Home Learning What is a DAO and How Does It Relate to NFTs?

What is a DAO and How Does It Relate to NFTs?

Illustrated characters holding blocks of a blockchain


As blockchain technology became mainstream, we witnessed the wider adoption of DeFi, NFTs, GameFi, and more this year. Along with these, blockchain technology has also given rise to a new form of organisation: DAO or Decentralized Autonomous Organization. Spurred by their capabilities, DAOs are increasingly becoming popular in the digital world. But first, what is a DAO?

Illustrated characters holding blocks of a blockchain
Decentralized Autonomous Organizations are being widely established across the globe. Credits: Freepik

What is a DAO?

Decentralization is at the core of blockchains, meaning, they are not controlled by a single central authority like the government. And that’s exactly what a DAO brings to organizations or companies. A DAO is an organization run by a group of people with no typical company hierarchy, who establish their own rules, and make decisions based on smart contracts on a blockchain. All its rules and transactions are recorded on the blockchain, thereby removing the need for any central entity. 

Essentially, a DAO works like a corporation with no executive board—a company that can seamlessly function autonomously and without leadership. Its main role is to bring together a community of people with similar interests to work towards a common goal. Here, the community manages the operations of the organization and decisions are made from the bottom-up. 

Bitcoin is widely considered the first-ever DAO. However, another famous origin of a Decentralized Autonomous Organization dates back to 2016 when few members of the Ethereum community set up what they called ‘The DAO’ on the Ethereum blockchain. The developers founded it to function as a venture capital fund sans any board of directors. Essentially, anyone could pitch their idea to the community to potentially secure funding from The DAO. It launched in late April 2016 after its ICO (initial coin offering) raised close to $150 million—the largest crowdfunding effort at the time.

The DAO logo
The organization suffered an attack a few months after it was set up. Credits: Wikimedia Commons

However, due to some vulnerabilities in its code, hackers managed to steal $50 million worth of ETH from the DAO in June 2016. The incident—one of the biggest crypto hacks in history—eventually led to the fall of the organization. Nonetheless, following the mass adoption of DeFi, more and more DAOs are now popping up worldwide. 

In what ways does a DAO work?

DAOs operate on a set of rules and regulations established through smart contracts on a blockchain. For the uninitiated, smart contracts are immutable, open protocols programmed to execute automatically if and when certain pre-established conditions are met. These are publicly available and verifiable, so any member can easily view the contract, all decisions, and financial transactions of the DAO. 

Thus, through smart contracts, DAOs add a level of transparency to organizations. Additionally, as DAOs are decentralized, no central authority can override or make changes to the smart contract. Any change only comes with the community’s majority vote.

Typically, a person will need to own a token to participate in a DAO. Token ownership also comes with governance/voting rights and they can influence decisions in the organization by creating and voting for proposals. This includes decisions about the DAO’s future, how funds are spent, and more. The more tokens a person has, the higher will be their voting power. Furthermore, for a proposal to be passed, it must receive votes from the majority of token holders as well as meet the DAO’s rules and regulations. 

In certain cases, like with ConstitutionDAO, people don’t need to invest in the organization to become members. This particular DAO was set up by crypto enthusiasts to buy a first-edition copy of the US Constitution. It went on to raise $40 million in funds but to no avail. Ultimately, how a DAO functions, who gets the voting power and how much, are all coded in the smart contract.

Now that we know what a DAO is, let’s see how it relates to NFTs. 

So, what do DAOs have to do with NFTs?

The short answer? A lot. 

From collective ownership of NFTs to governance and more, Decentralized Autonomous Organizations bring a lot to the NFT world.

Collective ownership

One way DAOs help the NFT industry is in collective ownership of an asset. Usually, investing in NFTs, especially blue-chip projects, requires significant capital. Of course, not everyone can afford this. Thus, some DAOs were established to allow a group of people to collectively own a high-value NFT without shelling out thousands of dollars. 

Edward Snowden's tweet on PleasrDAO on
Tweet from Edward Snowden via @Snowden

Take PleasrDAO for example. It is a collective of “DeFi leaders, early NFT collectors, and digital artists” that collects funds for highly valuable NFTs. According to its website, the organization collects digital art that “represents and funds important ideas, movements, and causes”. For all the NFTs it buys, PleasrDAO members collectively share the cost and ownership of the assets. The organization, which was originally set up to buy a Uniswap V3 NFT, has now purchased NFTs like Edward Snowden’s NFT “Stay Free”—the only one in existence. PleasrDAO bought it for 2,224 ETH or around $5.4 million at the time!

