A Beginner’s Guide to DAO Governance Model

The spontaneous rise in applications of blockchain has created considerable hype around the new distributed ledger technology. Considered the foundation of cryptocurrencies, blockchain has since come up with many innovative offerings. Most important of all, blockchain has fuelled the push towards decentralization like never before with DeFi, NFTs, smart contracts and dApps.

Interestingly, the concept of DAOs has pointed to the possibilities of achieving the actual vision of blockchain. Discussions about DAO governance model have been making some noise in recent times, with many real examples of DAOs or decentralized autonomous organizations. How are DAOs relevant in the world of blockchain? The following discussion helps you learn about DAO governance and the types of governance models with examples.

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Definition of DAO Governance

The first thing you need to know before DAO governance best practices would point at the definition of DAO governance. Almost over a decade ago, Satoshi Nakamoto issued the first cryptocurrency, Bitcoin, in the form of a whitepaper. The document provided the proposal for a decentralized and peer-to-peer cash system. Over the course of time, the P2P cash system has now come up with new facilities for allowing transactions without compromising data security and integrity.

With the arrival of blockchain, users have been concerned regarding the adoption of new governance models in systems with multiple parties. Blockchain basically suggests that users would not fall under the control of any central entity. This is where you would face the need for establishing clarity regarding governance.

The origins of DAO governance token started off in 2013, with the arrival of DAOs or Decentralized Autonomous Companies (DACs) as they were called during that time. The DACs had clearly defined laws and business rules in the source code while entrusting cryptocurrency as the shares in the organization.

You can find better clarity in answers to What is a DAO governance? by understanding DAOs. Decentralized Autonomous Organizations or DAOs are not the representatives for a single application but for an organization. You can define DAO governance as the rules underlying the operations and processes of the DAO alongside the specific actions of DAO members.

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Working of DAOs

The explanation for DAO governance is evident in the description of DAOs. Decentralized Autonomous Organizations are basically virtual organizations running completely without human intervention, only with the exception of voting power. Users are in control of the DAO rather than any private entity or individual and can define the future course of action of the DAO. Decentralized Autonomous Organizations, or DAOs, are nothing like the common conditional transaction programs developed and managed by organizations for profit.

You can find an accurate explanation for the working of DAO governance by diving into how DAOs work. Decentralized Autonomous Organization governance is based on smart contracts, which define the rules and conditions for carrying out transactions. Blockchain associated with the network would ensure transparent documentation of all the rules and transactions in DAOs.

It is important to note that DAO governance depends solely on the members, who take critical decisions regarding the future of the project. Smart contracts help in defining the rule set of the DAO through a core group of community members. The assurance of public evidence, audits and verification could help any member understand how the protocol works at different times.

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Types of Decentralized Autonomous Organizations

The overview of how DAO governance works is a viable resource to help beginners learn about decentralized governance. However, you would have to learn about the different types of DAOs before you figure out more information regarding common DAO governance approaches. As a matter of fact, you can understand a DAO governance model better with a clear impression of different types of DAOs. You must note that DAOs have different structures, technologies and objectives, which can play a crucial role in defining their governance models. Here is an overview of the different types of DAOs and their functions.

The operating system DAOs are practically standalone platforms that help one or multiple organizations for creating their DAOs. Some of the top examples of operating system DAOs include Colony and Orca.

Protocol DAOs are one of the most common and popular options among DAOs. In most cases, protocol DAOs would leverage a DAO governance token in the capacity of a voting indicator for implementing the protocol and necessary modification. Some of the examples of protocol DAOs are evident in the case of Yearn, Uniswap and Curve.

The next popular example of DAOs would refer to investment DAOs such as BitDAO. Investment DAOs basically work for supporting initiatives to pool capital for investments in various DeFi and crypto projects.

Media DAOs also stand as one of the popular highlights in understanding how a data governance template run on smart contracts could introduce promising improvements in efficiency. The foremost benefit of media DAOs is evident in the form of their transparency and their use cases. One of the primary use cases of media DAOs refers to the facility of decentralized news aggregators which can work in the interest of consumers.

