Gavin Wood, Ethereum’s co-founder, popularized the phrase “Web 3.0” immediately after Ethereum’s introduction in 2014. Gavin recognized the most serious problem with the Web: it demanded too much trust. Meaning the Web that people know and use today, pivots on trusting a few private companies to act in the public’s best interests. Gavin developed a solution to the issue that came to be known as Web3.0.
The tweet aptly points out the main difference between Web1.0, Web2.0, and Web3.0.
So what is Web3.0? It is an umbrella term to refer to a decentralized digital world. Web3 promises to usher in the next phase of the Internet, in which consumers, rather than intermediaries, would control value.
Whereas the existing Internet operates on a centralized infrastructure, users govern Web3.0.
Essentially Web3.0 is a trustless, decentralized, and permissionless ecosystem that cuts all intermediaries and puts the power back in the hands of people.
Web3 aims to divert that economic value to the individuals who engage in the ecosystem. Like today’s Web, a decentralized Internet requires a connectivity layer or common standard that allows value to move across blockchains.
But how do you ensure the smooth running of something which does not recognize authority in the first place? The task is daunting. Maintaining decentralization while ensuring seamless governance is a fine line to tread. But Web3.0 has developed a solution: community-driven, highly decentralized organizations. These Decentralized Autonomous Organizations, or DAOs, hold Web3.0 together and ensure that it evolves smoothly.
Whereas the current internet generation runs on centralized infrastructure, Web 3 will be user-controlled. Decentralized governance is the ultimate utility for building the next generation of the Internet, in which users determine its progress and share in the value generated.
Decentralized Autonomous Organizations, as the name suggests, are groups/companies not governed by a central authority. Instead, the organization is run by the members of the group who vote on critical policy decisions and network upgrades. They have built-in treasuries that users can only access with their members’ permission.
DAOs operate in the following manner:
- The creators of the DAO establish a new coin known as a governance token.
- These tokens are distributed to users, funders, and other stakeholders.
- Each token represents a predetermined amount of voting power inside the organization.
- It also correlates to secondary market pricing, where it may be purchased and sold at any time.
How do the DAO protocols add value?
The absence of trust between two parties is a crucial benefit of DAOs. While traditional organizations require a great deal of faith in the people behind them, especially on the part of investors, DAOs require trust in the code.
Trusting that code is easy because it is publicly available and can be thoroughly vetted before release. Once formed, every action taken by a DAO must be accepted by the community and entirely open and verifiable.
There is no hierarchy in such an organization. Nonetheless, it may complete tasks and flourish while being governed by stakeholders through its native token. The lack of a hierarchy implies any stakeholder may put up an original concept that the entire group will evaluate and improve. Internal conflicts are frequently resolved using the voting method per the pre-written rules in the smart contract.
Examples of successful DAOs
Uniswap is a cryptocurrency exchange built on Ethereum and one of the largest and most popular DAOs. Anyone may join by obtaining the UNI token, which grants voting power over how the organization is organized and administered.
MakerDAO is an Ethereum blockchain-based decentralized global reserve bank. The Maker protocol uses Ethereum smart contracts to automate the collateralization and lending of its stablecoin (named DAI), among other things (like governance, for example).
This is an online virtual environment managed by a DAO, where administrative and governance choices are made democratically by stakeholders. Anyone who possesses the network’s token, MANA, can participate. The platform is fast becoming popular with multinational companies such as Morgan Stanley, Coca-Cola, and Adidas to reach out to digital-native consumers.
The list of DAOs is quite lengthy. It has evolved into a distinct concept that has gained traction through time. Some projects are currently attempting total decentralization using the DAO model, but it’s worth noting that they are just a few years old and have yet to reach their final aims and objectives.
DAOs have the ability to totally transform corporate governance. As the notion grows, an increasing number of organizations may adopt a DAO model to assist manage parts of their operations.