Picking a name to define Decentralized Autonomous Organizations (DAOs) could be tricky. Some people call them, indeed, organizations, while others also call them communities, entities, governance systems, corporations, or organizational structures. In some places, they’re legally recognized as companies or general partnerships.
We can say that they’re a group of people (a sort of community, indeed) digitally united by a common cause, without centralized leadership. They manage common funds and have the right to vote through governance tokens and smart contracts. That’s how a DAO can work: with the rules of an algorithm on a Distributed Ledger, instead of any human middlemen.
If you’ve been in the crypto world enough, maybe you’ve already participated in a DAO or something very similar, without even noticing. There are some famous DAOs around now, handling very popular DeFi platforms: Uniswap, AAVE, Arbitrum, Lido, Maker, Curve, ApeCoin, and so on.
Potential Issues vs. Benefits
The concept of DAOs gained significant attention with “The DAO” by Slock.it in 2016, an Ethereum-based project aimed at decentralized venture capital funding. While it raised over $150 million in ether (ETH), a flaw in its smart contract allowed an attacker to siphon funds, resulting in a controversial Ethereum hard fork to recover the stolen assets. This incident highlighted the security risks of DAOs, especially when smart contracts—immutable and transparent—contain vulnerabilities.
Auditing code thoroughly is critical to avoid potentially catastrophic consequences. Another major issue could be legal uncertainty, depending on jurisdiction. Governance tokens, which often provide voting rights, can resemble securities under laws like the U.S. SEC’s Howey Test if they offer profit expectations. Projects may face regulatory scrutiny, risking fines or operational bans. On the other hand, places like Utah and New Hampshire legally recognize DAOs.
Despite these challenges, DAOs offer compelling advantages. Their decentralized nature ensures decisions are made collectively by token holders rather than concentrated in a central authority. This reduces risks of corruption, censorship, or bias, especially in global, community-driven projects. For example, DAOs can fund public goods or manage protocols without reliance on a single governing body, fostering inclusivity and fairness. Decentralization is vital for resisting centralized entities that might abuse control, ensuring open and transparent systems for all participants.
Governance Tokens vs. DAOs
Governance tokens are often associated with DAOs, but their presence doesn’t automatically make an entity a DAO. These tokens typically grant holders voting rights on decisions like protocol upgrades or fund allocations, but the level of decentralization varies widely. Some projects may issue governance tokens while retaining centralized control, where core teams have significant influence over decisions, limiting the “autonomous” nature expected in a DAO.
Furthermore, governance tokens can be symbolic if voting doesn’t meaningfully impact operations or if major decisions are pre-determined by insiders. A genuine DAO uses governance tokens to distribute power across its community, enabling transparent, democratic decision-making. However, if smart contracts don’t execute decisions automatically or if off-chain mechanisms dominate, the entity fails to meet the core principles of a DAO.
This way, we can argue that Obyte is the home of several DAO-like platforms with their own governance tokens and high levels of autonomy, including the DEX Oswap.io through its OSWAP Token and liquidity provider tokens, the Pythagorean Perpetual Futures, Counterstake bridge, and many more. They apply to specific dapps on Obyte, not Obyte network itself. This has recently changed.
Since November 2024, it’s also possible to use GBYTE to vote on-chain for Order Providers (OPs) and several types of fees inside the network. This truly autonomous decentralization ensures that power is distributed among users, reducing reliance on centralized entities and fostering trust. For users, it means greater transparency, resilience, and control over the network’s evolution.
Featured Vector Image by rawpixel / Freepik
