With the full transition from Web2 to Web3 fast approaching, blockchain technology has come a long way since it arrived with Bitcoin in 2009. Blockchain serves the core purpose of the third generation of the World Wide Web: decentralization. The technology works by restoring power over their own data and finances to users, taking it away from the centralized institutions that aim to monopolize it.
Of the many decentralized governance structures proposed by developers in the blockchain community, DAOs, or decentralized autonomous organizations, certainly deserve a significant mention. As the name suggests, DAOs are not associated with any centralized institution, and each member in a DAO has equal power over the governance and decision-making process.
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DAOs serve a variety of use cases, depending on which there are several different DAO types. In this post, we discuss just that: the different types of DAO, or decentralized autonomous organizations.
What are the different types of DAO?
Different autonomous organizations are developed with different goals by different developers. The different types of DAO can integrate smart contracts and on-chain governance supported by a voting system for members of the organization. Additionally, decentralized autonomous organizations also usually combine governance tokens as an added incentive; Token holders are given the power to vote in governance structures.
If you’re wondering how a DAO works or thinking of developing one for a specific use case, you need to understand the different DAO types in order to choose which one best suits your goal.
Without further ado, let’s look at the different types of DAO:
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Protocol DAOs
These are typically used most commonly by decentralized exchange platforms (DEXes). For example, there are AMM (Automated Market Maker) DAOs that use smart contracts to offer various DeFi products and services such as lending, lending and the usual exchange of tokens. Protocol DAOs typically come with governance tokens that anyone can use to vote on platform governance.
Some popular examples of log DAOs are:
Uniswap: One of the pioneers in true DeFi, or decentralized finance, Uniswap is a protocol DAO with the governance token UNI. The Uniswap community can vote on the decision making on the platform and even propose new changes in governance. Some examples of what falls under the oversight of UNI holders are the sovereign wealth fund and the fees charged by protocol.
MakerDAO: With DAO in its name, this Ethereum based platform is one of the OGs when it comes to the world of DAO. Needless to say, MakerDAO actually influenced the entire definition of DAOs. MakerDAO uses smart contracts for users to borrow crypto against pledged collateral and also lend cryptocurrencies. This platform also brings the governance token MKR with it so that users can participate in the voting process for future developments on the platform.
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year finances: This is another well-known DAO that you can use to ⦁ yield farms or mine liquidity. You can deposit your crypto funds into smart contract-based liquidity pools on Yearn Finance to earn interest on them, which is a pretty solid source of passive income. The YFI token is the governance token on this platform.
Investment DAOs or Venture DAOS
DAOs can be used to raise funds for a specific project. Just like a traditional mutual fund, investment DAOs pool funds from investors without the centralized model or an intermediary. However, only the native token holders can vote on future decisions related to the project in question.
Venture DAOs are typically used to raise funds for blockchain and crypto projects in the early stages. They have the added benefit of offering investors a potentially robust method of investing in emerging web3 projects. These venture DAOs tend to be in high demand as they heavily accent investment portfolios.
A popular example of an investment DAO is Meta Cartel Ventures. The platform aimed to enable broader investment in new dApps by lowering the barriers to entry for new investors.
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Collector DAOs or NFT DAOs
These are not very different from investment DAOs as they also focus on raising funds. However, the purpose of a collectors DAO is very different from a ventures DAO – a collectors DAO focuses on raising funds to allow the community to collectively bid on and own blue chip NFTs and other highly coveted virtual collectibles.
As NFTs become more popular, so do NFT DAOs. The concept of distributed ownership also fits well with web3’s decentralized, shared structure, so this is definitely one of the different types of DAOs that’s set to explode in the coming days. Another benefit of NFT DAOs is that investors can gain access to valuable NFTs without the risk of doing it all on their own.
A fairly famous example of Collector DAOs would be the Flamingo DAO. Users on the platforms already own extremely valuable NFTs from artists like XCopy, Pak, and Hackatao.
Aside from these different types of DAOs, there are a few more that you might come across, namely:
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⦁ Philanthropy DAOs focused on supporting various social causes
⦁ Grants DAOs. which focus on financing new projects, particularly web3 projects
⦁ Entertainment DAOs that focus on making diverse media available to users who previously did not have access to it
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And that was our brief overview of the different types of DAOs. We hope this post has been helpful for you to understand how a DAO works and what are the different types of DAOs!
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Disclaimer: Cryptos are unregulated virtual assets, not legal tender and are subject to market risks. The views and opinions expressed in the article are those of the author(s) and do not constitute investment advice or the official position of WazirX.
also read | What is SocialFi?
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