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In just 4 days, a group of crypto investors pooled their funds in an attempt to buy 1 of the 13 remaining copies of the US constitution.This was made possible by a DAO, or a decentralized autonomous organization. A DAO is like a stand-alone company, but instead of employees, DAOs only have shareholders.

DAOs can set out to accomplish any number of goals, from buying the constitution to collecting meta-versa fashion NFTs to sustain the future of protocols like Uniswap and the DAI stablecoin. DAO members can create proposals for other members of the decentralized community to vote on. If a proposal is approved, the DAO can automatically execute chain actions such as exchanges or issuance of shares to new members. DAO is believed by many to be one of the most powerful applications of smart contracts due to its flexibility. Smart contracts are pieces of code that run on the blockchain, in order to take advantage of decentralization.

How does a DAO work?

If you have ever submitted a cryptocurrency transaction, you are already familiar with the basic structure of how a DAO works. DAOs use blockchain technology to record transactions made on the network in a digital ledger, which is then reinforced by a reliable timestamp on a distributed ledger. This allows the system to function without the risks and financial costs associated with a central point of failure.

DAOs are applications with rules encoded in the network structure to automatically initiate smart contracts when predefined conditions are met. The goal of a DAO is to allow network users to engage in transactions while maintaining control over their identity and personal data by avoiding the need for a trusted third party to complete a network transaction.

DAO and security

As soon as a DAO is up and running, a majority vote is required to update the DAO code or implement bug fixes. Because the code is visible to all users, but cannot be easily edited, bugs can potentially be exploited without a quick way for developers to correct them.

Hack of “The DAO”

The most notable example of the security flaws present in DAOs was the hack of a now-defunct DAO known as “The DAO.” The creators of DAO believed that by developing an autonomous and decentralized application, they could reduce human error in contract execution. After launch, the researchers pointed out numerous issues with the DAO code, which, like all DAOs, was visible to all users. Hackers exploited these security flaws in June 2016, gaining access to 3.6 million Ether tokens worth approximately $ 50 million at the time. Following the hack, the Ethereum blockchain was forked to act as a ransom for the DAO. In September 2016, major exchanges delisted the DAO token, marking the effective end of the project.

DAO benefits

Despite potential security concerns, DAOs offer a number of benefits to consumers and users, including:

  • Transparency. Users of a DAO can clearly see the code that governs the network, as well as any transactions that take place on the blockchain. This provides users with a high level of transparency compared to a centralized network.
  • More efficient organization. Instead of using a trusted central third party to execute operations on the network, DAOs use predefined codes and conditions to execute these contracts automatically. This eliminates many of the costs and security risks that come with relying on a third party.
  • An autonomous structure. DAOs offer investors a unique opportunity to submit proposals and ideas to improve the organization. Thanks to the autonomous structure of the DAO, any investor can submit a proposal, regardless of their participation in the network. Proposal submission also costs money, which improves the quality of submitted proposals by ensuring that submitting users have an interest in your submission.

Risks of Decentralized Autonomous Organizations

The DAO exposed many risks associated with the structure of these organizations. Some of the biggest risks include:

  • Security risks. The code of a DAO is clearly visible and difficult to edit once the system is up and running. This makes it easier for hackers to exploit bugs and gaps in the code, which was one of the contributing factors to the massive DAO attack in 2016.
  • Lack of government precedence. As a developing technology, there is no government precedent regarding the operation of DAO, and the legal status of this type of technology is not yet clear. This presents future risks for developers hoping to implement a DAO.

DAO shareholder

If you have ever bought and sold cryptocurrencies such as Bitcoin or Ethereum, it will be very easy for you to become an investor in a DAO. Each DAO issues its own currency that you can freely buy and sell on major exchanges using the same method that you would use to buy and sell other types of cryptocurrencies. After opening an account with a broker, you can become a “shareholder” in a DAO’s network by investing in its coin offering through these brokerage exchanges.

Let’s take a look at some examples of current DAO tokens and where you can invest in DAO.

DAO tabs

Here are some examples of currently trading DAOs that you can invest in via brokerage exchanges.

  • Script (DASH). Dash (whose name comes from the phrase “digital cash”) is an open source blockchain that focuses on giving users a faster and more affordable way to send money. Dash was developed as a fork of Litecoin and aims to improve the basic technology behind Bitcoin by providing users with more security and lower fees on the network.
  • Maker (MKR). Maker is the governance token of the decentralized organization MakerDAO built on the Ethereum network. The Maker system was one of the first DAOs dedicated to the sphere of decentralized finance, which aimed to remove third-party restrictions within the financial industry.
  • Augur (REP). Augur is a decentralized prediction marketplace built on top of the Ethereum network. It allows users to bet on the outcome of sporting events, election results, and more by purchasing stocks that support or disprove the outcome of a specific event.

Where you can buy DAO tokens

You can buy and sell DAO tokens using cryptocurrency brokerage accounts. If you already have an encryption broker account, you may already have access to some of the more popular DAO tokens. If you don’t have a brokerage account yet, you can open one using some of our favorite brokers below.

Future of DAO

One area of ​​future interest for investors in the use of DAO technology is the world of decentralized finance (DeFi). Decentralized exchange platforms like Compound, yearn.finance, and Uniswap rely on DAO technology to act as the governance of their networks. In the future, additional yield agriculture and decentralized exchanges may implement DAO technology to help govern exciting new technologies and DeFi solutions.

DAO is a Dapp?

A decentralized application (dApp) runs over a network of peer-to-peer connections. DApps work without the use of a single central computer initiating and completing transactions. DAOs are a very ambitious form of DApp that includes its own set of rules that dictate the organization and how it operates.

Introduction to investing in DAO

Although the high-end technology behind DAOs may seem complicated, investing in DAO tokens is almost identical to investing in any other type of cryptocurrency. After opening your account, you will place a purchase order through your broker, who will then complete your order and deposit your tokens or coins into your brokerage account. You can then transfer these investments to a private wallet for more secure long-term storage.

Frequent questions

What are some examples of DAO?

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What are some examples of DAO?

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Sarah Horvath

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When most people think of DAOs, the first thing they think of is the now-defunct DAO network that was effectively canceled in 2016 after a hack. However, there are also many examples of DAO at work. Some examples of DAOs that are currently in operation include MakerDAO, Dash, and Augur.

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Benzinga

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What is DAO in banking?

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Sarah Horvath

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Investor interest in DAOs and DAO technology has led to the creation of a number of decentralized DAO-based financial solutions. Some examples of how DAOs are used in the financial sphere include yield farming operations and decentralized exchanges like Uniswap.

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Benzinga

Benzinga drew up a specific methodology to classify cryptocurrency exchanges and tools. We prioritize platforms based on offers, prices and promotions, customer service, mobile app, user experience and benefits, and security. For a full breakdown of our methodology, visit our Cryptocurrency Methodology page.


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