Since the introduction of blockchain technology, it has changed to mainstream and caused wide adoption of NFTs. During the first half of 2021, NFT transactions worth more than $2.5. Further, the NFT market met its peak during the last weeks of December 2021with new NT projects, trends and fragmented NFTs.
Along with these, a new form of organization was also risen: DAO or Decentralized Autonomous Organization. It is a type of decentralized organization that has a set of smart contracts built into it. DAO uses blockchain technology to operate as a digital ledger for transactions based on Ethereum. The rules coded within the smart contracts are known to run DAOs while Ethereum Foundation, as an example of such a contract, made them even more popular.
Recently, many cryptocurrency users, including billionaires owning Bored Apes and CryptoPunks, are planning to buy NFTs in the form of DAO to have a share in the new asset class. Therefore, it seems necessary to learn more about DAO and see how it serves NFTs. If you need help with NFTs, please read our article on NFTs here.
What is DAO?
A DAO is a decentralized autonomous organization. It could be defined as a type of artificial intelligence that is powered by smart contracts and blockchain technology. Decentralization is the core of blockchains, which suggests that they are not controlled by a single central authority like a government. Therefore, a DAO creates an organization run by a group of people with no typical company hierarchy. The group of people establish their own rules, and make decisions based on smart contracts on a blockchain. The blockchain is used to record all rules and transactions and, as the result, remove the need for any central entity.
In fact, DAO functions as a company which does not need an executive board. It actually is like a company that works autonomously and without leadership. Here a community of people with similar interests come together to corporate toward a common goal and, accordingly, a bottom-up order is used to manage the company and make decisions on operations through voting. In DAO, voting is based on ownership of assets, or tokens. Now you see how tokens affect the digital world: members vote based on the tokens they own.
According to what is said, DAO is a decentralized community that functions regarding a specific goal with no hierarchy and token-based decisions.
How Does a DAO Work?
The DAO works based on smart contracts that automatically execute if conditions are met. These smart contracts indicate the organization’s rules, which are set via votes. Also, a DAO can send and receive funds with no human-driven intermediary.
The voting system is based on purchasing DAO tokens, commonly with Ethereum; members can vote on rules and directly influence company changes which in turn forms the smart contracts. This horizontal, transparent organizational structure comes from the critical role of voting by participation of members, mostly in Discords of each DAO.
A good example of DAO system can be Friends With Benefits (FWB) and MetaClan videogame industry. With a little research, you learn that members of such DAOs get to vote to change or support the rules according to their purchased tokens. In fact, all members can collaborate in decision makings. To be honest, it is the smart contracts that codes how a DAO functions, who gets the voting power and how much.
How does DAO relate to NFTs?
Simply saying, NFT is a digital asset, and DAO is a way to manage the communities relative to an NFT. It is already understood that both NFT and DAO emphasize ownership; while NFT provides ownership for creators, DAO provides governance. NFT creators place a piece of art, music, or content on the blockchain. The blockchain ensures not only the authenticity and security of the digital assets, but also the unique ownership of buyer’s.
DAO helps NFT with its decentralized community governance. DAO and NFT could be combined to create a strong decentralized media which makes investments available on the Internet. The ownership goes with NFT creator and the operation with DAO token holder.
Using DAO, NFT creators come together. they can be broadly divided into two categories: individual or collective. Famous artists, for example Grimes, cast, mine, and sell their NFT individually while they already have followers. On the other hand, the newly promoted artists need a collective unit. DAO manage this collective unit to crowdfund, invest, support, market, and ultimately pay collective token holders.
DAO plays an essential role for a collection; as the artist creates an NFT, it will be sold to the DAO and it will mine its token and convert it to NFT. The NFT then supports tokens issued (as collateral). If NFT is valuable, so are tokens. As the result, DAO can sell NFT to stakeholders through a liquidity event. The system ensures that tokens are valuable over time.
Popular NFT DAOs
1. APE DAO
Kylo.eth, the collector of Bored Apes, first started APE DAO. 49 BAYC NFTs and a female CryptoPunk were fractionalized into 1,000,000 APED tokens to launch the NFT DAO in June 2021 so that anyone could own parts of these highly sought-after NFTs. The tokens sold out in just four days which clearly defines the success of this DAO. Later, even more NFTs, such as CyberKongz, Avastar, Punk’s Comic, etc. were donated by the members of this DAO. Furthermore, the community governs the DAO through $APED shards.
2. Pleasr DAO
As an NFT DAO, Pleasr DAO was created as a way to co-collect funds for purchasing high-value NFTs. Pleasr DAO members share the total costs and ownership of digital assets.
Pleasr DAO was previously created to collectively purchase Uniswap V3 NFT artwork, called “x-y-k”, designed by @pplpleasr1 to celebrate the upcoming update of the most popular DEX-Uniswap.
Pleasr DAO is still used to buy and commission NFT artworks, invest in decentralized finance and also run an incubator to advance its mission. Now, Pleasr DAO aims to expand collections, incubate new cryptocurrency products and artists, and invest angels in the cryptocurrency market.
3. YGG DAO
YGG DAO focuses on in-game assets from blockchain and NFT games. Currently, three co-founders of Yield Guild manage all in-game assets. Furthermore, YGG issues the ‘YGG token’ for members. Token holders can vote on “decisions related to the guild’s business and governance” and participate in DAO-related activities.
YGG mainly focuses on exploring the “game money” concept proposed by Axie Infinity, which makes it possible for players around the world play games, defeat opponents and earn money. YGG considers the advantages of NFT games rather than art pieces.
4. Jenny Metaverse DAO
Jenny Metaverse DAO is set up on the Unicly platform. It acquires NFTs and stores them in a vault. accordingly, the native uJENNY token represents the NFTs. The token holders of uJENNY get governance rights and can vote on decisions such as releasing NFTs from the vault, acquiring NFTs, and all other changes required.
The future of decentralized autonomous organizations
According the discussion above, DAOs provide a number of use-cases to improve the NFT industry. Since the NFT market is expanding from day to day, it is already known that these use cases are only going to widely expand. Moreover, their vision of an organization owned and managed by its members could one day even replace some traditional organizations. In the future, Decentralized Autonomous Organizations seem to be required as a must-have for NFT projects. For these to happen, DAOs have to improve their content of security.