What is the governance structure of a DAO?
Bitcoin’s creator Satoshi Nakamoto proposed a decentralized peer-to-peer system in his white paper over ten years ago. The new technology now enables users to transact while retaining data confidentiality and integrity, even though it was initially designed to be utilized as a P2P money system.
A number of stakeholders have expressed concerns about the governance structures associated with blockchain technology. For example, a decentralized autonomous business (DAC) uses cryptocurrencies to represent shares in a DAC whose rules are specified in the source code. This concept was introduced in 2013 under decentralized autonomous organisations (DAOs).
Because DAOs lack a conventional physical framework, they represent a company more than an individual application. It is designed to operate independently, with some control given to humans over specific processes—the users who own DAOs, as opposed to businesses that create and maintain conditional transactional systems.
There are various other examples of decentralized governance models, some of which will be discussed in this article. These include ConstitutionDAO, Ethereum Name Service DAO, Friends With Benefits DAO, and JuiceboxDAO. Decentralized governance and DAO models for decentralized governance are described in this article.
What is the purpose of a DAO?
Rules for the DAO are built using smart contracts, which are devised by a core team of community members. In addition to providing the foundation for DAO activities, intelligent contracts also contribute to its success. Since they are apparent, verifiable, and auditable, any potential member can fully comprehend how the protocol will work at all times.
Token holders are then granted the ability to vote on DAO governance issues by issuing tokens to finance the DAO treasury. Finally, a DAO is activated after the financing round has been completed. Code changes to smart contracts cannot be made without a vote by members.
Governing models for DAOs
Below are sections outlining the different approaches to DAO governance.
The Constitution DAO
Decentralized autonomous organization (DAO) allows people to pool their money through cryptocurrencies like Bitcoin (BTC) and Ether (ETH).
Many people were persuaded to purchase copies of the US Constitution by a core group of individuals. However, while Discord was buzzing with discussion for the week, no votes were taken.
There was a very slim chance that the DAO would achieve its objective. A total of $43.2 million was raised at auction for the relic. To cover taxes and the costs associated with relocating, safeguarding, and ensuring the Constitution, Sotheby’s cap on the DAO’s offer was $43 million.
All donations received after the auction were refunded in full by the DAO. Those who declined refunds retained their PEOPLE governance tokens as a reward for their contributions.
Ethereum Name Service DAO
The Ethereum Name Service (ENS) DAO was launched through a famous airdrop and delegate request. As a result, each registered Ethereum domain receives an ENS token. This airdrop received a lot of social media attention because some individuals received many tokens.
Three layers of governance control the ENS process:
Blockchain-based name service DAO
ENS DAO’s decentralized governance was launched with the renowned airdrop and delegation request. Each Ethereum domain registered receives an ENS token. There was a lot of interest in this airdrop because several people shared it on social media.
Forums and Discord are the most common places to find suggestions. Afterward, they are voted on through Discord. The constitution of the DAO was the first proposition to be voted on. The recommendations were evaluated using this constitution, which also served as a set of guidelines for the ideas.
It is difficult and sluggish to implement this governance strategy. Only 1% of the members are needed to execute the proposals. In terms of voting standards, this is a relatively small number, indicating that only a few delegates have the potential to advance ideas.
As part of this DAO, suggestions can be introduced in three categories:
The recommendations of the DAO fall within four workstreams: governance discussions and meta governance modifications, community-oriented proposals, ENS adoption promotion, and suggestions for a thriving ecosystem.
There are five stewards in each group, essentially the organization’s managers. They perform the following duties:
- Coordinating administrative tasks related to a working group’s operations
- Setting working group objectives and a detailed plan for achieving them, which should be posted on the ENS governance forum within 30 days of the term beginning.
- providing a description that explains the focus and goals of the working group
- asking the DAO for money to support a working group
- A working group may approve and provide funding to its subgroups, workstreams, or contributors
It comprises a collection of Web3 pioneers, such as artists, inventors, and intellectuals. The FWB token is used as a doorway to the FWB DAO, which offers a place for like-minded individuals to come together.
It is no longer possible to create FWB tokens, and one million tokens (formerly 10 million) are available. Once called FWB classic, it is now known as FWB. In the meantime, the FWB pro token has replaced it.
The Friends With Benefits DAO
The Friends With Benefits DAO is comprised of Web3 pioneers, including artists, inventors, intellectuals, and others. The token functions as a doorway to the FWB DAO by connecting you to like-minded individuals.
The number of FWB tokens available has been reduced to one million (formerly 10 million). FWB classic tokens were once called FWB classic tokens. The FWB pro token has taken over its place.
With Friends With Benefits DAO, governance by consensus has evolved from a straightforward solution to a multi-group strategy based on Discord for discussion, paper for codification, and Snapshot for voting. It will be implemented the suggestions that have the highest support.
As a result of FWB’s upvote paradigm, community members can submit and vote on proposals they find interesting. In addition, the tactic helps curate such submissions to be timely and substantive.
The ideas are then developed, arranged, and cleaned in preparation for the community’s review and vote. As a result, the structure and content of the proposals are more consistent.
Through JuiceboxDAO, projects can raise money from the general public by using Ethereum’s public smart contracts. You can create a fundraising page, create a funding structure, decide how to distribute cash, and give community members tokens.
Creating a treasury and distributing tokens to community members are difficult and time-consuming tasks for supporters of decentralized finance (DeFi). With JuiceboxDAO, groups can set up and manage this fundraising process from start to finish without having to deal with most of the complexity.
A centralized and formal governance structure governs Juicebox. Voting occurs in 14 cycles, which makes this organization stand out from others. Your proposal will be formatted workshop-style after posting it to a Discord channel.
The sponsors will submit the Snapshot proposal for a vote once they have reached a sufficient level of agreement on the suggestions. Once a request has been approved, it is implemented.
The future of DAOs
Through decentralized finance, quantitative economic choices can be validated more efficiently. Moreover, as automated trust mechanisms include simple standards for assessing the benefits of straightforward or complex transactions, they have been demonstrated to be effective.
It is important to note that this type of organization varies from jurisdiction to jurisdiction regarding its legal standing. DAOs are considered unauthorized unregistered securities by the US Securities and Exchange Commission.
While Wyoming became the first state to recognize CryptoFed DAO as a business organization in 2021, it was not the first to receive this recognition. It is possible for a DAO to operate as a corporation, even if it has no legal existence because it is referred to as a general partnership in law.
Even though this cooperation strategy could be lawful, any known players or people who are involved in this cooperation could face regulatory action if they breach several regulations.