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What is a DAO?  (Decentralized Autonomous Organization) • Benzinga


In just 4 days, a group of crypto investors pooled their funds in an attempt to buy 1 of the remaining 13 copies of the U.S. Constitution. This was made possible by a DAO, or a decentralized autonomous organization. A DAO is like a stand-alone business, but instead of employees, DAOs only have shareholders.

DAOs can strive to achieve a number of goals, from buying the constitution and collecting metaverse mode NFTs to sustaining the future of protocols like Uniswap and DAI stablecoin. DAO members can create proposals for other members of the decentralized community to vote. If a proposal is accepted, the DAO can automatically perform chain actions such as trades or issuing shares to new members. Many believe that DAOs are one of the most powerful applications of smart contracts because of their flexibility. Smart contracts are pieces of code that are executed on the blockchain, with the aim of exploiting decentralization.

How does a DAO work?

If you’ve ever sent a cryptocurrency transaction before, you already know the basic structure of how a DAO works. DAOs use blockchain technology to record transactions made over the network to a digital ledger, which is then backed up by a reliable time stamp on a distributed ledger. This allows the system to operate without the risks and financial costs associated with a central point of failure.

DAOs are applications with rules coded into the structure of the network to automatically launch smart contracts when predefined conditions are met. The goal of a DAO is to allow network users to participate in transactions while maintaining control of their identity and personal data by avoiding the use of a trusted third party to perform a network transaction.

CAD and security

Once a DAO is operational, it takes a majority vote to update DAO code or implement bug fixes. Since the code is visible to all users but cannot be easily edited, bugs can potentially be exploited without a quick way for developers to fix them.

Hacking “The DAO”

The most notable example of security flaws in DAOs was the hacking of a now defunct DAO called “DAO”. The creators of DAO believed that by developing a stand-alone, decentralized application, they could reduce human error in contract execution. After launch, researchers reported numerous issues with the DAO code, which, like all DAOs, was visible to all users. Hackers exploited these security holes in June 2016, accessing 3.6 million Ether tokens worth around $ 50 million at the time. After the hack, the Ethereum blockchain was forced to serve as a DAO bailout. In September 2016, major exchanges removed the token from the DAO, marking the effective end of the project.

Advantages of DAOs

Despite the potential security concerns, DAOs offer a number of benefits to consumers and users, including:

  • Transparency. Users of a DAO can clearly see the code that governs the network as well as all the transactions that take place on the blockchain. This provides users with a high level of transparency compared to a centralized network.
  • More efficient organization. Instead of using a central trusted third party to perform operations on the network, DAOs use predefined code and conditions to automatically perform these contracts. This eliminates many of the costs and security risks associated with relying on a third party.
  • An autonomous structure. DAOs offer investors a unique opportunity to submit proposals and ideas to improve the organization. Thanks to the autonomous structure of the DAO, any investor can submit a proposal, regardless of their participation in the network. Submission of proposals also costs money, which improves the quality of the submitted proposals by ensuring that the users who submit the submission have an interest in their submission.

Risks of Decentralized Autonomous Organizations

The DAO exposed many risks related to the structure of these organizations. Some of the most important risks include:

  • Security risks. The code of a DAO is clearly visible and difficult to edit once the system is up and running. This makes it easier for hackers to exploit bugs and flaws in the code, which was one of the factors that contributed to the massive DAO hack in 2016.
  • Lack of government precedence. As a developing technology, there is no government precedent for how DAO works, and the legal status of this type of technology is still unclear. This presents future risks for developers hoping to implement DAO.

DAO shareholder

If you have ever bought and sold cryptocurrencies like Bitcoin or Ethereum, it will be very easy for you to become an investor in a DAO. Each DAO issues its own coin which you can buy and sell freely on major exchanges in the same method you would use to buy and sell other types of cryptocurrency. After opening an account with a broker, you can become a “shareholder” in a DAO network by investing in its coin offering through these brokerage exchanges.

Let’s take a look at some examples of current DAO tokens and where you can invest in DAOs.

DAO tokens

Here are some examples of currently active DAOs that you can invest in through brokerage exchanges.

  • Dash (DASH). Dash (whose name comes from the expression “digital money”) is an open source blockchain that aims to provide users with a faster, more affordable way to send money. Dash was developed as a fork of Litecoin and aims to improve the core technology behind Bitcoin by providing users with more security and lower fees on the network.
  • Manufacturer (MKR). Maker is the governance token of the decentralized MakerDAO organization built on the Ethereum network. The Maker system was one of the first DAOs dedicated to the decentralized financial sphere, which aims to eliminate third party constraints within the financial sector.
  • Augur (REP). Augur is a decentralized prediction market built on the Ethereum network. It allows users to bet on the outcome of sporting events, election results and more by purchasing stocks that support or disprove a specific event outcome.

Where to buy DAO tokens

You can buy and sell DAO tokens using cryptocurrency brokerage accounts. If you already have a crypto broker account, you may already have access to some of the more popular DAO tokens. If you don’t have a brokerage account yet, you can open one using some of our favorite brokers below.

The future of DAOs

The first area of ​​interest of future investors for the use of DAO technology is the world of decentralized finance (DeFi). Decentralized exchange platforms like Compound, yearn.finance and Uniswap rely on DAO technology to act as governance of their networks. In the future, it is possible that additional yield farming and decentralized exchanges will implement DAO technology to help govern new and exciting DeFi technology and solutions.

Is DAO a Dapp?

A decentralized application (dApp) runs using a network of peer-to-peer connections. DApps operate without the use of a single central computer that initiates and executes transactions. DAOs are a very ambitious form of DApp that includes its own set of rules that dictate the organization and how it works.

Start investing in DAOs

While the high-level technology behind DAOs may seem complicated, investing in DAO tokens is almost the same as investing in any other type of cryptocurrency. After opening your account, you will place a buy order through your broker, who will then complete your order and deposit your tokens or coins into your brokerage account. You can then transfer those investments to a private wallet for safer long-term storage.

Frequently Asked Questions

What are some examples of DAO?

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What are some examples of DAO?

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Sarah horvath

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When most people think of DAOs, their first thought goes to the now defunct The DAO network which was effectively terminated in 2016 after a hack. However, there are also many examples of working DAOs. Examples of DAOs currently in use include MakerDAO, Dash, and Augur.

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Benzinga

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What is DAO in the bank?

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Sarah horvath

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Investor interest in DAOs and DAO technology has led to the creation of a number of decentralized DAO-based financial solutions. Examples of the use of DAOs in the financial sphere include yield farming operations and decentralized exchanges like Uniswap.

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Benzinga

Benzinga has developed a specific methodology for classifying cryptocurrency exchanges and tools. We prioritized platforms based on offers, prices and promotions, customer service, mobile app, user experience and benefits, and security. To see a full breakdown of our methodology, please visit our Cryptocurrency Methodology page.


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