DAOs And The Importance Of Governance Tokens

A decentralized autonomous organization (DAO) is an emerging form of legal structure that has no central governing body and whose members share a common goal to act in the best interest of the entity.

The main characteristics of a DAO are fairness and transparency in decision-making processes. To me, this means less shady behind the curtains activity that is usually happening in ordinary world politics for example. The financial purpose of a DAO is to increase the value of its native token.

Here are some examples of DAOs:

Staking platforms such as Aave and Curve DAO**

• Social media platforms like HIVE Metaverses like Decentraland**

Can anyone join a DAO? Sure. All you need to do is to acquire the governance token of a platform and you are automatically part of DAO and given governance rights meaning you can take part in the decision-making by voting.

On different platforms, decentralized applications might have more than one token. It's important to understand the use cases of each token and to learn which one is a governance token and which one is not.

For example, the governance token of Splinterlands is SPS. Staking SPS gives you voting power which you can use to vote on proposals made by DAO. It's pretty simple, the more SPS you own (and stake), the more voting power you have.

In A Case Of Emergency

Some time ago I was staking BTC and ETH on this one platform that was about to go down and the discussion began on how the DAO should distribute the locked assets among the participants. You can read the whole story here but in a nutshell, the thing was that I didn't own the governance token so I didn't have a saying. Those who did have a large stack of it voted of course the proposal that was in favor of them.

This was an example of an emergency case of a platform and the importance of owning a governance token. Emergency or not, the DAO always works toward the shared common goal and the for the benefit of its governance token holders.

Could the idea of DAOs be applied in the "real world"?

I always keep visioning the world accepting blockchain technology. If some sunny day humankind would take a giant leap toward mass adaptation, I wonder how the idea of DAOs would be utilized in it.

I live in the city and in an apartment building. I'm paying rent for my flat but some of my friends own their apartments and have to attend housing cooperative meetings where they decide how the maintenance charge is used. You know, should they renew the window panes or order a paint job and so on.

In a way, a housing cooperative like this has a structure and governance similar to DAOs that we are familiar on this crypto sphere.

That's why it would fit perfectly in our example. If we'd take the cooperative on-chain and if the apartments were to be tokenized and everyone would be given governance rights it would perhaps create interesting opportunities. For example, shared ownership or owning a small piece of the apartment would become easier. The decision-making would become more straightforward without the paperwork, chairman, and secretaries. The DAO could create an investment portfolio on blockchain and earn interest on the paid maintenance charges. Perhaps people like me who pay the rent would have the option to buy the apartment token by token over time...

There could be so many possibilities and use cases for DAOs in the world of tomorrow. Surely it would face huge resistance from the centralized entities worried about losing their power and control. Still, I want to believe that decentralization and DAOs could change the way governance is seen in different sectors of life.

Conclusion

Back from the future to today's crypto world. In the end, it all comes down to governance rights.

I recently read a Discord conversation where one user was convinced the DAO was against him and he felt betrayed. It doesn't work like that. You can disagree about how some funds are invested but DAO cannot be against you. You are part of it.

Still, I know how that guy felt. I was feeling the same way during that emergency example I gave you. However, that made me understand one very important thing. I wasn't part of the DAO since I didn't have governance tokens. Referring to my housing cooperative example, I was just renting or homeless. Therefore, I cannot underline enough the importance of governance tokens.