The core concept of blockchain technology lay in decentralization. At first, this simply meant an autonomous, trustless currency – Bitcoin. Over time, blockchain-enabled further concepts such as smart contracts and the DeFi sector. Ultimately, decentralization fans hope that blockchain will lead to the development of fully decentralized governance systems – such as the Decentralized Autonomous Organization (DAOs). Conceptualized as a democratic, incorruptible system, a DAO brings all of the advantages of cryptocurrency to the concept of governance.
As with most cryptocurrency adjacent projects, DAOs initial focus lay in finance. Like a democratic index fund, a DAO would allow everyone to vote on where investments will be made. With no middlemen or leading officers, this would – theoretically – prevent grift and corruption in the process. Of course, this depends on the quality of code operating the DAO – something that the Genesis DAO project discovered in 2016.
The Genesis DAO
The first true decentralized autonomous organization, Slock.It developed “The DAO” in 2016. The project grew exponentially and held nearly $250 million in ETH at its peak. Users creating their cryptocurrency project could pitch the idea to the DAO community – who would then vote to invest. The investing itself occurred autonomously – just as the title suggests.
Unfortunately, several flaws existed in the DAO code. Malicious actors managed to siphon funds from the DAO to the tune of 3.6 million ETH. Faith in the DAO system understandably collapsed, and Ethereum ultimately hard forked to erase the hack – creating the schism that would lead to Ethereum Classic. DAO concepts went out of vogue for years, only now reemerging – in the wake of the DeFi boom.
The Future of DAOs
In contrast to 2016, the cryptocurrency community has grown much more accepting of decentralized applications. While decentralized exchanges – or DEXs – were rudimentary and difficult to use in 2017, now they make up a large subsector of the market. Decentralized finance depends on these exchanges and uses them to explode onto the scene in early 2021.
DAO-based groups may be the next evolution in cryptocurrency – and yet another means for the industry to challenge traditional business. A decentralized autonomous organization does not try to fleece shareholders, nor does it invest in projects that the CEO secretly owns. Rather, it simply does what the investors want – a major advantage in today’s world.