Understanding of the term
DAOs are organizations based on open source code and operated entirely by their communities. Some ?properties of DAOs in crypto include democratization, voting rights for members, implementation of voting outcomes without trusted intermediaries, and transparency.
Blockchains record financial transactions and rules for DAOs with the help of smart contracts. This eliminates the need for third parties to be involved in financial transactions. The complexity of an organization’s smart contract is determined by the number and complexity of stakeholders and the processes it governs within the organization. Use cases can depend on the organization’s purpose and governance rules.
There are different models for DAO membership, such as reputation-based membership (e.g. DXdao), token-based membership (e.g. MakerDAO), and share-based membership (e.g. MolochDAO).
In order to operate, DAOs need a set of rules, funding as tokens to reward certain activities of their members, as well as voting rights to establish the rules of operation. This can maximize the potential of DAOs for purposes such as buying NFTs, investment, fundraising, and charity.
A DAO solves governance and transparency issues by using a self-enforcing open-source protocol. The usage of smart contracts in DAOs is bringing forth a new model of business, focused on decentralization, transparency, and automation.