Community governance 

Another key area where Decentralized Autonomous Organizations help NFTs is community governance. DAOs are a great means for fans and creators of an NFT project to come together and decide its future. Several NFT projects have already established their own DAOs. 

Top collectible, Gutter Cat Gang, for instance, has the Gutter Cat Gang DAO. The organization, as per its website, aims to take the Gang “beyond that of your standard NFT community or club”. Here, those who own Gutter Cat NFTs get to vote on certain decisions such as community project initiatives. While the smart contract is currently “more controlled”, the project claims it will eventually become 100% decentralized. Furthermore, the Gutter Cat Gang DAO recently hosted a Las Vegas party exclusively for the NFT holders!

Gutter Cat Gang DAO's website
Gutter Cat Gang has its own DAO! Credits: Gutter Cat Gang

Some Decentralized Autonomous Organizations are also created by the community and not the project itself. A typical example is MeebitsDAO set up by community members of Larva Labs’ Meebits NFT project. Via the DAO, the community aims to build a metaverse for the avatars. For this, the organization will use all the collected funds to buy virtual land in various metaverses

Later on, Larva Labs developers also signed up as the DAO’s advisors. To join the organization, one has to purchase the ‘General Membership NFT’. The token also allows holders to participate in projects and governance, thereby building the future of the Meebits ecosystem.

NFT creator collectives

A strong community backing is essential for an NFT project’s success. For popular artists and celebrities that already have a following, community building is a walk in the park. However, that’s not the case for emerging artists. This is where NFT creator collectives governed by DAOs come into the picture. Essentially, these are a collective of NFT creators that helps to raise funds, marketing, community building, and more. 

WHALE social token website
WHALE is the first-ever social token backed by NFTs. Credits: WHALE

Typically, artists have to sell their NFT to the DAO in exchange for the DAO’s tokens. The NFTs, in a way, work as collateral for the issued tokens and give the token value. Additionally, token holders get voting rights in the organization. An example is WHALE, a social token backed by The Vault—the platform’s NFT art collection. A DAO governs the Vault, whose members hold the WHALE tokens and contribute to the project’s growth. 

Some popular NFT DAOs

Wondering what are some of the most popular NFT DAOs? Here are our picks:

APE DAO

APE DAO was started by Bored Apes collector Kylo.eth. They fractionalized 49 BAYC NFTs and a female CryptoPunk into 1,000,000 APED tokens to launch the NFT DAO in June this year. With this, anyone could own parts of these highly sought-after NFTs. The Decentralized Autonomous Organization was a great success with the tokens selling out in just four days! Soon after, DAO members donated more NFTs, including CyberKongz, Avastar, Punk’s Comic, and more. Furthermore, the community governs the DAO through $APED shards.

"APE

YGG DAO

As opposed to NFT art and collectibles, YGG DAO focuses on in-game assets from blockchain and NFT games. Currently, Yield Guild’s three co-founders manage all the 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.

SharkDAO

SharkDAO brings together a group of strangers to pool together funds to acquire rare NFTs. However, it focuses only on Nouns, a generative art NFT project. So far, SharkDAO has acquired 5 nouns and has 400 members (or as they call it, ‘Sharks’), together raising 1000 ETH. Here, members will receive SHARK tokens in exchange for ETH. With this token, members can vote and “steer the mission” and how they “deploy resources”.

Shark DAO website
This decentralized organization focuses on acquiring Noun NFTs. Credits: SharkDAO

​​Jenny Metaverse DAO

Jenny Metaverse DAO, set up on the Unicly platform, acquires NFTs and stores them in a vault. Additionally, the native uJENNY token represents the NFTs. As with WHALE, those who hold the token holders get governance rights and can vote on decisions such as releasing NFTs from the vault, acquiring NFTs, and more.

The future of decentralized organizations

Clearly, DAOs have a number of use-cases within the NFT industry. In the coming months and years, these use cases are only going to grow. 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 could also become a must-have for NFT projects. However, for these to happen, it is essential for DAOs to resolve existing security issues. 

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All investment/financial opinions expressed by NFTevening.com are not recommendations.

This article is educational material.

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