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What is a DAO/DAC?

02 September 2019 | 0 comments | Posted by Che Kohler in Money Talks

distributed autonomous organisation explanation

Blockchain and cryptocurrency have given us the foundation of what many are calling web 3.0. This new infrastructure has given rise to new ways of using the internet without a central authority.

It is now possible for online communities can come together, collect funds, decide how to distribute them and execute tasks without the help of a central body.

This new way of managing business operations with limited or no human interaction is referred to as a DAO (distributed autonomous organization) or DAC (distributed autonomous corporation).

What is a distributed autonomous organisation?

The fundamental description of a DOA is an organisation that has no central authority making decisions. Instead, the organisation are operated, grown and generates a profit (in some cases) through a large community of supporters. In the case of the blockchain, DOA's run with specific programmatic rules in place. 

The provisions of the DAOs are coded into the blockchain, and if all members/entities agree they will begin to perform the various duties put forward. A DAO makes decisions based on the overall consensus of all parties involved and then grants access to funds and allows tasks to execute on the chain.

How does a distributed autonomous organisation work?

DAOs rely on smart contracts or pre-programmed rules that describe what can happen in the system. These smart contracts can be programmed to carry out a variety of tasks, such as doling out funds after a specific date or when a certain percentage of voters agree to fund a project.

Some proponents say it can work for an organisation where any decision needs are required, not just those related to money.

In theory, a DAO is used to cryptographically guarantee democracy, where stakeholders can vote on adding new rules, changing the rules, or ousting a member.

What are examples of distributed autonomous organisations?

If you want to learn more about how DAO's work, see them in action, participate in a DAO or create one of your own, then these chains or dApps are ones you should be following.

DashDAO

Launched in August 2015: 10% of the Dash block rewards go into a pool to fund proposals to grow the Dash network/ecosystem. In this DashDAO, anyone can pay 5 Dash to create a proposal to ask for funding.

Dash Masternodes (who need to lock at least 1000 Dash as collateral) vote to decide which projects should or should not get the funding.

MakerDAO

It is created on the Ethereum Mainnet back on the 17th Dec 2017. MakerDAO was created as a DAO to administer the running of its stable coin called DAI. A DAI value is pegged relative to the US Dollar.

Dais are minted by locking in some Ethers (or other assets in the future) into Collateralised Debt Positions (CDPs).

Aragon DAOs

Aragon allows anyone to create simple DAO easily in just a few steps.

Pivx - Governance DAO

Pivx has a DAO option that allows users to put forward projects for funding and this is voted on by Masternode owners each month once a Superblock is completed.

STEEM - SPS - Steem Proposal System

The STEEM blockchain has a DAO proposal system where users can create proposals that are voted on by the stake based community. Approved projects are then funded from a subset (10%) of the overall reward pool.

Practical examples of how a DAO could work

If you still can't wrap your head around the concept of a DAO or DAC then here are two examples of how they could be implemented today.

Disaster relief - DAO

A DAO could be set up to allow anyone who wants to support disaster relief in a specific area. Donators could send money to this Smart contract built on the blockchain and run by the DOA. Users who are affected can then prove they are ones affected by the disaster by geolocation and oracle data of affected residence and gain access to a portion of the funds based on the communities guidelines for allocation. 

This means donators can see where their contributions are sitting and recipients receive the funds almost directly from the donators via this DAO pool without any middle-man needing wages or taking funds and channelling towards themselves. Everything is open and decentralised for all to see who the donators are and who the receivers are and how much was moved through the DAO.

Vending machines - DAC

A DAC could be set up by a vending machine company to be placed in schools for example. Those who use the vending machine pay with their cryptocurrency and the money from the various vending machines are pooled into the DAC fund. The DAC then redistributes the funds to the various suppliers who fill the finding machines as soon as products are sold so the value is transferred instantly.

The DAC also reminds suppliers to restock and can even allow for multiple suppliers to stock one vending machine with various products and all get paid from individual sales instantly. There is no need for a middle man or payment providers taking a cut and everything is handled by the consensus by all parties involved in the DAC.

Tell us your cryptocurrency story

Have you been part of a DAO? How do you think DAO's could help? Let us know in the comments below.

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Recommended reading

If you enjoyed this post and have a little extra time to dive deeper down the rabbit hole, why not check out the following posts on cryptocurrency and blockchain.

Tags: Cryptocurrency, Blockchain

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