A DAO (Decentralized Autonomous Organization) is as an organization represented by rules encoded as a transparent computer program (smart contracts), controlled by the organization members, and not influenced by a central government.
As the rules are embedded into the code, no managers are needed, thus removing any bureaucracy or hierarchy hurdles. The most prominent example is MAKERDAO, which is a fully decentralized DAO behind the MAKER stablecoin.
Some use-cases that are being applied for DAO’s today include:
In investment DAOs, participants use the DAO’s governance tokens to vote on which projects to invest in. Such a DAO will also have an address which holds all of its assets in a multi-sig wallet which requires multiple signatures to authorize transactions used to allocate capital in a very fluid way.
One recent example is a crowdfunding round by BitDAO, a DAO which is reported to have raised $230 million from 2,497 investors in 20 min on August 16, 2021. This happened on MISO, a token launchpad by decentralized exchange Sushiswap.
According to Cooper Turley, a crypto analyst at The Defiant:
“We’re seeing a lot of DAOs raise capital to a community-owned bank account and use that capital to pay people in the same way you would a company, except it’s all being done on-chain by crypto tooling.”
– Crypto Analyst, The Defiant
The main aim of investments when it comes to DAOs is to support web3 projects by providing easy access to funding and building a thriving venture capital sector for them.
DAOs are made up of loose grassroots networks with anything, from a handful to thousands of participants, as opposed to traditional funding organizations which can be hierarchical, elitist, localized, and lacking in transparency.
Other benefits from Investment DAOs include:
Can draw investors from across the globe
More flexibility in terms of investment size and types
A social bond or uniting ethos as opposed to functional organization