How Does a DAO Work?

Sounds great, but how is it supposed to work? How does the system guarantee trust? When a DAO is first created, its rules are written into its code in the form of smart contracts programmed to run when certain actions take place. Everyone agrees to abide by the rules when they buy into the group, and if those rules are violated, its funds are locked and nobody can use the DAO. This, in theory, is how a DAO guarantees that everyone will follow the rules.

Every DAO has a built-in treasury to store its cache of digital currency that members can only access with approval by the group, and decisions affecting the group are made collectively during a set period. There are three steps to creating and launching a DAO: 

Creating the smart contract: The developers of the DAO code the smart contract(s) that will dictate the rules of the group and decide on the group’s purpose. This stage involves extensive testing of the code, because it can only be changed through group voting once the DAO is launched.

Raising funds: DAOs run on their shared cache of currency, which has to be raised from its members. It’s here that people buy into the group if they support its mission, agreeing to purchase a certain amount of tokens in exchange for a stake. Governance rules can also be established in this phase.

Launch: The DAO’s code is deployed onto the blockchain. From here on out, it can only be changed via collective voting by the stakeholders. The original developers no longer retain control of the project.

Since everyone shares the risk of the group, everyone has a vested interest in making sure it runs as effectively as possible. Group members also share the reward—if the group does well, its members get more currency and that currency increases in value within the DAO’s ecosystem. Those who buy in also share in the decision making of the group. New proposals have to be voted on and approved by a majority of stakeholders before being enacted. 

In order to buy into the DAO, you must purchase whatever crypto token the DAO is written to run on. Most of the time it will be a token unique to the DAO. Friends With Benefits, for example, runs its entire ecosystem on the $FWB token. The smart contract-encoded rules of the DAO can include using that currency to buy things within the ecosystem, like NFTs, digital magazine subscriptions, or pieces of virtual land. 

DAOs are built on open-source blockchains, so anyone can see what’s written into the code. If any member submits a proposal, or audits the group’s treasury, or takes any other action within the DAO, that action is recorded indelibly on the blockchain, keeping a transparent record. That transparency is also supposed to facilitate trust between members.

Source: https://in.pcmag.com/old-cryptocurrency/148262/what-is-a-dao-decentralized-autonomous-organizations-explained

Sellbitbuy a well known DAO Development Company is now also expertise in developing a well organized and high performance DAO for our clients across the globe. Depending on the clients business requirements, we design and build a high level functioning DAO.