Guide to DAOs and Their Role in Web3
Written by  Daisie Team
Published on 8 min read


When it comes to understanding the world of Web3, you can't ignore DAOs. They're like the engine under the hood of a car—without them, things just don't run smoothly. They're essential to the whole operation. So, is it worthwhile learning about DAOs and their function in Web3? The short answer is, absolutely. This guide will take you on a journey through the world of DAOs, explaining what they are, how they work, their benefits and challenges, their role in Web3, and a glimpse into their future. Yes, you're in for a treat!

What are DAOs?

DAO stands for Decentralized Autonomous Organization. It's a mouthful, but don't be intimidated. Decentralized means that power and control are not concentrated in one place, like a boss or a head office. Instead, control is spread out among members. Autonomous means it runs by itself, with little to no human intervention. This is thanks to smart contracts—computer programs that automatically enforce agreements between people.

Think of a DAO as a virtual company that's run by its members. There's no CEO calling the shots. Instead, everyone has a say. It's like a digital democracy. DAOs are a key part of the Web3 world, where power is distributed, and people have more control.

Why is it worthwhile learning about DAOs and their function in Web3? Because DAOs have the potential to reshape how we work and collaborate online. They can change the way we manage resources, make decisions, and even how we trust each other. So, if you're interested in the future of the internet, you definitely want to understand DAOs.

Here's a fun fact: The first DAO was called "The DAO." It was launched on Ethereum in 2016. But things didn't go so well—due to a loophole in its code, someone managed to steal millions of dollars. But don't worry, DAOs have come a long way since then. The DAO debacle was a valuable learning experience, and today's DAOs are safer and more secure.

How DAOs Work

Imagine you're part of a book club. Each member gets to suggest a book, and everyone votes on which one to read next. DAOs work somewhat similarly. But instead of books, they're dealing with decisions about funding, governance, and operations. And instead of meeting at someone's house, everything happens online, on the blockchain.

Here's how it works: DAO members propose ideas or projects. Then, everyone votes on those proposals. The more tokens or shares you own in the DAO, the more voting power you have. It's a bit like owning stock in a company. Except, in this case, the company is virtual, and the shareholders are scattered all around the world. The proposals that get the most votes are approved and automatically enforced by smart contracts.

Now, you might be thinking: How can you trust a system like this? What if someone tries to cheat or manipulate the vote? Well, that's where the power of blockchain comes in. Blockchain is a type of technology that records all transactions in a public, tamper-proof ledger. So, it's almost impossible to cheat or manipulate the system. That's one reason why learning about DAOs and their function in Web3 is so important—they're a glimpse into a more transparent, fair, and democratic way of doing things.

And remember, DAOs are autonomous—that means they run by themselves, with minimal human intervention. Once a decision is made, the smart contract automatically carries it out. There's no need for a middleman or a bureaucrat to enforce the rules. The system takes care of it all. It's a bit like a self-driving car. Once you set the destination, it takes you there, navigating traffic and obstacles along the way.

Isn't that neat? By now, you might be starting to see why learning about DAOs and their function in Web3 is not just worthwhile—it's downright fascinating!

Benefits of DAOs

Okay, so we've covered how DAOs work. But why should we care? Why is it worthwhile learning about DAOs and their function in Web3? Well, that's because DAOs offer some pretty impressive benefits. Let's take a look at a few of them:

1. Transparency: With DAOs, everything is out in the open. Each transaction, each vote, each decision—it's all recorded on the blockchain for everyone to see. No more backroom deals or shady practices. It's like having a glass house in the middle of the city.

2. Democracy: In a DAO, every token holder gets a vote. It doesn't matter if you're a millionaire or a student with just a few spare bucks. As long as you own tokens, your voice matters. It's like being part of a giant, global town hall meeting.

3. Efficiency: DAOs cut out the middleman, making them faster and more efficient than traditional organizations. There's no red tape or bureaucracy to hold things up. It's like taking a speedboat instead of a cruise ship.

4. Accessibility: Anyone, anywhere, can join a DAO, as long as they have internet access. It doesn't matter if you're from New York, Nairobi, or New Delhi. It's a truly global, inclusive model. It's like a worldwide potluck dinner—everyone's invited, and everyone brings something to the table.

5. Innovation: DAOs are on the cutting edge of technology. They're experimenting with new ways of doing things, pushing the boundaries of what's possible. It's like being part of a high-tech lab, constantly inventing and innovating.

These benefits make DAOs a compelling topic to explore and understand. So, if you're wondering "is it worthwhile learning about DAOs and their function in Web3?", the answer is a resounding yes!

Challenges with DAOs

Alright, we've talked about the benefits of DAOs and why it's worthwhile learning about their function in Web3. But let's not put on rose-colored glasses just yet. DAOs, like anything else, come with their own set of challenges. Here's what you need to keep an eye on:

1. Security: DAOs live on the blockchain, and while that provides transparency, it also opens up a whole new world of cyber threats. It's like leaving your door wide open—you might let in a fresh breeze, but you're also inviting in anyone who walks by.

2. Governance: Democracy sounds great. But when everyone has a say, decision-making can become slow and cumbersome. It's like trying to pick a movie to watch with a group of friends—everyone has an opinion, and reaching a consensus can take ages.

