In the previous lesson, you learned about Decentralized Finance, and you might have wondered, who manages these protocols and decides their future?
Almost all of the major DeFi applications, from Uniswap to Aave to MakerDAO, are governed by DAOs: Decentralized Autonomous Organizations.
A DAO is a community-led entity that uses Ethereum smart contracts to establish the foundational rules and execute the agreed upon decisions. DAOs use smart contracts to manage many of the same processes and responsibilities found in corporations or nonprofits. Members of DAOs use tokens to vote on the rules governing the protocols and systems for which their DAO is responsible. MakerDAO is one example, where holders of the MKR governance token vote on changes to the DAI stablecoin protocol.
DAOs are not just limited to DeFi.
Media organizations like Bankless and public funding entities like Gitcoin all utilize DAOs to coordinate, govern, and manage their treasuries. There are now more than 4.5 million DAO token holders in web3. One New York Times journalist quipped that DAOs are “chat rooms with bank accounts.” But an undeniable draw of web3 is the way in which leaderless online groups of like-minded people can quickly gather, collectively pool capital, and make decisions.
DAOs are also becoming more exciting.
If you join a DAO today, you typically are entering a Telegram or Discord channel with a bunch of internet strangers for a variety of reasons: deciding which project to fund; gaining access to an Erykah Badu concert; joining a residency program for artists and developers; collectively buying the only copy of Wu-Tang Clan’s 2015 album Once Upon a Time in Shaolin; or even team up to bid on a copy of the U.S. Constitution.
The Age of Communities
A DAO stands for Decentralized Autonomous Organization, and uses Ethereum smart contracts to establish the foundational rules and execute the agreed upon decisions
Members of DAOs use tokens to vote on the rules of a decentralized protocol or system
DAOs today can be online social clubs providing perks to members, online residency programs, and even used to collectively bid on rare items
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