As early as 2016, the first decentralized governance scheme called “TheDAO” appeared on Ethereum to coordinate investment and governance in theDAO treasury. The history of DAO is also officially opened at this moment. Of course, the development of the first DAO is not smooth. The DAO’s treasury was hacked and lost funds, which later even led to the hard fork of Ethereum. However, the development of DAO has entered a new development since then. situation. If Web3 is a grassroots movement, then DAO is an important tool to support this movement. Such a brand-new organization and governance paradigm has entrusted all people’s imagination of decentralized autonomous organizations since its birth. After four years of development, DAO has grown into a popular choice for managing digital native groups in the encrypted world, and a revolutionary entrepreneurial direction in the Web3 industry. Currently, there are more than 200 traceable DAOs, with assets under management exceeding $10 billion. As DAO is more integrated into Web3, encryption, creator economy and many other fields, it has also led to the industry’s discussion on more issues of DAO, such as horizontal governance and legal issues; vertical technical issues such as tools. This article will share with you the status and prospects of DAO’s programmable governance. DAO is the abbreviation of Decentralized Autonomous Organization. A DAO is a new type of digital-first entity that shares similarities with traditional corporate structures, but with some additional features, such as smart contracts to automate the enforcement of operating rules. DAOs have many structures, but all DAOs operate collectively, with members making decisions democratically. No one individual wields control in a DAO like a traditional CEO or senior management team.

How to build a DAO

DAOs are often composed of strangers who are geographically dispersed but share a common goal. Individuals first come up with an initial idea on a social platform, and if there is enough traction, this will attract people from all over the world, while turning a concept from an initial idea into a well-functioning DAO requires a group of developers to create a The smart contracts that make up the DAO core operating system. A smart contract is a self-executing computer program used to make decisions by establishing rules such as voting mechanisms. These smart contract programs can also complete transactions. Once certain conditions are met, these smart contracts as code automatically come into effect. Once a DAO has established a core set of rules and embedded them in smart contracts, it needs to raise capital. DAOs typically raise funds by issuing tokens, a form of digital currency tied to smart contracts. Token offerings will be made through public or private offerings, and the funds raised will go into the DAO’s treasury. These tokens represent a form of ownership, but unlike traditional equity, these tokens give the holder governance rights over the DAO. After a DAO has completed its funding phase and is operating on the blockchain, its original creators have no more influence over the DAO project than any other DAO member. From this point forward, DAO decisions are made by all members, who must agree on governance proposals.

Classification of DAOs

After a long period of development, DAO scenarios have become diverse. Here is a brief summary of different types of DAOs according to their uses.

1. Governance protocol DAO: For the development and management of decentralized applications (dApps) or infrastructure, the protocol DAO mainly focuses on open source technologies, similar to companies or foundations. These DAOs issue protocol tokens for governance. Token holders typically vote on proposals that implement changes to the underlying network. For example: MakerDAO, Compound, Uniswap, Aave, etc.
2. Invest DAO: Invest DAO is a collective pool of capital created to benefit from different investment opportunities. Investing in DAOs is primarily focused on generating profits for its members, similar to private equity funds or hedge funds. For example: BitDAO, MetaCartel Ventures (Venture DAO).
3. Social DAO: A very interesting community experiment organized around common goals and ideals, managing a shared social space, jointly owning something of artistic value, or providing cultural cultivation and related activities for its members. It mainly revolves around social aspects such as entertainment, art, games and life, similar to social clubs in traditional society. For example: Bored Ape Yacht Club, etc.
4. Funding DAOs: Provide funding matching to areas such as charity, politics, and public goods, similar to traditional organizations such as charities, lobby groups, and grant programs. For example: Gitcoin.
5. Other DAOs: Other types of DAOs are difficult to fit into one category, but their core purpose is to unite a community with a common goal.

DAO Governance Tool

DAOs often use a set of standardized tools to demonstrate their functionality, mainly by combining multiple tools listed below to form a multi-layer DAO structure. A. Governance Token: A token issued by the DAO that grants the holder specific powers within the DAO. The biggest use of governance tokens is voting (e.g. 1 token = 1 vote). B. Voting contract: A smart contract that coordinates token-weighted voting on the chain. The contract must meet the threshold and quorum of participants predetermined by DAO members or DAO representatives before it can be approved. This can be achieved through multi-signatures or through proposals submitted as executable code. C. Multi-signature wallet: A smart contract requires enough predefined addresses to sign a message to implement changes to the protocol. Multisig is often used by DAOs to implement on-chain changes to the protocol based on off-chain snapshots, or as a security measure in emergency situations. D. Delegation system: A mechanism that allows token holders to delegate their voting rights to other parties to vote on their behalf. E. Off-chain snapshots: On-chain token-weighted voting through off-chain signatures. First, take snapshots of on-chain balances and addresses to determine voting rights, and then vote on DAO proposals. This way, you don’t have to pay on-chain transaction fees , which can significantly increase community engagement. F. Forum: The social layer of the DAO, bringing members together to present and debate ideas in an open manner. Such as Discourse, Discord, and Telegram groups, etc. G. Reputation system: The reputation system is mainly to give more value weight to individuals who often participate or provide valuable insights for DAO, and it is still in the early stages of development. A DAO must decide how to combine these tools to create an overall governance process that satisfies its members’ balance of efficiency, cost, and trust minimization. Each DAO will be optimized according to its members’ philosophies, values, and the vision of the DAO.

Programmable Governance for DAOs

Through the componentization of technology and APIs and contextualizing the relationship between analog and digital environments, DAO will create a new opportunity for business and people and governance, which can be called “DAO programmable governance”. Know that although a DAO is ostensibly made up of people, at its core, a DAO is unlike any other group of people in that it is governed by code. In programmer parlance, users interact with the DAO through an API, or Application Programming Interface. In a decentralized blockchain-based system, these APIs take the form of publicly callable functions on smart contracts. Although the DAO is programmed by humans, the real power of the DAO is its smart contracts. DAOs are essentially programmable components that perform functions through APIs. The next step in DAO composability is to extend the functionality of DAO itself, and accordingly extend the reach of the DAO API. Governance is a permission management system that enables the collective intelligence of smart contract developers to create building blocks for governance experiments. The permission management system is an on-chain DAO framework for granting and revoking permissions to plugins and token holders. For example, a DAO creator would set permissions to determine how someone gets money from the treasury: who can vote, how many votes are required, and how many voters need to be present.

Future outlook

Through decentralization, DAOs are a revolutionary creation in the Web3 world, marking a new chapter in crypto history. As expected, DAO has been applied to the fields of politics, art, finance, entertainment, etc., and different types have been derived according to the usage. However, in the DAO structure that everyone can govern, it is extremely easy to cause some new problems: for example, voting rights are more about purchasing power than professional level; for example, the founders or initial voters of DAO may obtain higher-level governance For example, the efficiency of majority governance is lower, and the decision-making is more lengthy; in addition, the risk of DAO governance attacks has also been exposed in recent years. It can only be said that for DAO to be truly effective, there is obviously still a long way to go to explore the progress of the governance structure.