Blockchain technology gave birth to decentralized finance and the notion is increasingly becoming popular around the world. Therefore, the dream of having no government intervention into personal finances became reality with the rise of cryptocurrencies. The power to manage finances is now placed solely in the hands of the people with the newest form being DAO.
So what exactly is DAO and why is the term becoming so popular in the crypto sphere? This article has got you covered with an in-depth explanation about DAO including its pros and cons.
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What Is DAO?
DAO (Decentralized Autonomous Organization) is an age-old concept that can be compared to labor unions. While the labor unions were deciding to fight for their rights, DAO decides which direction a token/NFT has to go. However, DAO has taken a completely new life in the crypto sphere in the form of democratizing blockchain tech.
In other words, DAO gave investors the power to channelize which direction a particular token/coin/NFT has to go.
The community members can band together and vote for a particular decision and the devs/management/firms adhere to the decision. This gives investors more power to decide the direction they’d like to see their token/NFTs move.
Token holders have a stake in the DAO which gives them voting rights and keeps all the decisions transparent. Smart contracts, coding a new program, or building a new layer-2 solution, investors decide about the execution.
Overall, DAO is a development that is transparent and bestows people with the power to decide the token’s future.
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Pros of DAO
Everybody is a leader in the DAO space and plays a significant part in the token’s future by their decisions. There is no room for backchannel idea executions and the final decision lay in the hands of the investors. The leadership is distributed equally among all investors who act as a collective voice for the token.
DAO is growing by leaps and bounds and every token in the market is considering adding it to their day-to-day functioning. Few investors also consider pouring their money into tokens that have enabled DAO. Transparency is seen as an added advantage as it completely reduces the chances of a token being rug pulled.
The system gives investors the feeling of true ownership and makes their voice heard through voting.
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Cons of DAO
The upper management of a token/NFT is completely removed in DAO and only investors decide the direction. The point to be noted is that not every investor knows the nuances of the project or the tech behind the idea. This can lead to uninformed voting with little or no knowledge about ‘why and what’ they are voting for.
In any firm, the top management decides the path and the people below follow the said instructions. In DAO, the role is reversed making ‘anybody and everybody’ decide how to move forward. The situation can be tricky as leadership is distributed to everyone on the block.
DAO also creates groups among investors on their particular ‘liking’ and eventually goes against the ones who voted the opposite. Also, apart from the U.S state of Wyoming, no government truly recognizes DAO and it just runs on each other’s understanding.