This article is part of our DAO series aimed at simplifying the complexities of decentralized governance and empowering individuals to participate in the future of decision-making.
Some inventions in the world of cryptocurrencies and blockchain come in for criticism, with skeptics arguing they lack a purpose.
Well… the same can’t be said for decentralized autonomous organizations, otherwise known as DAOs for short.
In just a few short years, these governance systems — powered by smart contracts — have allowed communities to share decision-making and operate with greater transparency. We’ve also seen DAOs accomplish some major achievements, too.
Whether you’re an investor, a developer or someone who’s simply passionate about this technology’s potential, understanding their use cases is crucial. Not only can this help you learn why DAOs have appeal, but it’ll open your eyes to how this nascent sector is evolving.
Major Use Cases of DAOs
From tearing down hurdles for startups looking to raise capital, to allowing dApp users to have their say on the features and improvements they’d like to see, DAOs champion fairness and are ripe for innovation. Some of the most popular applications right now include:
Crowdfunding
Right now, accessing capital often involves paying substantial commission fees, giving away a large equity stake, meeting strict eligibility criteria, or waiting months until funds are in a bank account.
DAOs speed this process up — and offer greater democratization in the process. Whether you’re an up-and-coming artist looking for a cash injection to record a new album, or an entrepreneur with a bright idea for a new product, the blockchain allows you to reach passionate supporters around the world.
This can offer greater levels of liquidity for investors, all while enabling them to get on the ground floor of projects that could change our world.
And we’ve already seen how this can work in action. Back in 2021, a group called ConstitutionDAO formed with an objective of buying an original copy of the U.S. Constitution. More than 17,000 people got involved, with over $47 million raised. They would have been successful in this auction, but were narrowly outbid.
Investing
DAOs can pool resources together to ensure that innovative new dApps and blockchain projects can get off the ground more quickly.
A great example here is MetaCartel, which started operating in 2018. It’s a supportive, vibrant community that backs new Web3 products with the funding they need to grow. A saying in its bio on X reads: “If you want to go quick, go alone. If you want to go far, go together.”
Participating in such a DAO gives investors the chance to vote on the proposals they believe in, with the group making decisions collectively. From here, they can then share in profits that are distributed automatically through smart contracts.
Governance
It doesn’t always have to be about money, either. Crypto projects and mainstream non-profits can issue governance tokens that give members the right to vote on issues that’ll affect them.
Not only does this boost accountability, and allow the community to see exactly how a project is run, but it can also lead to exciting proposals being put forward that an old-fashioned leadership team may never have considered.
Take MakerDAO as an example. Here, those who own the MKR governance token have a direct say in ensuring that the protocol, and its DAI stablecoin, remains stable and secure. This leads to lively, passionate debate from a community with one goal in mind: its continued success.
NFT-Based Investing
Let’s be honest: some of the most coveted non-fungible tokens in the market are wildly unaffordable for everyday consumers. But that’s where DAOs can come in handy.
Here, like-minded enthusiasts can pool their crypto together into a fund, and vote on which NFTs should be added to their collection.
This subsequently gives them exposure to investments in some of the best-known pieces of digital art on the market today.
Some are more exclusive than others. FlamingoDAO for example, which has just 100 members, currently boasts a portfolio that includes 199 CryptoPunks and four Bored Apes.
Metaverse Decentralization
We’re also seeing how DAOs have a direct impact on how virtual worlds like Decentraland take shape. Here, a native token called MANA gives users the impact to influence how the platform develops over time.
In other environments, decentralized autonomous organizations also enable transactions involving virtual assets to be facilitated, with dedicated dispute resolution mechanisms in the event something goes wrong.
Challenges and Future Prospects
DAOs already have a proven track record of delivering results — and could prove crucial as the financial markets shift to tokenization in the years to come. We’re barely scratching the surface when it comes to potential use cases.
That being said, as with most things in crypto, there are challenges ahead. Regulatory uncertainty might stand in the way of widespread adoption in the short-term, while scalability limitations on some blockchains could stop DAOs from achieving their full potential.
Recommended reading
Just started learning about DAOs? Dig into our in-depth series on decentralized autonomous organizations:
- DAOs Explained: Basics of Decentralized Autonomous Organizations
- Decoding DAO Governance: Models in Action
- DAO Legal Landscape: An Overview of Challenges & Approaches
Did you enjoy this article? Follow @RIFtechnology on X for more educational content.
And stay tuned for our next article in the DAO series.