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Decentralised Autonomous Organisations (DAOs)

Facts for Prelims (FFP)


Source: TH

Decentralised Autonomous Organisations (DAOs) are transforming the digital world by operating without central control, governed by smart contracts and consensus.

AboutDecentralised Autonomous Organisations, are digital entities operating on blockchain technology. They function without central control, governed by smart contracts and the consensus of members
AimThe idea is to create self-sustaining, community-driven entities governed by smart contracts on blockchain networks.
ExampleOne example is a DAO in decentralized finance (DeFi), like MakerDAO. In MakerDAO, users holding tokens can propose and vote on changes to the protocol, influencing decisions on lending and borrowing services without relying on traditional banks.
Use CasesGlobal Financial Ecosystem (Platforms like Compound and Maker DAO enable lending and borrowing); Art (Artists tokenize creations); Supply Chain Management (DAOs offer transparency and traceability in global supply chains); Governance (e.g., DAO stack facilitates decentralized governance for internet communities)
Significance1. Decentralization and Democratic Governance: Shifts power from central authorities, promoting democratic decision-making.
2. Transparency and Trust: Smart contracts ensure transparency, reducing opacity associated with centralized organizations. However, vulnerabilities in smart contracts can pose security risks
3. Inclusivity and Global Collaboration: Enables global participation, fostering diversity and innovation.
DAOs aim to create transparent, democratic, and self-executing systems, challenging traditional business structures.
ChallengesSecurity Vulnerabilities (e.g., 2016 DAO hack); Challenges in legal classification, taxation, and liability assignment; Decentralized decision-making makes dispute resolution challenging