3. Legal Uncertainty: DAOs are a new concept, and the legal landscape around them is still unclear. It's like navigating uncharted waters—there could be hidden reefs or sudden storms ahead.

4. Technology Gap: Not everyone is tech-savvy, and DAOs require a certain level of technical knowledge. This can exclude individuals who might otherwise be interested. It's like trying to join a game of chess without knowing the rules.

5. Volatility: DAOs often use cryptocurrencies, which can be highly volatile. This can lead to financial instability and risk. It's like riding a roller coaster—there might be thrilling highs, but there are also chilling lows.

So, while it's worthwhile learning about DAOs and their function in Web3, it's equally important to be aware of these challenges. As with any new technology, the key is to approach with curiosity, but also caution.

Role of DAOs in Web3

Alright. Let's move on to the next question on your mind. How do DAOs fit into the whole Web3 puzzle? Why is it worthwhile learning about DAOs and their function in Web3? Let's break it down.

1. Decentralization: Web3 is all about creating a decentralized internet, and DAOs are the backbone of this new structure. They're like the town councils of the internet, making decisions based on community input.

2. Transparency: In Web3, transparency is key. And DAOs, with their open-source codes and public ledgers, are about as transparent as you can get. They're like glass houses, where everyone can see what's going on inside.

3. Interoperability: In the Web3 world, different platforms and systems need to work together seamlessly. DAOs, with their standardized rules and protocols, can help make this happen. It's like having a universal remote that can control all your devices.

4. Financial Inclusion: DAOs can help bring financial services to those who are currently underserved. With decentralized finance (DeFi), anyone with internet access can participate in the global economy. It's like opening a bank that anyone, anywhere can join.

5. Innovation: By putting decision-making power into the hands of the many, DAOs can drive more diverse and creative solutions. It's like having a brainstorming session with people from all walks of life—you're bound to get some unique ideas.

So, when we talk about the role of DAOs in Web3, it's clear they play a crucial part in shaping this new decentralized internet. Understanding DAOs and their function in Web3 is like learning the rules of the game—you're better equipped to participate and make informed decisions.

Examples of DAOs

Now that we've covered the role of DAOs in Web3, let's dive into some real-life examples. These will help clarify how DAOs work and why understanding them is worthwhile. So, let's pull back the curtain and see these DAOs in action.

1. The DAO: The first and most infamous DAO was simply called "The DAO". It was created on the Ethereum blockchain in 2016 and raised over $150 million in a crowdfunding campaign. However, it was hacked, leading to a loss of around $50 million. Despite this setback, it served as a learning experience for future DAOs.

2. MakerDAO: MakerDAO is a decentralized lending platform that allows users to borrow and lend cryptocurrency. Decisions are made by MKR token holders, demonstrating the power of decentralized decision-making in action.

3. Aragon: Aragon is a platform that allows anyone to create and manage a DAO. It's like a toolbox for building your own decentralized organization. This example highlights the potential for DAOs to democratize organization creation and management.

4. MolochDAO: MolochDAO is a grant-making DAO that funds Ethereum infrastructure projects. MolochDAO shows how DAOs can be used to pool resources and fund projects that benefit the entire community.

5. Uniswap: Uniswap is a decentralized exchange governed by its token holders. This example illustrates how DAOs can be used to operate and manage decentralized platforms and services.

These examples demonstrate the diversity and potential of DAOs. They can be used for funding, governing, lending, and much more. It's like having a Swiss army knife for the decentralized web. Clearly, learning about DAOs and their function in Web3 is not just worthwhile—it's fascinating.

Future of DAOs

Alright, we’ve seen what DAOs are all about and some examples of them in action. But where are DAOs headed? Is it worthwhile learning about DAOs and their function in Web3 if they're just a passing trend? Don't worry, DAOs are more than just a flash in the pan. Let's peer into the crystal ball and see what the future might hold.

Greater Adoption: As more people get comfortable with the idea of decentralized decision-making, we're likely to see a rise in the number and diversity of DAOs. This means more opportunities for people like you and me to participate in DAOs and influence the development of Web3.

Legal Recognition: In some jurisdictions, DAOs are beginning to gain legal recognition. This is a big step forward as it provides DAOs with the same legal protections and responsibilities as traditional organizations.

Improved Governance Models: As DAOs evolve, they'll likely experiment with different governance models to address their unique challenges. This could lead to more efficient and fair decision-making processes.

Integration with Traditional Systems: DAOs and traditional organizations don't have to be mutually exclusive. We may see hybrid models where DAOs are used to augment traditional organizational structures, providing the best of both worlds.

Increased Security: As DAO technology matures, we'll likely see improved security measures to prevent hacks and other security breaches. This will make DAOs more reliable and trustworthy, encouraging further adoption.

In short, the future of DAOs looks promising. With increased adoption, legal recognition, improved governance models, integration with traditional systems, and increased security, DAOs are set to play a significant role in the evolution of Web3. So, is it worthwhile learning about DAOs and their function in Web3? Absolutely. By understanding DAOs, you're not just keeping up with the times—you're getting a head start on the future.

If you're fascinated by DAOs and their role in the Web3 ecosystem, don't miss the workshop 'Start Your web3 Journey' by Tom Glendinning. This workshop will provide you with a solid foundation in the world of Web3 and help you better understand the importance of decentralized organizations in the future of the internet.