What is a DAO? Different types of DAOs
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As the complete transition from web2 to web3 consistently draws nearer, the blockchain technology has come quite far since its arrival back in 2009 with Bitcoin. Blockchain serves the core purpose of the third generation of the world wide web: decentralization. The tech works so as to return power over their own data and finances to the users and take it away from the centralized institutions aiming for monopolization.

Out 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 every member in a DAO holds equal power over the governance and decision-making process.

DAOs serve a variety of use cases, depending upon which there are also multiple different types of DAO. In this post, we discuss exactly that: the different types of DAO or decentralized autonomous organizations.

What Different Types of DAO are There?

Different autonomous organizations are developed with different goals by various developers. The different types of DAO might integrate smart contracts, and on-chain governance powered by a voting system for members of the organization. Further, decentralized autonomous organizations usually combine governance tokens as an added incentive as well; token holders get the power to vote in governance structures.

If you are wondering how a DAO works or thinking of developing one for a particular use case, you need to know about the different types of DAO to pick which suits your objective best.

Without further ado, let’s see the different types of DAO:

Protocol DAOs

These are usually used most widely by decentralized exchange platforms (DEXes). For example, there are AMM (automated market maker) DAOs that make use of smart contracts to offer various DeFi products and services like lending, borrowing, and the usual swapping of tokens. Protocol DAOs usually come with governance tokens anyone can use to vote in platform governance.

Some popular examples of protocol DAOs include:

Uniswap: One of the pioneers in true DeFi or decentralized finance, Uniswap is a protocol DAO with the governance token UNI. The Uniswap community gets to vote on decision-making on the platform and even propose new changes in governance. Some examples of what comes under the UNI holders’ supervision include the treasury fund and fees charged by the 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 add, MakerDAO in fact influenced the entire definition of DAOs. MakerDAO uses smart contracts for users to borrow crypto against deposited collateral, and also lend cryptocurrencies. Again, this platform brings the governance token MKR so users can participate in the voting process for future developments on the platform.

Yearn Finance: This one is another well-known DAO that allows you to ⦁ yield farm, or liquidity mine. You can deposit your crypto funds into smart contract based liquidity pools on Yearn Finance to earn interest on them, which makes for a pretty solid passive source of income. The YFI token is the governance token on this platform.

Investment DAOs or Venture DAOS

DAOs can be utilized for raising funding for a particular project. Just like a traditional investment fund, investment DAOs pool in funds from investors, sans the centralized model or an intermediary. However, only the native token holders get to vote on future decisions regarding the project in question.

Venture DAOs are usually used to pool in funds for blockchain and crypto projects in initial stages. They come with the added benefit of offering investors a potentially robust method for investments in up and coming web3 projects. These venture DAOs are usually quite well in demand since they greatly accentuate investment portfolios.

A popular example of investment DAOs is Meta Cartel Ventures. The platform aimed to allow for broader investments in new dApps by lowering entry-barriers for fresh investors.

Collector DAOs or NFT DAOs

These are not very different from investment DAOs in that they also focus on collecting funds. However, the purpose of a collector DAO is very different from a venture one- a collector DAO focuses on collecting funds so the community can bid on and own blue-chip NFTs and other such much-coveted virtual collectibles together.

As NFTs grow more and more popular, NFT DAOs are also gathering a lot of popularity. The concept of distributed ownership is also one that aligns well with the decentralized, shared structure of web3, so this is definitely one of the different types of DAOs anticipated to explode in the coming days. Another benefit of NFT DAOs is that investors here can get exposure to valuable NFTs without bearing the risks of doing it all on their own.

A pretty famous example of collector DAOs would be the Flamingo DAO. Users on the platforms already have ownership of highly valuable NFTs from artists like XCopy, Pak, and Hackatao.

Aside from these different types of DAOs, there are a few more you might come across, namely:

⦁ Philanthropy DAOs, which focus on supporting various social causes
⦁ Grants DAOs. which are focused on funding new projects, especially web3 ones
⦁ Entertainment DAOs, which focus on making various media available to users who couldn’t access them previously

And that was our brief take on the different types of DAOs. We do hope this post has been helpful to you in understanding how a DAO works, and the different types of DAOs out there!

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Disclaimer: Cryptos are unregulated virtual assets, not a legal tender and subject to market risks. The views and opinions expressed in the article are those of the author(s) and don’t represent any investment advice or WazirX’s official position.

Also Read | What is SocialFi?

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