The list of different types of DAOs would also include collector DAOs, a unique type of DAO for NFTs and artists. Collector DAOs can provide desired support for enabling complete or fractional ownership of art and content. One of the examples of collector DAOs is Flamingo.

You can come across one of the most notable DAO governance platform examples in the form of social DAOs. The basic design of social DAOs resembles that of decentralized social networking platforms, and they denote one of the notable governance models with DAOs.

As the name implies, Grants DAOs are decentralized communities of venture capitalists using governance tokens for decisions regarding capital allocation. One of the most popular examples of Grants DAOs refers to Moloch DAO.

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Types of DAO Governance Models

The illustration of different types of DAOs could serve as a basic foundation for understanding the types of DAO governance. However, you must also learn about working of DAO governance briefly before diving into the types of DAO governance. After writing the rules in smart contracts, the community members write the rules into the blockchain. Participants can deploy a DAO by allocating funds and relying on governance.

Where do the funds come from? The DAO issues tokens to users, which can help in filling up the DAO treasury. The DAO governance model allocates voting rights to users who purchase the tokens. Once the DAO has the necessary funds, it can prepare for deployment. After pushing the code into production stage, you cannot make any changes in the DAO smart contract. On the other hand, you can always try the possibility of a consensus on certain changes through member voting.

Based on the simple approach for working with decentralized autonomous organization governance, you can come across a few distinct governance models. Let us take a look at each governance model along with some practical examples and explanations.

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The first example of a DAO governance token for highlighting the efficiency of DAO governance would point at Constitution DAO. It basically refers to a DAO which can help user pool resources and gain shared ownership of assets through cryptocurrencies. The project discovered its roots with a core community of members encouraging many other people to purchase a replica of the US Constitution. You can notice the collector DAO governance model in the example of Constitution DAO.

Interestingly, Constitution DAO came extremely close to the final deal as it could collect around $47 million in ETH. Even though the artifacts sales price was around $43.2 million, the auction house reduced the bid of Constitution DAO for other expenses. The DAO accounted for taxes alongside the costs for maintaining the copy of the Constitution. Despite the failure, Constitution DAO showcased the power of DAO governance for encouraging collective effort among people.

• Friends with Benefits DAO

The next popular addition among discussions on a data governance template with DAO governance would refer to Friends with Benefits DAO or FWB DAO. It is basically a community of web3 enthusiasts, with functions similar to a decentralized social networking platform. Friends with Benefits DAO uses a governance token, i.e., FWB, for facilitating entry to users.

The governance model of FWB DAO followed a simple approach to governance through consensus. However, it relies on a multi-group governance model through Discord for communicating proposals and required documents for formalizing the proposals. In addition, the governance model of the FWB DAO utilizes Snapshot for voting on the different proposals.

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JuiceboxDAO is another notable DAO governance platform you should learn about now. The unaudited platform helps different projects raise funds from the public through public smart contracts on Ethereum. The governance model of JuiceboxDAO helps in developing a fundraising page, followed by creating a funding structure. It can also help in determining the distribution of funds and tokens among community members. However, you must take note of the difference in governance model of JuiceboxDAO as it appears more formal and centralized in nature.

The final entry among examples of DAO governance model would point at ENS DAO or Ethereum Name Service DAO. It is a useful DAO for issuing ENS tokens to each registered Ethereum domain. You can find a three-layered approach to DAO governance in the example of ENS DAO. First of all, the community goes through a discourse on the proposals. Subsequently, ENS DAO dives into off-chain voting through delegates before the final voting process on the blockchain.

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Final Words

The details of DAO governance, along with the significance of DAO governance token in the DAO community, provide a credible impression of how DAOs can impact change. Thousands of decentralized projects run the risk of being called proxies for decentralization in the absence of DAOs. The Decentralized Autonomous Organization puts power back in the hands of users, and DAO governance proves the same.

With the help of DAO governance, users receive voting rights on important proposals within the DAO. At the same time, decentralized autonomous organizations are tailored to serve a wide range of objectives and use cases. Therefore, you are more likely to encounter confusion in understanding the different types of DAOs and their governance models.

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*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!