DAOs are an essential tool in the DeFi space because they allow people to organize around a specific token project in a decentralized fashion, bringing more significant equity and democratization to the crypto world. Despite their potential to transform the DeFi space, a recent survey by FTX revealed that DAOs continue to fly under the mainstream radar, with only 10% of respondents taking full advantage of multiple DAOs. Here are a few details about DAOs and how they may benefit you.
Characteristics of a DAO
What is a DAO in the crypto world, and how does it benefit its members? DAOs are built with three key characteristics: decentralized decision-making, token-based membership, and transparent governance. These characteristics work together to create a more equitable, accessible, and fair community.
While traditional digital communities such as forums, digital bulletins, and social media platforms are all governed by a central authority like a corporation or board of executives, DAOs are governed through lines of code. This code is encrypted within the blockchain network with all of the rules for the community, such as financial management and dispute resolution mechanisms. Because this code is infallible, no individual within the community holds a hierarchy over others. This system mitigates the risk of corruption or bias within the community, ensuring all voices and ideas are heard equally.
To join a DAO, traders must first invest in the underlying cryptocurrency used on the blockchain network hosting the DAO. Token holders will get access to DAO resources and be given a vote in all community decision-making outside of the coded rule set. By requiring a stake in the blockchain to join the DAO, the success and sustainability of the token and the DAO are tied together, making it somewhat a self-sustaining community. Token holders can benefit not only from joining the DAO but also from holding that specific token. For example, FTT holders can join the growing FTX DAO and receive rewards such as token airdrops and fee discounts on FTX.
Finally, transparent governance is another essential characteristic of DAOs. Because these communities are housed on blockchain networks, all decisions, votes taken, and rules executed will be recorded and publicly accessible through the network. This further minimizes the risk of corruption and allows for a significant amount of trust between community members and the DAO structure as a whole.
Challenges Facing DAOs Today
Though DAOs are growing in popularity, they are widely unknown and continue to face specific challenges when creating truly decentralized and fully secure communities like these.
The first DAO was created on the Ethereum blockchain in 2016. The platform quickly gained popularity as an investment club and venture fund, but hackers were able to steal nearly $60 million from the community due to a flaw in the code of the DAO. This incident destroyed a lot of the trust between the public and these types of systems. This incident also revealed one of three significant challenges facing DAO communities worldwide: security. DAO projects implemented now must put security at the top of their priority list to create the dynamic communities that DAOs are meant to be. DAOs must be highly secured to protect their members’ vested interests and liquidity.
Another challenge that faces new and existing DAOs is scalability. Because DAOs are built on blockchain networks, they can only grow as quickly and be as efficient as the underlying blockchain. So, if your blockchain is weak and cannot scale, neither will your DAO. As you consider which DAO to join, look at the sustainability of the blockchain and whether it can support a large-scale community such as a DAO.
Finally, a third significant challenge that may pose problems in the future is the current legal standing of DAOs and how their decentralized nature fits in with regional law enforcement and national regulations. As DAO projects continue to emerge, these challenges will be overcome in various ways, and the DAO model will become a more secure and reliable community structure. Today, there are several highly popular and secured DAOs, but be sure to conduct ample research before investing in these communities to ensure you’re making the best decision for your financial goals.
Join a DAO Today
Joining a DAO is a great way to become an influential crypto community member and gain greater control over your investments. You will have a say in the future of these blockchain projects and cryptocurrencies as a member of a DAO. You can learn more about DAOs through FTX and search for the best option for your financial goals.