by Mike Platis

What is DAO?

The term DAO has become increasingly popular in the digital asset industry and I want to explain it in simplest terms. DAO stands for Decentralized Autonomous Organization. Abstracting the buzzwords away, this is really just a fancy way of saying Organization. 

The main difference between this type of Organization and all others is the fact it lives on the internet and rules of the DAO are governed by code. Whether it is through smart contracts, Discord, or community voting events, the Organization’s participants coordinate their efforts with interactions on the internet.

Today let’s take a look at 3 of my favorite DAOs to showcase the infinite design space for these new internet organizations.

Flamingo DAO

Flamingo DAO is an art investing and collecting group. 64 individual Art Collectors pooled together capital to create a shared Art collection. Their DAO is built on smart contracts with hard-coded rules and governance they all could see and trust. Flamingo DAO participants were able to send money, vote on which pieces they will collect, and hold the art all within the DAO they created. This is thanks to the rules of the DAO being coded in an open-source smart contract – solidifying trust between DAO members.

(Source: The Future of Work by Steve McKeon)

Friends with Benefits DAO

Friends with Benefits DAO is a token-holder only online community. Friends with Benefits is a membership powered community of popular crypto investors, artists, operators, and creators. To join “FWB”, you must hold $FWB tokens, meaning everyone in the community is financially invested in the community’s success. DAO concept here is to have ownership over your community. Token-based communities ensure everyone within the group participates in the upside of the value the community creates together.

Maker DAO

Maker DAO is a decentralized bank. Maker Protocol is just a smart contract that facilitates borrowing and lending in a completely decentralized manner. Without getting too technical, users can lock their ETH into Collateralized Debt Position (“CDP”) and Maker Protocol allows the user to borrow against it in their stablecoin DAI. At the time of writing this, DAI is the 4th most popular stablecoin and has a $6.3B marketcap. The primary responsibility of the DAO is to ensure the stability of their stablecoin’s peg to $1. They do this by adjusting policy for the DAI stablecoin, choosing new collateral types, and improving the governance itself. These decisions are made entirely by a voting process of the MKR token holders.

In Conclusion

As said before, DAOs are rarely “Decentralized or Autonomous”, but rather just organizations on the internet that can trust each other due to open-source code. These DAOs are also extremely difficult to join. Flamingo DAO is 64 well-known crypto art collectors, a full Friends with Benefits membership costs close to $8,000 USD, and MakerDAO’s major voters are the Venture Capital funds that invested in them. 

DAOs are a wonderful experiment in human coordination. Placing trust in the hands of smart contract code instead of institutions. Whether it is for collecting art, fostering friendships, or creating a decentralized dollar – DAOs are vehicles for like-minded persons to align incentives and share the created value.

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CrossTower Inc. provides this content for general information purposes, to better inform you on your digital asset investment journey. We do not provide investment recommendations or provide tax advice. Please consult your investment professional or tax advisor if you require assistance in these areas.

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