Blockchain space has evolved immensely over the past few years. The main catalyst for these changes is the growing popularity of DeFi among the masses. DeFi has become so popular because it has presented real-world business scenarios, pushing to solve key problems plaguing the financial industry.
Unlike Bitcoin and Ethereum which took a couple of years to evolve, Defi took the fast route. The main reason behind this fast evolvement is due to the On-Chain Governance part.
Understanding On-Chain Governance
Current governance systems in bitcoin and Ethereum are informal. That means any proposals(like an improvement to be made in the blockchain)must be submitted by developers. This proposal is evaluated by a core group, consisting mostly of developers, is responsible for coordinating and achieving consensus between stakeholders. The stakeholders, in this case, are minors (who operate nodes), developers (who are responsible for core blockchain algorithms) and users.
One major drawback of the system is that this form of informal governance is, in fact, centralized among miners and developers as these two control the major stake and can swing the vote in their favour.
One of the oldest and best examples of this flawed governance is The Bitcoin Cash fork in 2017. Proposed to increase the average block size in bitcoin’s blockchain to increase the speed and reduce the cost of transactions, this proposal was rejected by the cryptocurrency’s core development team and miners. Even after knowing the fact that high transaction fees made bitcoin’s use as a medium for daily transactions unsustainable, the proposal was rejected in favour of miners, as the only group that benefited from high transaction fees were miners.
This is where DAO arrived as a welcoming change.
As per CMC ,
The term DAO stands for “decentralized autonomous organization” and can be described as an open-source blockchain protocol governed by a set of rules, created by its elected members, that automatically execute certain actions without the need for intermediaries.
The concept of a DAO was first proposed by Dan Larimer in 2015, and further refined by Vitalik Buterin in 2016.
As per Vitalik Buterin
[…] what if, with the power of modern information technology, we can encode the mission statement into code; that is, creaing an inviolable contract that generates revenue, pays people to perform some function, and finds hardware for itself to run on, all without any need for top-down human direction?
The concept of DAO is simple. A DAO helps to keep a network stable without the need for manual intervention by its members. Participants will be incentivized by native token rewards that help them work towards a unified goal. Since a large member of DAO participants is present, this helps to avoid cartels, speed up network decision-making and drastically lowers the time gap of decision making.
DAO’s are powered by Smart contracts which provide autonomy to a DAO. These smart contracts are pre-programmed to execute a set of actions when pre-set conditions arise.
For example, say the user inputs a buy request and there is already a seller which matches the buy request. All nodes in the system verify the legitimacy of the transaction. A smart contract than does the checks and release the funds to the seller and assets to the buyer. No human intervention is required in what so ever matter.
All Participants in the DAO are incentivized by native token( for eg MKR, DAOstack ) etc to keep them motivated to participate. This native token allows its holders to vote on decisions like proposing or deciding on a new feature, adding or delisting new assets, new proposals to improve the blockchain and even changing the governance system itself.
So what is the Current State of DAOs?
The most established DAO purposes to date are to execute financial transactions, allow users to borrow and lend crypto for fixed interest, vote for the new addition and deletions etc.
DAOs are still a new and emerging concept and with new players like Dora Factory(a Substrate-based startup) entering the markets. Dora Factory is an open-source, community-driven venture builder with the mission to empower hackers by creating tools for decentralized venture organizations to thrive.
Dora Factory provides an infrastructure with features that allows blockchain ventures to fully realize the potential of the hacker community. Designed as a layer-2 infrastructure on Polkadot and Ethereum, Dora Factory provides solutions to all Polkadot-native, Ethereum native projects and beyond.
With the entrance of new and promising players like Dora factory, we can see new uses cases or improvement in the current system emerge.
