The Good Tech Companies - Organizations? Communities? Entities? What Even is a DAO Anyway

Episode Date: February 3, 2025

This story was originally published on HackerNoon at: https://hackernoon.com/organizations-communities-entities-what-even-is-a-dao-anyway. A DAO in crypto is formed by a group of people (a sort of community) digitally united by a common cause, without centralized leadership. Let's discover more! Check more stories related to web3 at: https://hackernoon.com/c/web3. You can also check exclusive content about #what-is-a-dao, #dao-governance, #blockchain-voting, #voting-on-dao, #on-chain-governance, #obyte, #good-company, #hackernoon-top-story, and more. This story was written by: @obyte. Learn more about this writer by checking @obyte's about page, and for more stories, please visit hackernoon.com. Decentralized Autonomous Organizations (DAOs) work with the rules of an algorithm on a Distributed Ledger, instead of any human middlemen. DAOs can fund public goods or manage protocols without reliance on a single governing body, fostering inclusivity and fairness.

This audio is presented by Hacker Noon, where anyone can learn anything about any technology. Organizations? Communities? Entities? What even is a DAO anyway? BioByte. Picking a name to define decentralized autonomous organizations, DAOs, could better key. 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 middleman. 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 versus 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 US Sex 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 versus 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 predetermined 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 Obite is the home of several DAO-like platforms with their own governance tokens and high levels of autonomy, including the DEXOSWAP.IO through its OSWAP token and liquidity provider tokens, the Pythagorean Perpetual Futures, Counterstake Bridge, and many more. They apply to specific dApps on Obite, not Obite 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 RobPixel, Freepik, and thank you for listening to this HackerNoon story, read by Artificial Intelligence. Visit HackerNoon.com to read, write, learn, and publish.