What is a DAO? Looking at Its Potential Use Cases in the World

Decentralized Autonomous Organizations (DAO) have emerged as one of the most significant innovations within the blockchain ecosystem in recent times. DAOs offer a productive and secure platform for collaborating with like-minded individuals across the globe. 

Imagine a DAO as an internet-native business collectively owned and managed by its members. The rapid growth of DAOs in recent years has sparked considerable interest in prominent DAO examples and use cases.

Businesses and individuals are seeking clarity on how these decentralized autonomous organizations have managed to gain popularity in such a short span. A real-world example, Constitution DAO, successfully raised over $47 million in 72 hours with the aim of purchasing a rare private copy of the U.S. Constitution. 

Although the DAO was unsuccessful in the auction, the event clearly proved the potential of DAOs in bringing revolutionary transformations in the crypto space.

Are DAOs only meant for fundraising? While fundraising is definitely one of the top DAO use cases, there are many other potential uses worth exploring. 

Furthermore, examples of decentralized autonomous organizations also provide insights into the various ways of using them. The following discussion presents an overview of the use cases and examples of DAOs to understand the value they offer.

What is a DAO?

Before diving into DAO examples, it's important to understand a brief definition. A Decentralized Autonomous Organization is essentially a smart contract with the built-in capability to collectively manage code. DAOs do not follow the traditional governance model that relies on a limited group of individuals. 

Instead, DAOs leverage a set of rules in code that every computer running the smart contract executes. All members of the DAO can access information regarding the organization’s actions and finances, as well as use their voting rights in decision-making processes. 

At the same time, DAOs also ensure benefits such as lower barriers to entry and easy global access with anonymous operations.

Also Read: AB, New Name for Newton DAO

How Do DAO Work?

The working of decentralized autonomous organizations relies heavily on smart contracts. A comprehensive understanding of how DAOs work will help in understanding the various examples of decentralized autonomous organizations. 

Smart contracts in a DAO serve the purpose of laying down the organization’s rules and holding the organization’s treasury. DAO members can only change the rules in the code through voting. The rules and logic within the smart contract code prevent unauthorized spending of the organization’s treasury and other malicious actions. 

Without any central authority, the organization's decisions are taken collectively. Based on this functionality, DAOs can provide crucial support for various use cases.

What Can DAO Be Used For?

The unique, decentralized, and autonomous design of DAOs is one of the primary advantages that make them suitable for various use cases. Even in their initial stages of development, there are many DAOs operating today, with MakerDAO being one popular example. So, what are DAOs used for today? 

Can decentralized autonomous organizations be applied to any activity that has value? Here are some of the DAO use cases highlighting their practical value.

Proposal Execution

The foremost use case of DAOs is the facility for members to hold ‘shares’ in the organization. Members can use these shares as a representation of their voting rights and receive rewards accordingly. 

One of the renowned DAO examples, Curve DAO, leverages an Automated Market Maker model to provide rewards to token holders. Therefore, individuals who keep their shares in the organization for a longer period tend to receive more rewards and voting power. 

This voting power enables members to determine the direction of the organization’s operations. Apart from the privilege of executing proposals, members can also participate in various activities such as rewarding and hiring employees.

Funding Decentralized Projects

Another top DAO use case worth noting is fundraising for investment or grant purposes. These funds can be used to sponsor decentralized applications and completely new types of crypto-related projects. MetaCartel Ventures is a case in point for the use case of DAOs for raising investment funds in dApps. Similarly, Moloch DAO and LAO are other popular examples of decentralized autonomous organizations that showcase the use of DAOs for raising investment funds to sponsor new projects. 

In this use case, DAOs help members in contributing funds and voting for suitable projects for investment. Subsequently, members hold a stake in the project and receive a share of the project’s profits.

Crowdfunding

DAOs can also provide value beyond the world of blockchain and crypto by supporting crowdfunding initiatives. If you want to know "What can DAOs be used for?", you should also take note of how DAOs can help in raising funds to support specific causes. 

The example of Constitution DAO is a real-world testament to how decentralized autonomous organizations can help in pooling funds for a particular project.

Decentralized Application Governance

One of the biggest answers to the question "what are DAOs used for" points to the possibility of dApp governance. As the DeFi ecosystem grows rapidly, developers are looking to expand the decentralization aspect beyond the network level. 

DAOs can help dApp developers make users trust the platform more than the developers. DAOs with dApps can support users in proposing changes to the decentralized application and giving voting rights to token holders.

