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Decentralised autonomous Organisations

A Decentralised Autonomous Organisation (DAO) is controlled from the 'ground up' by its members with no central leadership and uses blockchain to facilitate self-enforced rules or protocols. Of course, smart contracts on the blockchain record these rules, while network tokens motivate users to protect the network and vote on regulations.

The following three stages are used to construct a DAO:

  • First, understand the governance challenge you're attempting to codify in order to construct a successful smart contract that will serve as the basis for the DAO.
  • Next, establish the tokenomics of governance, such as monetisation, to ensure a healthy balance of incentives and penalties for harmful conduct.
  • Finally, build the blockchain-powered DAO, ideally with token stakes equal to the rest of the stakeholders. In this manner, there is no power disparity. Most creators, though, gradually relinquish their stakes over time.

As a result, DAOs are both transparent and autonomous.

Governance in a DAO

To organise their governance, Decentralised Autonomous Organisations can create a governance token. These tokens are the same as stocks in a traditional organisation. The governance is then carried out through a series of propositions voted on by members using the blockchain.The relationship between governance token allocation and voting power can be set up in various ways. Here are a few examples: Tokens are proportional to the number of votes cast and voting on a quadratic scale. However, governance incurs high coordination costs due to the requirement for network participants to vote on every decision taken.

A DAO can put up a voting delegation scheme. For example, when the ENS DAO set up their governance token, they issued a call for delegates. In such a system, an individual wallet can sign on the blockchain to delegate their voting power for future DAO proposals to a delegate of their choice. There are different techniques of voting employed by a DAO, some of which are:

  • Token-based quorum voting system: For a proposition to pass, the quorum voting necessitates a particular number of votes (for example, 60% quorum, which means 60% of users with voting power must vote). Once this threshold is reached, the decision with the most votes wins. Conversely, proposals fail if they do not meet the quorum requirement. Traditionally, the quorum requirement has been based on the total number of votes cast. However, certain protocols (such as Compound governance) have a quorum threshold based solely on votes cast in favour of a proposal succeeding.
  • Holographic Census System: DAO stack pioneered the Holographic Consensus technique of voting in DAO. Here, each proposal is associated with a prediction market. Predictors can put money on a proposal that they anticipate will succeed or fail in the form of a stake. They profit financially if their predictions are true. Proposals expected to pass are "boosted," and voting is switched from a 50% quorum to a relative majority (where just For vs. Against votes are considered, and no quorum is required), lowering the barrier to passing proposals significantly. Since you have to pay to attack a project, this voting method naturally safeguards initiatives in the DAO from fraudulent suggestions.
  • Conviction System: The Conviction voting system is a kind of system in which people wager their voting power on ideas, gathering sufficient votes to pass over time. In theory, this voting method protects minority voters against persons with high stakes and differing opinions. As a result, token holders do not need to reach a compromise on every proposal; instead, they can concentrate on the ones they support.
  • The Multisig System: The Multisig system has been chosen by many projects and communities. Here, token holders vote on ideas, which are then carried out by a more centralised committee, which usually controls a Gnosis Safe.

Membership in a DAO

  1. Token-Based: Depending on the token used, it is usually completely open-source. Generally, these governance tokens can be traded on a decentralised exchange without authorisation. Other tokens must be gained through liquidity or other 'proof-of-work' methods. In either case, simply having the token allows you to vote.
  2. Share-Based: DAOs based on shares are more permissible, although they are still very open. Any potential member can propose to join the DAO, usually in exchange for tokens or work. Shares represent direct voting power and control. Members can withdraw their share of the treasury at any time.

Benefits of DAO

The lack of trust required between two or more entities in a DAO is a major benefit of DAOs. While a traditional organisation demands a great deal of trust in its employees, particularly regarding investments made, DAOs merely require trust in the code.

There is no particular hierarchy in an organisation like a DAO. Despite this, it can still complete tasks and grow while governed by its native token. Because there is no hierarchy, any stakeholder can propose an original concept that will be considered and improved by the entire group. Internal conflicts are frequently resolved quickly using the voting method, which follows the smart contract's pre-written regulations.

DAOs let investors combine assets and invest in early-stage enterprises and decentralised initiatives while sharing risks and potential gains.

Setting up a DAO for your business makes it possible to manage assets and vote safely without the need for underlying legal or traditional banking setups, which is beneficial in the current transition to the digital world. However, on the downside, it can carry significant legal and accounting issues within Australia due to the current regulation being unable to keep up yet with the new development in the evolving digital world. This is why you need our specialised team to assist you in exploring how a DAO could work for your company and discuss the potential issues and risks in setting up a DAO structure.

We firmly believe it is the future of business; let us protect that future for you.

faq

How to interpret Tokenomics?

Token + Economics = Tokenomics. The concept is simple, Understand the supply and demand characteristics of a crypto asset to determine its future value.  How many tokens currently exist? Whats the tokens purpose? Is the token inflationary or deflationary? How are the tokens allocated? The answers to these questions can help you determine the potential of a cryptocurrency project.

MODH is a new and innovative business in Australia at the forefront of the blockchain and crypto currency movement.

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