Emmy, sitting at the comfort of her home, just bought shares from a company. She did this after checking several sites and combing through the company’s website. Although she only got a fraction of the information needed to make an informed decision, she decided the company was good to invest in. She bought a considerable quantity. Hence, she was asked to fill out many forms to have voting rights to the company, unlike on top DAO projects.
That story, however, belongs to 2019. Blockchain and DAOs (Decentralized Autonomous Organizations) have entirely changed that scenario. Now, Emmy can sit at the comfort of her home, carefully research an organization (DAO), know everything about it via what is known as its smart contract (in the DAOs), and make an informed decision to buy. She gets governing (proposal or voting) rights depending on the number of native tokens she buys. She doesn’t need to fill out any forms because she transacts on a trustless, permissionless network where all transactions are safely stored on the ledger (the blockchain).
Buying into a project has never been easier than it is today. As illustrated above, buying into projects termed “DAOs” may probably give you governing rights to the project you buy into. Before making such a choice, you must have a solid knowledge of DAOs and the mode of operation of some of the top-rated DAOs. This article will discuss key concepts surrounding DAOs and give insights about the top-rated DAOs projects according to ratings by Coinmarketcap. It would further help you see the involvement of community members of these DAOs thus deepening your knowledge about how DAO projects generally work.
Learn about How DeFi to DeFi in MENA here
Key concepts surrounding DAOs
DAOs are built on an infinite-sized decentralized ledger called the blockchain. The blockchain is ideal for building DAOs because of three major qualities; Decentralization, immutable and programmable.
Its programmable nature makes it ideal for building smart contracts, which are key elements in DAOs. Smart contracts essentially hold all details, including rules, codes, and guidelines for how the DAO is run. It is also programmed to execute actions once certain criteria are met. For instance, the smart contract can approve transactions, distribute earnings to the members of the DAO, etc. In a nutshell, the smart contract runs the DAO in just about the same way managers and workers run an organization. It also serves as the “manual” to know all about a DAO project.
Does this mean People do not run dAOs? Let’s find out.
What are DAOs?
DAOs are virtual organizations (AKA projects or protocols) built on the blockchain that is run by smart contracts but are owned by a community of people who own the native token of the DAO. They have no leader though voting rights are assigned according to the number of tokens members have. Thus, this community votes on current and future projects that are then updated in the smart contract. All DAOs have a native token.
How does a DAO work?
Depending on the project, the smart contract in the DAO can be programmed to work differently. However, DAOs generally work with the same general principles. They include;
A group of people who share similar interests comes together to form the DAO. They determine the initial rules, code of conduct, fund distribution pattern, native token name (governance token), etc., of the DAO.
These rules are encoded on the smart contract, which would run the DAO and is subject to upgrade in the future.
A global community of people who share similar interests buys into the project. According to the number of tokens they buy, this can help them obtain governance (voting and proposal) rights. Its owner can use these rights or delegate to other trusted members.
The community votes on both present and future decisions of the DAO.
Haven has gotten core knowledge on how DAOs work. Let us introduce the top-rated DAO projects in the crypto space.
Read about Top DeFi 2.0 Projects here.
Top 10 DAO Projects
Although most top-rated DAOs are decentralized finance (DeFi) protocols, tons of DAOs serve other purposes. For example, we have social DAOs like friends with benefits, gaming DAOs like yield guild, etc. Arranged by market capitalization, the Top DAO projects include;
Uniswap DAO
The Uniswap DAO is owned by a global community of people who own the UNI token. It is run by the Uniswap smart contract that automates DeFi transactions and other courses as voted by the community.
Uniswap was initially introduced as just a Decentralized exchange (DEX). It became a DAO from September 2020, when one billion UNI tokens were shared amongst key contributors to the platform. This included Uniswap DEX users/community (60%), team members (921.266%), investors (18.04%), and advisors (0.69%). This act changed the governance structure. It thus gave UNI holders the right to vote or delegate votes that could alter the operation of infrastructure of the Uniswap protocol. Unlike before, the development team had the sole responsibility to decide the project direction.
