a piece of code) executed on top of a distributed networking and consensus technology like the Ethereum blockchain or similar blockchains.

The idea of a decentralized organization takes the concept of traditional organizations and decentralizes it. Instead of a hierarchical structure managed by a set of humans interacting in person and controlling property via the legal system, a decentralized organization involves a set of people interacting with each other according to a protocol specified in code and enforced on the blockchain.

How DAOs work

Decentralized Autonomous Organizations (DAOs) run through rules encoded as computer programs called Smart Contracts. It is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do.

Tokens of Transaction: In order to exist a DAO needs some kind of internal property that is valuable in some way, and it has the ability to use that property as a mechanism for rewarding certain activities. The funding takes place directly upon creation of the organization. DAOs do not have a hierarchical structure, nor executives or management.

In order to exist a DAO needs some kind of internal property that is valuable in some way, and it has the ability to use that property as a mechanism for rewarding certain activities. The funding takes place directly upon creation of the organization. DAOs do not have a hierarchical structure, nor executives or management. Autonomous: Once deployed the entity is independent of its creators and cannot be influenced by outside forces. DAOs are open source, thus transparent and incorruptible. A DAO’s financial transaction record and program rules are maintained on a blockchain. This approach eliminates the need to involve a bilaterally accepted trusted third party in a financial transaction.

Once deployed the entity is independent of its creators and cannot be influenced by outside forces. DAOs are open source, thus transparent and incorruptible. A DAO’s financial transaction record and program rules are maintained on a blockchain. This approach eliminates the need to involve a bilaterally accepted trusted third party in a financial transaction. Consensus: In order to withdraw or move funds from a DAO, a majority of its stakeholders (this percentage could be specified in the code of the DAO) must agree on the decision. Even if bugs are found in the code, they could not be corrected until a voting procedure has taken place and the majority of voters agreed on it, which could leave known security holes open to exploitation.

In order to withdraw or move funds from a DAO, a majority of its stakeholders (this percentage could be specified in the code of the DAO) must agree on the decision. Even if bugs are found in the code, they could not be corrected until a voting procedure has taken place and the majority of voters agreed on it, which could leave known security holes open to exploitation. Proposals: Proposals are the primary way for making decisions in a DAO. To avoid people overloading the network with proposals, a DAO could require a monetary deposit to prevent people from spamming the network.

Proposals are the primary way for making decisions in a DAO. To avoid people overloading the network with proposals, a DAO could require a monetary deposit to prevent people from spamming the network. Voting: After submitting a proposal, voting takes place. DAOs allow people to exchange economic value with anyone in the world, like investing, money raising, lending, borrowing, without the need of an intermediary, just by trusting the code.

DAOs as Crowdfunding Vehicles

Since Smart Contracts run on top of public blockchain networks such as Ethereum, they can be programmed to collect and manage real economic value in arbitrarily large amounts referred to as ICO.

Improving the ICO model by merging in some of the benefits of DAOs, but doing so in a way that minimizes complexity and risk will be the future of Crowdfunding.

What is a DAICO?

The DAICO crowdsale model was proposed by Vitalik as a mechanism to increase the accountability of development teams regarding the promises made to their token holders.

It essentially consists of a Smart Contract that limits the amount of funds the development team is able to withdraw to a predetermined rate over time. This rate is what is referred to as the tap and can be increased by the token holders if they see that the development team requires additional resources. However, if the token holders lose confidence in the ability of the development team to fulfill its promises, they can decide to shut off the tap and initiate a refund process which allows them to redeem their tokens for the remaining unspent funds in the contract.