Decentralized autonomous organizations have been around for a while — what are they, and how do they contribute to the crypto space?
The DAO’s rules are embedded into computer code, which executes by itself based on the behavior of the protocol. There is no need to interpret these program rules as they are automatically implemented when the specified conditions occur.
Both the program rules and subsequent actions are recorded on a transparent and secure blockchain ledger, which cannot be tampered with thanks to an immutable timestamp and the distribution of the information to the network participants.
A DAO helps to keep a network safe and optimized without the need for manual intermediation by its members. Participants are not obligated by a legal contract, but rather incentivized by rewards in the form of native asset tokens that help them work towards a unified goal.
For example, say an organization wants to distribute funding for a new project. Instead of wading through red tape to acquire and allocate the funds after approval has been granted, the DAO’s pre-programming ensures the assets are immediately distributed to the right parties without the need for any further administration or paperwork.
In order to attract the financing necessary to run a DAO, the protocol will issue governance tokens to investors that represent not only membership but importantly, voting rights (similar to shareholder rights) needed to make changes to it.
DAOs and Security
The rules that govern a DAO can be very complex and hard to change after they come into effect, as any changes would be incumbent on the writing of new code and network approval by consensus.