The governance token holders became entitled to the following:
Uniswap governance
UNI community treasury
The protocol fee switch
Uniswap.eth ENS name
Uniswap Default List
SOCKS liquidity tokens
To submit a proposal as a community member, a user needs to have a minimum of 2,500,000 UNI tokens, and it would take 40,000,000 UNI yes-votes to get it approved for implementation.
Aave DAO
The Aave is another DeFi project that adopted the DAO governance principles in December 2020. In this case, Aave tokens serve as the governance token. Thus, as a user, you can participate in the governance system by holding a certain amount of AAVE tokes and/or stkAAVE (staked AAVE).
13,000,000 AAVE was distributed to users, and 3.000.000 AAVE was kept in reserve. For a proposal to be implemented, it must garner a majority of positive votes.
MakerDAO
Although third by market cap, the MakerDAO was the first to implement the DAO governance principles. Its governance token is MKR.
Even though a total of 1,000,000 MKR tokens was initially minted, the total supply is not fixed. This is because MKR is minted when the protocol’s reserve cannot cover its debts and destroyed when the surplus reaches a threshold.
Unlike the DAOs discussed so far, the MakerDAO can agree on voting both on-chain and off-chain. On-chain requires that you own MKR or have it delegated to you. After that, you can create a voting contract and vote. Off-chain, however, happens on the MakerDAO forum, where anyone, including non-holders of MKR, can activate a forum signal thread and gauge sentiments associated with the current operation of the protocol.
Curve DAO
The curve finance protocol started implementing the DAO governance mechanism when it introduced its governance token, CRV, in mid-2020. A total of 3,303,030,299 CRVs would be distributed. However, currently, we have over 455m CRV in circulation. The Curve DAO smart contract determines how to share the 750,000 CRV tokens being distributed daily to the Curve liquidity providers and fees paid by traders.
To participate in the governance system, users have to lock their CRV tokens on a voting escrow to receive voting power, called veCRV. This voting weight will depend on the lock period (between one week and 4 years) implemented by the user. This lock gives the user governance rights and earning power as they get part of the 50% curve trading distributed as incentives for governance participation.
Only DAO members with 2500veCRV weight and above can submit proposals to implement change in the system.
Dash DAO
The Dash DAO is another DeFi project in the crypto space applying DAO principles. It uses the governance token, DASH. A maximum supply of 18,920,000 DASH would exist, with over 10m already in circulation.
The Dash smart contract executes its DeFi transactions and any other course voted upon by the community. The Dash DAO receives 10% of all solved blocks, which it uses to invest as the community decides. This has allowed the Dash community to create many funded organizations, including Dash Core Group Inc. (DCG). This group supports continued development, integrations, and other activities for DASH.
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Compound DAO
The Compound DAO uses the token COMP as its governance token, and it would have a maximum supply of 10,000,000 COMP. The smart contract coordinates the distribution of 2312 COMP daily as rewards for active borrowers and lenders.
Creating proposals on the compound DAO is easier than with several other DAOs. A user can autonomously create proposals to change certain aspects of the Compound Finance protocol by locking 100 COMP. However, the proposal cannot be voted on unless the proposer has 65,000 COMPs which they can get via delegation. If the proposal exceeds 400,000 yes-votes, it would be queued on the protocol’s timelock before implementation.
An upgrade to the initial governance model launched in February 2020 included a third voting option, “Abstain”, which came with a comment section for voters to give their reason.
Decred
Unlike the protocols discussed so far, DeFi protocols, Decred is a blockchain. Thus, governance, in this case, is tied to the consensus mechanism used for transaction validation, and Decred a hybrid consensus mechanism that combines proof of work and proof of stake. The governance token here is the DCR coin.
