Most organizations, governments, & societies function similarly: a small group of individuals dictate how the collective operates to achieve common goals. Yet, the concentration of power, lack of transparency in decision-making, and hierarchy-driven bottlenecks are persistent issues.

Enter DAOs, an emerging governance model where participants share ownership and decision-making power, operating on a blockchain for smart contracts & token-based governance, devoid of a central authority.

But what is a DAO? How does it work? And what types are there?

In this blog, we’ll unravel DAOs, exploring their types (with examples), and how decentralized governance is evolving today, spotlighting Underdog Protocol as a solution for DAOs to create Membership NFTs, reward members, and more, with real-world applications by DAOs like Superteam and Deanslist.

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What is a DAO (Decentralized Autonomous Organization)?

A DAO operates on a blockchain, utilizing smart contracts and token-based governance to empower participants to make decisions and contribute, without a central authority.

Unlike traditional organizations with centralized management, DAOs depend on member voting to drive towards a common goal or purpose.

Each member’s voting power corresponds to the amount of the DAO’s native token they hold.

Though DAO concepts trace back to the early 90s, real-life implementation emerged post-2015, with the launch of Ethereum by Vitalik Buterin and co-founders.

Key Facets of DAOs:

1. Trustless Systems: DAOs operate trustlessly, relying on the integrity of smart contracts rather than a central party.

2. Contribution-led Model: Members earn value for their contributions, creating an on-chain reputation.

3. Reputation Economics: DAOs reward contributors with incentives like voting rights, while penalizing bad actors, preserving the DAO’s integrity.

Now that we have a basic understanding of DAOs, let’s delve into their operational mechanics.

How do DAOs work?

1. DAO Formation: Begins with individuals sharing a common goal. They establish operational rules coded into smart contracts.

2. Proposals and Voting: Members make collective decisions through a proposal and voting process.

3. Contributions to DAO: Members contribute meaningfully, with contributions tied to incentives and penalties, building an on-chain reputation.

How to create a DAO?

1. Define a Shared Purpose: Establish a clear mission to guide the DAO’s activities.

2. Formulate Principles & a Roadmap: Set rules and create a strategic roadmap.

3. Set up the DAO Smart Contracts: Develop a smart contract to govern operations.

4. Engage the Community: Involve the community early for feedback and to attract new members.

5. Transition Control to the DAO: Hand over control to the community, guiding the DAO according to shared purpose and principles.

Potential and Future of DAOs

DAOs embody collective governance, offering a transparent decision-making process for every member. The decentralization and collective ownership are their core tenets. Understanding DAOs is crucial for creating a truly decentralized web3 ecosystem. With  Underdog Protocol, creating Membership NFTs and rewarding member activity becomes simplified, as seen with DAOs like Superteam and Deanslist.

We hope this post has enlightened you on what DAOs are, how they function, and their various types, along with how Underdog Protocol facilitates a dynamic and rewarding DAO ecosystem.