DAO Use Cases And How To Build A DAO?

Editor's note: this article has been updated on May 27th 2024 for comprehensiveness.

By harnessing the power of decentralization and blockchain technology, decentralized autonomous organizations (DAOs) are able to take the place of the traditional governance models of apps and investment groups. As of November 2022, over $11 billion had been invested in these blockchain-based equivalents of traditional companies. As DAOs continue to gain traction, it's only natural that people will be curious about the most effective uses for them and how to implement them.

In this article, we'll look at what DAOs are for decentralized organizations, and how they differ from traditional organizations. We'll also take a look at a few DAO use cases.

What is a DAO?

So, what is DAO? A decentralized autonomous organization (DAO) is a group of people working toward a common goal who have come together online and share power and resources. A DAO is programmed with its own unique set of policies and guidelines that define its governance mechanism, organizational foundations and governance structure.

Instead of using traditional legal contracts, these businesses that started on the internet use "immutable smart contracts." These are contracts that automatically carry out their terms, which are written as code and put on blockchains like Ethereum or BNB Chain.

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Using smart contracts, a DAO can run without directly involving humans in voting process of every decision. A smart contract will carry out its terms irrespective of what individuals believe or desire, resulting in decentralized decision-making.

The ultimate goal of DAOs is to create organizations in which all members have a say. A DAO operates independently of any central authority or established chain of command and can be used for several different purposes.

For example, DAOs can be used for the creation of networks of freelancers who agree to pool their money to pay for things like software subscriptions, charities whose members get to vote on how much money to donate, or venture capital firms that are owned by members vote a consortium.

Advantages of a DAO

As internet-native organizations, DAOs have several benefits compared to their more traditional organization counterparts.

• By leveraging monetary rewards, DAOs can assist you in finding credible people to work with.
• Using simple algorithmic-based frameworks, DAOs can assist their members in coordinating and deciding what assets to buy and sell.
• DAOs are open to anyone from anywhere in the world to participate.
• DAOs are open-source and immutable, which means they are transparent and, in theory, incorruptible. All of the organization's transactions are recorded and stored on a blockchain.

How are DAOs different from traditional organizations?

In traditional organizations, all agents have employment agreements that govern their interactions with the company. An employee's responsibilities are governed by legal agreements and upheld by a legal system that is subject to the governing law of the country in which the brand operates. In case of a dispute or failure to meet obligations, the contract will make it clear what each party's legal responsibilities are. 

DAOs, on the other hand, involve a group of people interacting with one another using a self-enforcing protocol and native token. The native network tokens are awarded for securing the network and performing tasks.

There is no formal legal entity or contract binding DAO members together. Instead, they are guided by incentives tied to network tokens and open and transparent rules written into the smart contracts and enforced by consensus mechanisms. 

There is no formal legal entity or contract binding DAO members together. Instead, they are guided by rewards tied to network tokens and open and transparent rules written into the smart contracts and enforced by consensus mechanisms. 

Unlike traditional businesses, which are structured top-down with hierarchical management and administrative coordination, DAOs can provide operating mechanisms for individuals and organizations with a decentralized finance trustless nature living in different geographical locations, speaking various languages, and in different jurisdictions.

There is no hierarchy in DAOs, and everything is defined in the smart contract. Once it's up and running, a DAO is self-contained and can't be controlled by an individual. Instead, it's operated by the voting power of the token holders in the organization.

5 mainstream DAO use cases

DAOs, like traditional organizations, come in a variety of shapes and sizes. However, there are a few DAO categories that have grown in popularity in recent years. Here are some examples where DAOs have proven useful:

1. Crowdfunding

DAOs can play an important role in the development of communities for crowdfunding platforms. When a project requires investment, the DAO community will crowdsource financial contributions from the community members. Investors are given DAO tokens, which allow them to participate in decision-making and propose ideas.

Investors can expect a high return on their investment if the token price rises as a result of the success of the fundraising project. For example, to buy a copy of the United States Constitution, the constitutional DAO raised $47 million. While the DAO's attempt to buy the constitution was unsuccessful, it definitely showed how blockchain could be used to pool user contributions for a common cause.

2. Investment DAOs

Some DAOs exist solely to raise funds for investments in decentralized applications. Individuals who are part of these DAOs can pool their resources and vote on which projects should receive funding. Members then own stock in these companies and share in the profits.

Because of their decentralization, DAOs are notably well-suited to investment and managing DApp projects. DAOs fund and manage projects such as stablecoins, investment funds, DEXes, meme-buying cartels, etc that manage millions of dollars in capital. To give just one example, MetaCartel Ventures is a fully autonomous and decentralized organization that plans to make investments in the Ethereum ecosystem.

3. Governance DAOs

Governance tokens are issued by decentralized applications in these DAOs, and each token owner has the privilege and voting rights to influence future community decisions. MakerDAO is a well-known DAO-governed DeFi project. The Maker protocol is a stablecoin that facilitates peer-to-peer lending and borrowing of cryptocurrency and digital assets.

Maker is governed by a DAO, which allows holders of its governance system a token to change the protocol's rules and give the team responsibility when it comes to community decisions. Maker currently has over $6.5 billion invested in it.

4. NFT DAOs

The top DAO use cases also include an emphasis on investing in NFTs, which has gained traction as the NFT market has grown. The DAO governance model is used in NFT-based investing to establish collective ownership of non-fungible tokens. Several NFT holders can stake their NFTs in these DAOs to cast votes and earn tokens that represent a small portion of the group's assets. For example, The HeadDAO is a DAO whose members hold blue chip NFTs.

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5. Social DAOs

A Social DAO is a decentralized autonomous organization that places a strong emphasis on developing a social element. They function like private clubs where entry requires the purchase of a certain number of DAO tokens. One of the best examples of social DAOs is Bored Ape Yacht Club NFTs. You can purchase a BAYC NFT and join an exclusive club that includes many celebrities.

Do you want to start your own Decentralized Autonomous Organization?

DAOs have the ability to completely transform corporate governance. As the concept matures and the legal gray area in which they operate is clarified, an increasing number of businesses may implement a DAO model to support and govern some of their activities. DAOs have demonstrated their effectiveness in the DeFi space and have the potential to affect the future of crypto. The concept of decentralized governance with DAOs also strengthens the case for DAOs' future legal defense.

If you have any questions about the DAO, please do not hesitate to contact us. We can help you with your DAO requirements as a leading DAO marketing agency.

Have your own DAO and want to expand its presence and community members in the web3 space? Consider the following marketing strategies for promoting a DAO.