To vote, the user timelocks his DCR coin to purchase tickets that can be used for both on-chain and off-chain voting. For on-chain voting (done for blocks), the protocol selects 5 tickets to review the latest blocks created by miners. Finality is achieved if at least three tickets vote that the block is valid. Once voting is completed, the DCR linked to that ticket is returned to the owner along with the PoS reward.
Off-chain voting (done for proposed changes) is done on a governance platform called politeia. For changes to the consensus mechanism (spend pattern, constitutions, or policies), at least 75% of voting tickets must support the proposal. Although this is done offline, all activities are periodically updated to the Decred blockchain for permanence.
SushiSwap DAO
SushiSwap is another DeFi protocol that uses DAO principles for its governance. The governance token used is the SUSHI which has a maximum supply of 250m SUSHI. Currently, the circulating supply is over 127m SUSHI, and it is estimated to reach maximum supply by November 2023.
Unlike others, though, it relies only on an offline voting system. Voting takes place on a decentralized voting dashboard called Snapshot. Proposals are first created on the Sushiswap Community Forum, and if they gain enough support (at least 5,000,000 votes), they are moved to Snapshot for voting. The voting metric used is named SUSHIPOWAH.
Synthetix DAO
The Synthetix DAO sets a different standard of governance. It uses 6 varying DAO designs for specified governance roles within its ecosystem. They include:
The Spartan Council consists of an 8-member elected team who carry out proposal reviews and interview authors of Synthetix Configuration Change Proposals (SCCPs) and Sytheticx Improvement Proposals.
Protocol DAO: Once the Spartan Council vets the proposal, it is passed to protocol DAO, which includes a governance team (nominated by the Spartan council) responsible for upgrading the protocol’s smart contract.
Synthetix DAO: This is a DAO responsible for managing the platform’s treasury and maintaining a sustainable decentralized ecosystem.
Ambassador DAO: This DAO contributes to the governance of external protocols that might impact the Synthetix ecosystem.
Grants DAO: This DAO focuses on reviewing, vetting, and funding proposals
Core contributors: These are autonomous teams that carry out both development and non-development roles for the DAOs
The synthetix DAO pays all members of the DAOs above a stipend. Voting to select these members takes place after every epoch (meaning 30,000 block finalizations). Voting is done on Snapshot with weighted votes assigned to users who stake SNX, the governance token. They do so by delegating their weighting votes to individuals they would love to be part of the governing body.
To ensure the right persons are chosen, a monthly meeting is held on discord where DAO members report their operations and receive feedback from the community. These meetings are also held on Youtube and spotify for transparency.
Ox DAO
Like other DeFi protocols using DAO governance principles, the Ox DAO has a native token named ZRX.
The ZRX holders can submit proposals for public voting as long as they own or have 100,000 ZRX delegated to them. Before summiting the proposal, it would have to first pass through scrutiny in the governance forum. After that, voting commences, which takes place within 72 hours. The proposal will get implemented if it has 10,000,000 ZRX yes-votes.
As noticed from the top projects discussed above, DAO principles can be applied to integrate DeFi and other blockchain-related concepts. It could also exist as an entity when a group comes together and crowdfund a particular course of action. In any case, a true worth has been found in DAOs; without using a DAO system, a blockchain system would hardly attain true decentralization. This is because control remains in a “central authority” hand. This clear realization leaves us with a succinct conclusion: DAO projects are here to stay, and we expect a whole lot more of them to spring up in the future.
Conclusion
Emmy’s story from 2019 might end with her making a huge profit or loss, and the chances are 50% on either side. However, if she utilized any DAo project including any of the top DAO projects, she has the following advantages:
Full knowledge of the company rules, codes, plans, and direction (all documented and encoded in the smart contract)
Zero expectation of human or management error (the organization is run by code)
A trustless system where all transactions are recorded in an open ledger (blockchain-enabled)
A truly decentralized organization hence no central control to manipulate or end it abruptly (Decentralized and autonomous)
The opportunity of proposing changes to the organizational structure to suit the dynamism of the digital world (Governance).