What is DAO?

If you have been involved in GameFi, you must have come across a decentralized autonomous organization (DAO), which is an organization created by players and/or investors in GameFi and blockchain in general to advance specific issues.

One of the advantages of Web3 is that it provides a platform for decentralization; this is highlighted by blockchain technology and its ability to decentralize control and ownership of digital items, content, and information flows.

DAOs leverage Web3 and its decentralized nature to distribute power to its members to collectively cast votes, make all actions publicly viewable on a blockchain and ensure security is prioritized.

What is a DAO?

A DAO is an emerging form of legal structure. DAOs operate without a central body with every member within it typically sharing a common objective and seeking to act in the best entity of the entity.

DAOs have been popularized through cryptocurrency enthusiasts and blockchain technology; they are used to execute decisions in a bottoms-up management approach.

Understanding DAOs

The key trait of DAOs is that they are decentralized and reside mostly on blockchains, such as Ethereum (ETH). This means that these organizations are not controlled by a single entity like a central bank or government; instead, they are divided among several networks, computers, and nodes.

Typically, virtual currencies leverage this decentralized status to attain levels of privacy and security that are typically unavailable to standard currencies and their transactions.

The DAO concept is designed to promote the management and oversight of an entity, corporation, or organization. In this regard, the collective group of participants or leaders becomes the governing body of the organization.

How DAOs Work?

DAOs heavily rely on smart contracts. These are logically coded agreements designed to dictate decision-making based on an underlying activity on a blockchain. For instance, based on a specific outcome of a decision, a specific code may be executed to bolster circulating supply, issue select rewards of tokens to existing holders, or burn a select amount of reserve tokens.

A DAO’s voting process is posted on a blockchain. Users should often choose between mutually-exclusive options. The voting power is often shared across users based on the number of tokens they hold. For example, a user with 100 tokens of the DAO will have twice the weight of voting power compared to one owning 50 tokens. The underlying theoretical framework here is that users that have more monetary investment in the DAO have the incentive to act in good faith to bolster the value of their holding.

DAOs operate with treasuries that house tokens that can be issued in exchange for fiat. Members of the DAO can vote on how to utilize those funds. For example, DAO members with an interest in acquiring NFTs can vote on whether they can obtain the assets in exchange for treasury funds.

DAOs in GameFi

Crypto gaming has embraced decentralized finance (DeFi), which allows GameFi projects to be better decentralized. In this regard, GameFi solutions have adopted DeFi qualities and products including staking, yield farming, gambling, and liquidity mining. In play-to-earn projects, players can passively block some of their assets to make money through interests. Others can gain access to new gaming levels or exclusive items.

As a result, GameFi projects, especially P2E gaming ones, have now adopted DAOs for their decision-making process. Their community of players can now actively take part in proposing and voting for future updates. A good example of such a project is the Decentraland framework.

Benefits of DAOs

Some of the main benefits of DAOs include:

• Decentralization – DAOs ensure that choices and decisions affecting the organization are executed through a collection of individuals (members of the organization) as opposed to a central authority. In GameFi, this gives P2E players proportional influence over the decisions based on their value (NFT tokens) in the organization.
• Participation – Individuals within the DAO are empowered and connected because they have direct voting power and say on all matters. For GameFi players seeking to leverage gaming to earn money, participation is crucial in bolstering their interests.
• Publicity – Since votes in a DAO are cast via blockchain and made publicly viewable, the publicity promotes actions that favor positive reputation and conduct among members.
• Community – A DAO encourages people from all over the world to come together seamlessly to develop a single vision. For GameFi players, a DAO allows members to come together to overcome some of the core challenges facing them in the industry, including rising barriers of entry and high costs.

Takeaways

DAOs allow members to come together to form an organization to address a specific agenda(s). Members have a say and voting power over the decisions and choices the organization makes. DAOs also assign voting power and influence based on the value held by members; an individual with 100 tokens has more influence over one with 50 tokens.

The GameFi industry has embraced and leveraged DAOs. This is the case among GameFi players, especially P2E ones, that have formed DAOs to address some of the dynamics in the industry collectively and optimize their chances of creating value from their in-game successes.

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