What is DAO | Encrypted | In the article you will find:

  • How does DAO work?
  • Principal-agent dilemma
  • Types of control in DAO
  • 3 steps to start DAO
  • Views of DAO
  • Pros of DAO
  • Cons of DAO
  • Today we’ll talk about what is DAO. After all, this is one of the key concepts on which the concept of Web3 (Video Version) is built.

    What is DAO? We explain in 9 minutes! (ProstoCrypta)

    Today, in the section “Just Crypto” we will talk about what DAO is.

    Let’s start with what DAO is literally. It is an acronym that is made up of the words Decentralized Autonomous Organization, abbreviated as DAO. If it is very rough, then this is an organization that works according to the rules that are written in the code using smart contracts. And it all happens on the blockchain. These rules, as well as further changes and actions, are proposed and approved by members of the DAO members. And now let’s analyze it all in more detail and with examples.

    Как работает Дао и что это такое на INCRYPTED

    How DAO Works ?

    Do you know how big companies like Apple, Google or Netflix work? They have a board of directors that makes certain strategic decisions by voting on specific items. In fact, they set the rules for the company, set big goals, and so on. As a result, a list of necessary actions is obtained, for which the performer is responsible – the CEO of the company.

    So, DAO does not have a CEO because it runs on code and smart contracts. That is, all decisions made are carried out without human intervention, automatically. This part is responsible for the word “Autonomous”. Instead of a board of directors, which is very difficult for ordinary mortals to get into, there are DAO members who have the right to put forward proposals and vote for certain decisions. This part is responsible for the word “Decentralized”. Decisions can be anything: allocating grants to developers, changing commissions, remuneration for farming, changes in smart contracts, and so on. or buy on the market after the launch of the platform. The more tokens, the more weight when making decisions.



    Principal-Agent Dilemma

    One of the main problems that such autonomous organizations must solve is the so-called Principal-Agent Dilemma. The problem is that when an individual or entity (the “agent”) is empowered to make decisions or act on behalf of another entity or individual (the “principal”) there is a risk of divergent goals, priorities, or access to sensitive information.

    A vivid example is politics. We vote for certain parties or deputies, as a result of which we essentially delegate to them the right to make the most important decisions. Prescribe laws, appoint ministers and everything else related to government. It is no secret that the interests of deputies often differ greatly from the interests of those who elected them. funds. In DAO, in order to perform any action related to the spending of funds, an open and honest vote of participants on the blockchain is necessary. And the distribution itself takes place automatically using smart contracts without human participation.

    Types of control in DAO

    But DAO somehow inherits some features of current systems. For example, there are 2 types of control:

    • Direct Democracy.

      That is, any member of an autonomous organization proposes anything, and decisions are made by general vote.
      Как работает Дао и что это такое на INCRYPTED

    • Representative Democracy.

      When the community elects representatives who are responsible for making operational decisions. This allows you to make decisions faster and more efficiently. It seems like modern politics, but users still have the ability to veto any decision, and at any time recall the representative if the work is unsatisfactory.

    • You can also distinguish 2 types of DAO:

      • Prescriptive. A certain group of people (most often a team of core project developers) has already created the rules of the game and the community adapts to them, getting certain opportunities.

      • Descriptive.

        Allows the community to create the criteria by which this community will function.

      • 3 steps to run DAO

        • Create a smart contract. First, the developer or development team must create a smart contract on which the DAO will be built. Once launched, they will be able to make changes to the rules and mechanisms only through the system of voting and distributed control. Therefore, they need to be careful not to make mistakes that could lead to security holes, but more on that later.

        • Financing. After creating a smart contract, the community needs to decide on the source of funding and how to activate governance. Basically, the community creates tokens and sells them to raise funds in exchange for the voting rights that these tokens provide.
        • Deploy to blockchain.

          Once all preparatory steps are completed, it is necessary to pour the smart contract onto the blockchain. From now on, the control system is activated, and developers can influence decision-making only through voting.

        • Типы управления в DAO

          Types of DAO

        Let’s go over the types of such organizations in order to understand what they can be used for.

        • Типы управления в DAOInvestors.

          These are funds that make decisions through the DAO. This community, which has decided to raise a certain amount of funds in the pool, registers and invests in projects. Shares, distribution of profits are made using smart contracts, decisions are made by voting. Examples: Metacartel, the LAO, Stacker Ventires, Syndicate.

        • Типы управления в DAOProtocol.

          These are projects like Compund, Uniswap, Aave or Yearn Finance, which usually release their tokens after the launch of the protocol and distribute yat them among users. Autonomous communities in such protocols do not decide 08% of what is happening inside, but have a number of directions where they can affect the operation of the protocol. For example: how tokens are distributed on farming, the size of commissions or the principle of their calculation. At Compound, all suggestions from the community are somehow related to the technical component of the protocol.

