The first time I heard about A DAO, I thought it had some relation to Daoism: a Chinese philosophical tradition and religion. I was trying to understand how this could relate to the blockchain. It turns out I was overcomplicating it, and of course falling into an acronym trap, in which each subculture or profession has some acronyms that are believed to be shared by the whole group, but they aren't. The same thing happened to me when I entered tech and people were talking about PoC, as in "Proof of Concept, and for me it was "People of Color" 🤪.
So, in Web 3, What is a DAO?
DAO stands for Decentralized Autonomous Organization: It is a mechanism to involve people in making decisions about the Blockchain. It allows people to vote for implementing a change or a measure, or against it. But how do you get the right to vote? In some countries, you can vote only if you're an official citizen of the country, and in others, you get to vote in some elections after living a certain number of years in the country. To be able to vote in the DAO, you need to possess what is called a governance token, and some DAOs require people to stake it (lock it in to help secure the network, gaining rewards on it as an incentive). Some DAOS require you to lock your tokens, because they want to avoid vote-flipping, meaning moving their tokens from address to address to cast multiple votes. When participants don't have to stake their tokens, sometimes the way to enable their votes is to take a snapshot of the number of tokens they hold in a certain period of time.
Voters, as I previously mentioned, can vote for the proposal, against it, or delegate their vote to someone else. To delegate your vote, you should trust the participant to whom you are delegating your vote. How do you check if you trust and align with the views of this participant? You check their community contributions and what they have said in their discussions.
Sometimes the proposal is rejected because the quorum is not reached, meaning that there were not enough votes for the proposal to be accepted or rejected.
To make this more illustrative, I will include here an image of the LISK DAO.
Here we can see that the wallet I connected has no governance tokens; therefore, my account has no participatory rights. All proposals are currently inactive, and from the ones we can see on the list, four have been executed, and one did not reach the quorum to be executed.
If we click that proposal, we can see the bubbles showing the major voters and that the quorum was not reached. We also get some information about the proposal: The date in which it was created and how the participants voted. Below, but not in the screenshot, we will find the abstract of the proposal, the motivation, and an action plan for execution.
To recap, a DAO is an organization within a community that enables participatory decision-making. It sounds very cool. However, some questions appear in front of this kind of organization, with no single point of management (decentralized) and which is independent (autonomous). Let's explore some of these:
If the power of voting is granted by holding governance tokens, then the entity that holds more tokens, like a whale, will have a greater voting power, and this could embody a plutocracy. Plutocracy is a system in which the wealthiest exert an outsized influence and wield the greatest power in decision-making, often at the expense of the general population. Because of this, there are some DAOs that do not grant voting power exclusively due to holding governance tokens.
Community is something that is inseparable from a DAO. It helps to make decisions in a non-hierarchical way. However, when many proposals don't reach the quorum, what does this tell us about the community? Or how can this affect the community? Maybe if its just some proposals, and if we look at the timeline it is because people tend to be more disengaged during certain times of the year. However, if this happens regularly, the community might become more apathetic. It can also be that the proposal is not something that interests all token holders, or something they don't want to think about.
Almost every big protocol has a DAO and it is the mechanism by which they make changes to the protocol: Making proposals, getting feedback, and executing on the positively voted proposals. Apart from the plutocracy concern, a positive point from having voting power attached to holding tokens is that the people who are voting have "skin in the game" and therefore are interested in what will happen and in the changes that will or will not take place.
Yet, a token holder does not necessarily equal an expert, so even if they think a change will be better or worse, maybe they are just deciding from a gut feeling.
Another challenge for DAOs is that when there are too many cooks in the kitchen giving their feedback on proposals, it may mean that they may never get implemented.
To recap: DAOs are a way of self-organized communities to decide on changes. Community engagement is important to move forward. However, there are still questions around only prioritizing token holding as a filter for participation, due to plutocracy concerns, knowledge, and getting too much feedback from many people. Currently, DAOs are experimenting with these questions, and that is why there are different kinds of DAOs with different sets of rules.
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