As the crypto world continues to grow, DAOs are gaining popularity and traction as a means of organizing communities within the decentralized finance space. DAOs seek to create new decentralized communities for crypto investors built on blockchain networks that will give token holders greater control over their investments and decision-making power within their blockchain networks.
As the DeFi space grows, DAOs will continue to gain popularity. Still, today, a recent survey by FTX uncovered that 65% of people do not know what a DAO is, regardless of being invested in cryptocurrency. That same survey also discovered that many respondents would consider joining a DAO if a friend recommended it, showing that social media and other interpersonal connections are essential in the growth of these digital communities. This could be because the DeFi space is still relatively unknown to many new investors, and the decentralized finance projects of the past have seen some significant challenges. Here’s a quick overview of DAOs, how they work, and why you should consider joining one.
The First DAO
The first DAO was launched on the Ethereum blockchain in 2016 and quickly gained popularity as an investment club and venture capital fund. However, a flaw in the code of the blockchain network allowed hackers to steal nearly $60 million from the digital community, significantly reducing the public’s trust in DAOs. Since then, however, many DAO crypto projects have been created that better address challenges when it comes to security, scalability, and legalities.
What is a DAO?
Traditional digital communities like digital bulletin boards, forums, or social media platforms are all governed by a central authority like an executive board. These hierarchical structures can lead to problems of corruption, fraud, or bias when it comes to who’s ideas get heard within the community. DAOs are built with three key components that work to combat these issues and create a more equitable community. These components are decentralized decision-making, token-based membership, and transparent governance.
Decision Making
As mentioned, hierarchical structures within digital communities can bottleneck innovation and lead to corruption. This is why DAOs are built to be governed through lines of code and democratic voting procedures rather than a central human authority. These lines of code are not biased and will execute the community’s rules through smart contracts whenever specific conditions are met. The blockchain that the DAO is built on will encrypt the community rules, such as conflict resolution mechanisms and financial management systems, so the governance of the community remains honest, fair, and reliable.
Token Membership
To join a DAO, you must hold a stake in the cryptocurrency that backs the community. By investing in and holding these tokens, you can join the DAO, gain access to its exclusive resources, and receive voting power whenever a decision is made within the community. Not only do you get access to a large digital community of crypto enthusiasts, but you will get first-hand crypto news and other specific perks depending on the DAO you choose to join. Some DAOs like the FTX DAO will also offer rewards to their FTT coin holders through airdrops or discounts on trading fees. By making token ownership necessary for entry into the DAO, the success of the DAO and the token are tied together, creating a stronger and more sustainable community as more members join.
Transparency
Transparent governance is at the heart of DAOs. Because DAOs are hosted through blockchain networks, all decisions made, votes taken, and rules executed within the community are recorded infallibly through the blockchain network. This mechanism significantly reduces risks involved in organizing communities like this regarding corruption and bias. DAOs will democratize the crypto world and allow those with a stake in tokens to have a say in the governance of that token and the future of the blockchain.
You can learn more about DAOs through FTX and join one today. DAOs will continue to grow in popularity in the years to come as more DeFi investors join these digital communities.
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