Cryptocurrency has flooded the financial sector, and decentralized autonomous organizations (DAOs) are one of the most prominent players in the field. So what are DAOs and their possible role in the financial world of 2022 and beyond?
DAO stands for Decentralised Autonomous Organisation.
- Decentralized means there is no sole regulator in any decision-making process.
- Autonomous means something governs itself.
- An organization means a community of individuals joined together by a common goal.
In other words, a DAO is a community of members who can propose, vote, and govern its structure, as well as the future of any project within the organization. Note that such entities operate on smart contracts.
The History of DAOs
It was in 2016 when a few Ethereum members created the DAO, also referred to as Genesis DAO. People could send Ether in exchange for DAO tokens, which became one of the top ICOs ever. DAO tokens would allow people to participate, pitch ideas and receive funding for projects.
This promising project terminated when a hacker stole $70 million worth of ETH. This put the whole Ethereum community into confusion and resulted in DAOs failing to progress within the next few years.
DeFi and DAO’s Second Chance
With the boost of the DeFi movement, DAOs have a second chance to prove their importance. That’s right! DAOs found a way to gain re-entry.
When DeFi began to gain momentum in 2020, there was also an increase in the interest in governance tokens. Different tokens launched that permitted users to collaborate across projects, including Aave (AAVE), Uniswap (UNI), and Compound (COMP). If you are interested in investing in some of these projects, we have got some good news: many platforms can help you enter the market. To provide an example, you can visit Immediate Edge and connect with a broker at the click of a button. However, always trade due diligence!
DAO’s Current and Emerging Trends
Despite the failed attempts of the earliest DAOs to achieve their goals, now DAOs are making a comeback and even becoming viral among mainstream news outlets. This surge in the popularity of DAOs could be attributed to the growing number of non-fungible tokens (NFTs). One of the popular DAOs today, for example, is “Friends with Benefits” which connects artists, crypto enthusiasts, and NFT collectors.
Investment DAOs are the next emerging trend in the financial markets. Experts exist who believe that traditional Venture Capital (VC) models will be disrupted by DAOs. Moreover, Web3 enthusiasts can benefit from DAOs to group together and rival conventional financial institutions.
Challenges to Adopting DAOs
Despite the boost in popularity, DAOs have to undergo many challenges on their journey. Even with the positive response from the crypto community, DAOs still need to streamline and upgrade their processes. User-friendly interfaces and tools are also required. Regulations set by regulatory agencies will be another hurdle that DAOs need to overcome as they flip over into mass adoption.
In the end, decentralization is a complex principle, and many claim that despite the participation and collaboration of users, there is still a degree of centralization across the sector. Let’s not forget that some wealthy whales may want to obtain dominance by purchasing the majority of the tokens. Tech and safety issues and fail-safes also need targeting.
Decentralized Autonomous Organizations are complex structures. However, with the increasing use of DeFi solutions, NFTs, and crypto among investors, it would be natural for DAOs to abound.
So we can just wait and see what DAOs will achieve!