In recent years, blockchain technology has revolutionized every industry, from the financial sector to the FMCG industries. Because of its outstanding characteristics, every industry is looking for ways to implement the technology and increase productivity.
Blockchain also helped DeFi, NFTs, and GameFi to enter the mainstream market along with the Decentralized Autonomous Organizations (DAOs). But, what is a DAO, and how is it related to NFT? Let’s find out the answers in this blog.
DAO, or a Decentralized Autonomous Organization, is a community-led group that doesn’t have a central organization controlling it. Instead, it is governed using tokens that grant voting rights to the members. DAOs use smart contracts to execute a command automatically whenever a set of conditions are met.
DAOs are decentralized and autonomous. They work with the help of smart contracts, where rules are stored on an open-sourced blockchain. It depicts that anyone on the Internet can look at their code and transaction records. The best part about DAO is that the decisions happen through proposals shared with the project community. The members then vote on the proposals for approval.
A DAO functions similarly to an organization. While an organization has a hierarchical structure, DAO attempts to provide a new, democratic process through decentralized governance. It bounds the members of the DAO by a common goal or incentives that are written into their rules. The rules are transparent and allow anyone to look at the code or transaction records.
Since DAOs are autonomous, no single entity has the authority to enforce decisions. It harnesses the power of smart contracts and works on its own. The decisions are taken with the collective efforts of different people. However, you cannot change the rules once a DAO is deployed. It will be governed by the members defined by the governance rules in the protocol.
In short, DAOs act as an operating system for open collaboration. The system enables individuals to collaborate without having to know or trust each other.
DAOs and NFTs are closely related in the form of collectors DAOs — an organization that helps to acquire and issue NFTs by pooling the pools together. non-fungible tokens from famous artists often cross the mark of thousands or millions of dollars that require significant capital. Small traders find it difficult to afford the NFT; hence, the collection DAOs allows individuals to own a fragment of an NFT.
For example, APE DAO is a famous collector DAO that fractionalizes Bored Ape Yacht Club (BAYC) NFTs for small traders to allow them to own a fraction of the same asset.
Although collector DAOs seem perfect in establishing the connection between DAOs and NFTs, it isn’t the only one. Community governance is the second link between DAOs and NFTs. Creators and Community members can collaboratively come to decisions and contribute ideas for the future direction of the NFT project.
DAOs can also power smaller projects or creators to build a dedicated community. However, not every emerging creator can have a true community from the start. DAOs work much like a crowdfunding platform that helps raise funds. However, a DAO enables members with similar interests to create engaged communities for different NFT projects.
DAOs are still in their infancy stage, and researchers are still looking at the unique cases they can solve. Still, they have been here for a while and have a variety of compelling use cases. In the NFT space, DAOs can be a beneficial tool in supporting the growth of existing and emerging NFT projects. As the NFT space grows, we will likely see more projects incorporating DAOs.
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