What is a DAO and How Does It Relate to NFTs?
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What is a DAO and How Does It Relate to NFTs?

What is a DAO and How Does It Relate to NFTs?

NFT_Admin
Mar 28, 2022

At its core, blockchain technology seeks to decentralize operations by distributing institutional authority to all system participants. Unlike the conventional system where institutions are governed from a central point by elites, blockchain keeps each participant involved in the governance role. From blockchain, a new concept arose, known as decentralized autonomous organizations (DAO).

What is a DAO?

A DAO is essentially an institution run by a group of like-minded people worldwide, with no hierarchical structures. Therefore, DAOs are organizations that drive safe and effective operations without a centralized oversight. The main role of a DAO is to enable a team of individuals with similar interests to collaborate efficiently towards achieving their goals. DAOs entered the mainstream with Ethereum’s revolutionary blockchain that enabled the running of smart contracts.

DAOs apply to the governance of companies, ensuring the members set, vote, and agree on their own rules. Consider a DAO as a company that is internet-native, collectively owned, and managed by its members. All regulations and transactions on the DAO are recorded and stored on the underlying immutable blockchain, eliminating the need for a central authority.

How Do DAOs Work?

DAOs use smart contracts to automate governance and enforce all governing rules without bias. A smart contract is a self-executing computer program that automatically executes set instructions when all predetermined conditions are met. All operation rules and regulations of the DAO are coded into smart contracts. The contracts are then are initiated on the blockchain to power the autonomy of the company’s operations.

Smart contracts are developed on an open-source protocol to enhance the transparency of the DAO. These openly verifiable lines of code also help limit the vulnerability of smart contracts as other users can audit the codes for potential vulnerabilities.

Any member of the DAO can propose changes to the team. After submitting the proposal, the community votes to decide whether or not they will adopt the suggestions. Nearly all DAOs will approve a change if the majority agrees or when members reach a threshold target.

Many DAOs issue governance tokens to persons who wish to be members of the project, called a token-based membership. Token holders participate in governance and get voting rights. This way each member has a voice in influencing decisions that may impact the DAO’s operations. DAOs ensure fairness in administration by giving voting power proportional to the number of tokens a user holds. The more tokens held, the higher the voting power. All the instructions for the operation of a DAO are coded to the smart contract.

How Do DAOs Relate to NFTs?

DAOs have limitless functionalities for non-fungible tokens (NFTs). Based on how DAOs work, members can deploy these organizations in collectively owning NFT projects, NFT community governance, or event promoting NFT projects. Here’s more on the DAO NFT application:

1.    Collective NFT Ownership

Some NFT projects are very expensive. People with similar interests in purchasing collectibles from these blue-chip projects can pull together and fund the purchase to collectively own the NFTs. So, individuals don’t have to cough up millions of dollars to own the collectible. Such collective ownership will be proportionate to each member’s contribution to the funds used to purchase the high-value NFTs. One such organization is PleasrDAO – a group of early NFT collectors who buy valuable NFT art from marketplaces inspired by significant societal themes. One of PleasrDAO’s highest-priced possession is Edward Snowden’s Stay Free NFT, bought for 2,224 ETH in 2021.

2.    Promoting NFT Projects

Promoting your NFT project in the flooded NFT market may prove hectic as an individual. DAOs can be deployed to help fund NFT projects and promote them to collector communities. With such strong backing from the DAO, NFT projects will most likely succeed. The organization injects financial resources into the project, ensuring the artwork minted is of desirable quality and mobilizing buyers to purchase from the collection. The DAO may even create a community of the collection’s buyers to include top celebrities, thereby advancing the project’s popularity.

3.    NFT Community Governance

The popularity of NFTs has inspired communities of fans and creators. DAOs can be deployed to such communities to decentralize the community experience further. This way, the community which forms the core of each NFT project gets the power to decide the project’s future. The DAO may opt to expand its operations to mint new collections and promote them. One such DAO NFT project is Gutter Cat Gang DAO. The NFT project is slowly transitioning towards complete decentralization where every Gutter Cat Gang NFT owner can participate in decision-making processes for the project’s future.

Best DAO Projects for NFTs

The top NFT DAO projects include APE DAO, YGG DAO, and SharkDAO. APE DAO was initiated by Kylo.eth, a Bored Apes Yacht Club (BAYC) collector. The organization fractionalized 49 BAYC NFTs and a female CryptoPunk to issue 1,000,000 APED tokens. SharkDAO is focused on fundraising to collect rare NFTs, while YGG DAO has its eyes on in-game collectibles.

FAQ

What is a DAO?

A decentralized autonomous organization, or DAO, is a company-like protocol that comprises members with similar interests. Each member of the DAO can participate in the governance of the company. Different DAOs have varying models for governance, with most using a token-based membership.

In what ways does a DAO work?

A DAO’s backbone is the smart contract. All rules that govern the autonomy of a DAO are written in lines of code that are stored on the blockchain, known as a smart contract. These regulations self-execute when desired conditions are met, eliminating the need for a third party to enforce the terms.

What do DAOs have to do with NFTs?

DAOs can be deployed in NFTs to optimize their operations. Some ways to deploy DAOs in NFT projects are through collective NFT ownership, promoting NFT projects, and NFT community governance.

Some popular NFT DAOs

Popular NFT DAO projects include APE DAO, YGG DAO, Shark DAO, and PleasrDAO.

 

 

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