    • Типы управления в DAOProject. They are closest to classic financial organizations and companies. By holding their token or staking it somewhere, you get the right to the profits of the protocol and the right to participate in the decisions of the protocol. Project DAOs create products that make money. For example: Index Coop, Pie DAO, Badger DAO, Yam Finance and others.
  • Типы управления в DAOCurators. Essentially the same as investors, but they are focused on NFTs and other Crypto Art invest in them. For example: Flamingo, Gremlins, B2DAO, Whales, Metafactory and others.

  • Community. Unite around one idea and work on it. PleaserDAO, for example, got together to buy NFTs together and became very rich afterwards. Meta Gamma Delta supports projects run by women.
    Как работает Дао и что это такое на INCRYPTED
  • Creator.

    Individual artists who are supported by the community and unite around their idol in the DAO, in turn receiving some kind of bonuses. One of the most popular Coinartist.

  • Guilds. Associations of freelancers in different areas of activity, or full stack. They approach projects and offer their services, whether it be design or coding or both. It’s pretty hard to get there, but it’s still a DAO. For example: Raid Guild, Dorg, Deep Work.


  • Pros of DAO

    Let’s discuss Main advantages.

    • Trustless. You don’t need to trust CEO, or manager, or any executor, since everything is written in a smart contract, which is uploaded to the blockchain and everything happens automatically.
    • They cannot be closed.

      In the case of traditional companies, a conditional FSB or FBI may come and say: “You are closing.” Or, for example, give us information about this guy. And you will be forced to comply. In the DAO, the decision to close can only be made by voting according to the rules of the DAO. And it will be physically difficult to stop the work of an autonomous organization, since smart contracts work autonomously in the blockchain, which is validated by thousands of nodes around the world. Как работает Дао и что это такое на INCRYPTED

    • DAO is Open Source.

      This means that everyone can review the code and even suggest improvements. Generally, Open Source provides more reliability, since a large number of developers can participate in writing and reviewing the code. Plus, through suggestions and voting, they can help fix the found bugs.

    Cons of DAO

    But DAO also has a number of disadvantages, which we will talk about now.

    • No business secrets. In ordinary organizations there is a Research & Development department that spends a lot of money on the development of technologies and mechanisms, and usually this is all under the strictest confidence, in the hope that someday it will all pay off. Naturally, they do not want to share their secrets with other companies in order to maintain a competitive advantage. In the case of DAO, as you have already seen, this is Open Source, anyone can see how smart contracts are written, how it all works.

    • Uncertainty of legislation. Participants may be located in different jurisdictions. Different countries have different legislation, and some have not even defined the rules by which DAOs should operate. On the one hand, it is good that the government does not yet know what to do with them, but someday they will get to that and distribution across different countries may not be very convenient.

    • Susceptibility to hacker attacks.

      Since the DAO is open source, it can be watched by people with evil intentions . And instead of offering to fix the bug, they just use it to hack, as they did, for example, in the case of the DAO. One of the most high-profile and first cases in the history of DAO hacking, when thousand users collected $48 million, and then the hacker cracked the code and stole $01 million

    Как работает Дао и что это такое на INCRYPTED  Instead of output

    In order for a little dive deeper into the world, we advise you to watch our stream “How to make money on DAO?”, or read the squeeze.

    How to make money on DAO?

    The topic of the stream is very interesting — DAO. How governance is structured, what you should pay attention to, why all this is needed, and most importantly, how you can make money on it.


    Frequently asked Questions:

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    What is Blockchain?

    (English blockchain, “chain of blocks”1642173217068) is a special type of base data accessed by a huge number of people at the same time. This “distributed ledger” technology provides the system with an unprecedented level of security. Due to the fact that copies of the current version of the blockchain are located simultaneously in different parts of the world, hacking some computers will not affect the operation of the entire system. Also important is the fact that there is no single body or organization that can influence this database. We tell in detail in the article.

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    Типы управления в DAOWhat is a smart contract?

    Smart contracts are converted into an electronic code, stored and repeated in the Blockchain system. They help to exchange funds, property, shares and much more in a transparent way, without intermediaries. Read more in the article.

    What is WEB 3?

    Roughly speaking, Web 3.0 is a new stage in the development of the Internet, which will most likely use blockchain technologies and other decentralization tools like DAO. Why “most likely” because it is not yet clear whether it will be exactly the blockchain technology, or they will come up with something new, what kind of blockchain or blockchains it will be, how they will interact chat with each other and so on. It’s too early to say anything for certain. Everything you need to know about WEB 3.0 in our article.

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