A decentralized autonomous organization (DAO) is an entity with no central leadership. Decisions get made from the bottom-up, governed by a community, and taken through smart contracts on a blockchain.
Decentralization is the main power of blockchain which means that they are not controlled by any central entity like the government. DAO brings this power to organizations. All decisions are organized around a specific set of rules enforced on a blockchain.
Bitcoin is the first-ever DAO while another famous DAO came into existence in 2016 by the Ethereum community called “The DAO”. Although developers left some bugs in the code, hackers took $50 million from the DAO which caused the end of “The DAO”.
As we mentioned DAO works on a set of rules created through smart contracts on the blockchain. These smart contracts execute automatically when a certain condition is met. These contracts are publicly available for the community to view all the decisions and transactions. In that way, DAOs add transparency and decentralization like no central authority can make changes to them.
Typically a token is required to become part of the DAO. Token ownership gives you governance or voting rights which can influence organization decisions. Decisions are taken based on the majority of votes, so the more tokens you have the more power you get.
In most of the NFT projects, DAOs are created & NFT is used as governance in these DAOs. In simple words, if a project creates a DAO & you own an NFT token of that project, you will have a say in the decisions of the project. The more tokens you own the more decision power you will have in DAO. DAOs make the process fairer and more community-driven.
Another important use of DAOs is that it gives NFT space collective ownership of an asset. E.g if you want to buy a blue-chip NFT project it requires a big amount to buy. So what usually people do is to create a DAO which collectively allows them to buy an asset.
SharkDAO came up with an interesting idea where different people put their money into a pool to buy rare generative NFTs. They collected 1000 eth and have a total of 400 members so far. They are using $SHARK as a governance token.
APE DAO was started by the Bored Apes NFT holder keylo.eth. 1 million tokens were created by the combination of 49 BAYC NFTs & 1 female CryptoPunk in June 2021. Its benefit was that people could own small parts of these NFTs and tokens were sold out within 4 days. Its governance token is $APED shards.
According to our research, the exact legal status of DAO is unclear but it changes by jurisdiction. On July 1st, 2021 Wyoming was the first state to recognize DAOs as a legal entity.
Those DAOs can be the target of regulatory enforcement or civil actions only if they are out of compliance with the law
From our research, we saw that many DAO’s are completely legal under the binding precedent of SEC v. W.J. Howey & the Securities Act of 1933.