Decentralized Autonomous Organization (DAO)
Imagine if all of Facebook's future upgrades, features, management of their treasury funds etc... was controlled by its users.
Meaning if Facebook wanted to remove the "like" button on pictures, the proposal would have to pass a majority vote by anyone that owns Facebook shares.
It doesn't stop there, all of the ad-revenue and profits Facebook keeps in its treasury would be controlled by Facebook shareholders.
Whether you own 1 share of Facebook or 100,000, you can vote on every governance matter.
Q: What makes a DAO different than a company's board of directors?
A: In a DAO, every token holder can sit at the table and have a voice.
Q: How many votes does a person have in a DAO?
A: Every token you own represents a vote.
Q: Can't rich people buy up tokens and control the DAO?
A: A hostile takeover is unlikely because without the app's users, the "rich" person controlling the DAO will have his tokens lose value from users selling off their voting tokens on the open market. A DAO gives everyone skin-in-the-game.
Q: So you have to have a lot of money to have a meaningful vote?
A: Nope! Majority rules, every vote counts. The cool part is that people can delegate their votes to a member in the community who's opinion they trust. And that person gains a lot of say in the DAO, without needing a lot of money to purchase voting tokens.
Q: How do we know there isn't vote manipulation?
A: DAOs are special because voting happens on the blockchain. Meaning every vote and wallet that voted is public and available for everyone to see. When a vote is finished, it is irreversible and no one can manipulate or delete a vote or its outcome. This is why we like the blockchain.
Q: Tell me about these voting tokens...
A: DeFi apps that want to take-on a DAO format, such as Compound, will issue their own governance crypto coin. Compound's token for example,(COMP) gives anyone who holds it, the ability to vote on any Compound governance proposal. Every governance token is a cryptocurrency which can be bought and sold freely on the open market.
Summary of DAOs 📜
- Community-run organizations via shareholder voting.
- Cryptocurrency tokens hold voting power.
- Larger shareholders can write proposals to be voted on.
- Your tokens can be delegated to whoever you'd like to represent your vote.
- Token holders decide the future of the app/game/protocol at hand.