NFT-Based Investment

Prominent DAO use cases also include a focus on NFT-based investments, which are starting to gain momentum with the growth of the NFT market. 

Many NFT holders can stake their NFTs to gain voting rights and earn tokens as a representation of fractional ownership of a pool of assets. One of the DAO examples for NFT-based investments is HeadDAO, where members have collective ownership of blue-chip NFTs.

Metaverse Decentralization

The discussion on "What can DAOs be used for?" would also focus on how DAOs can support decentralization in the metaverse. 

Many metaverse platforms have employed DAOs to facilitate decentralization by allowing members to vote on changes in the game and the overall ecosystem. For example, the Decentraland DAO helps members of the 3D world to vote on various changes in the platform and its ecosystem.  

Also Read: What is DAO (Decentralized Autonomous Organization) in Crypto?

What are Examples of DAO?

An overview of decentralized autonomous organizations would be incomplete without discussing examples. You need to observe examples of different types of DAOs to identify how they work in the real world. Here are some prominent DAO examples across various categories.

Protocol DAO

The most common variant of DAOs refers to protocol DAOs, which offer ownership and governance mechanisms to support lending platforms. Here are prominent examples of decentralized autonomous organizations in protocol DAOs:

• Uniswap is one of the largest Ethereum-based decentralized exchanges, developed with its own governance system and token.
• Aave, another decentralized platform, also leverages a DAO to govern platform decisions.  
• MakerDAO, the original DAO in the DeFi world, has grown as the governance mechanism for the popular DAI stablecoin.

Investment DAO

Investment DAO work like investment funds. Some prominent examples of investment DAOs include:

• LAO was created as a member-managed venture capital fund based on the DAO model.
• MetaCartel Ventures is a sub-DAO within the larger MetaCartel DAO, focused on investing in early-stage dApp projects.

Grant DAO

The next answer to "what are examples of DAOs?" refers to Grant DAOs, which are designed for funding new projects, generally within the DeFi ecosystem. Some popular examples of grant DAOs include:

• Uniswap Grants is a promising DAO system designed to manage the distribution of funds from the UNI Community Treasury to support new DeFi projects.
• Moloch is another prominent name in grant DAO examples, with its share-based model serving as the foundational framework for many new DAOs today. Interestingly, Moloch DAO offers the basic design for a Minimum Viable DAO. Therefore, it offers effective support for off-chain decision-making and simpler code.

Social DAO

The overview of decentralized autonomous organizations also includes social DAOs, one of the most peculiar groups of DAOs. You can think of them as exclusive clubs where you can gain membership by purchasing a specific amount of the DAO’s tokens.

• The Bored Ape Yacht Club NFTs are one of the prime examples of a social DAO. You can purchase a BAYC NFT and become a member of an elite club with many celebrities. These NFTs are connected to distinct ‘bored ape’ profile pictures. Currently, the Bored Ape Yacht Club’s actual DAO and governance aspects are still under development. However, it meets the basic premise of a social DAO.

Conclusion

The rapidly growing popularity of DAOs clearly draws attention to prominent DAO use cases and best practices for leveraging them. Decentralized Autonomous Organizations have all the capabilities to replace governance applications and investment groups with the power of decentralization. 

However, the idea of adopting DAOs on a large scale heavily relies on how the challenges associated with them are addressed. For example, not everyone can write or maintain smart contracts on a large scale.

On the other hand, many DAO projects have successfully achieved governance or investment pooling objectives. The freedom from centralized management and the prospects for forming new types of crypto projects make DAOs increasingly attractive. DAOs have proven successful in the DeFi space and could influence the future of crypto. 

The idea of decentralized governance with DAOs also strengthens the arguments for the future of DAOs. Learn more about decentralized autonomous organizations in detail and discover their true potential now.  

FAQ

What is a Decentralized Autonomous Organization (DAO)?

A DAO is an organization built on blockchain technology, governed by rules encoded as smart contracts. Decisions are made collectively by its members through voting, rather than a central authority.

What are some examples of well-known DAO?

Examples include protocol DAOs like Uniswap, Aave, and MakerDAO; investment DAOs like LAO and MetaCartel Ventures; grant DAOs like Uniswap Grants and Moloch; and social DAOs like the Bored Ape Yacht Club.

Are DAO completely immune to risks?

While DAOs offer many benefits, they are not entirely without risks. Smart contract vulnerabilities, governance attacks, and regulatory uncertainties are some of the potential challenges.

How can I participate in a DAO?

Participation typically involves acquiring the DAO's governance tokens, which grant voting rights. The specific requirements and processes for joining a DAO can vary.