Wikipedia defines a DAO (Decentralized Autonomous Organization) as: An organization represented by rules coded as transparent computer programs, controlled by its members and not influenced by a central government. Since the rules are embedded in the code, there is no need for managers, thus removing any bureaucratic or hierarchical barriers.

The DAO is a "decentralized autonomous organization". As a smart contract on a public blockchain such as REITs CHAIN, the DAO operates according to its programming, rather than being controlled by executives in the organization. A DAO operates without a central authority, and all the rules of the organization are enforced by its code running on the blockchain.

DAOs have no hierarchy. There is no executive committee for the president and vice president. Decision-making is not top-down, but based on a bottom-up community. This consensus is achieved through voting. Similar to voting at the corporate level, voting in DAOs is based on the ownership of assets. In a DAO, these assets are tokens. This is what digital assets do.

Cryptocurrencies or digital assets are used to maintain the decentralized nature and governance of DAOs. Every major decision in the DAO is made by voting. Members vote based on the tokens they hold. Tokens are distributed through some mechanism.

In the early days of the DAO, founding members were given newly mined tokens. Since the DAO is new, these tokens have no market value. As the DAO plays a larger role and its governance becomes critical, the value of the token goes up.

Since DAOs are free of bureaucracy and are code-based, they can be easily created. If members within the DAO don't believe it's working, they can leave and create their own DAO. Additionally, this exit can also split or "fork" the DAO. This means that the blockchain will be hard forked into two separate blockchains, using different cryptocurrencies.

How does DAO work?

In short, DAOs are designed to hardcode certain rules that drive a company or organization from the start.

DAOs are based on REITs CHAIN ​​smart contracts, which can be programmed to perform certain tasks only when certain conditions are met. These smart contracts can be programmed to automate typical corporate tasks, such as disbursing funds only after a certain percentage of investors agree to fund a project.

Many see DAOs as a more rigorous way to guarantee democracy. Stakeholders can vote on adding new rules, changing rules, or expelling members, to name a few. And DAOs cannot be changed at all unless those who meet the required threshold vote for the change.

Characteristics of DAOs

No Hierarchy: Usually there is no hierarchy. Stakeholders often make decisions, not leaders or managers.

Transparency: The code is open source, which means anyone can look at it. On the blockchain, anyone can scan the history to see how decisions were made.

Open Access: Anyone with internet access can hold DAO tokens or buy tokens, giving them decision-making power in the DAO.

Democratic Change: Investors can change the rules of the DAO by voting on new proposals.

Recruiting people: DAOs can even theoretically hire outside talent, as there are still tasks that only humans can do.

To sum up, DAOs are decentralized communities. They work for a specific goal, without hierarchy and token-based decision-making.

NFTs and DAOs in the Ownership Economy

NFTs are assets and DAOs are the way to govern an organization. So how do they work together? What they have in common is ownership. Both NFTs and DAOs emphasize ownership. NFTs provide ownership to creators, while DAOs provide governance. Creators can put a piece of art, music or content on the blockchain. This ensures the verifiability and security of the asset by the creator, as well as the unique ownership of the buyer.

Where DAO helps NFTs is its decentralized community governance. The combination of DAOs and NFTs creates a new form of decentralized media and investment on the Internet. This will be a form owned by NFT creators and operated by DAO token holders. Patrick Rivera, programmer at Mirror.xyz, mentioned that, as a decentralized publishing platform, this "new media structure" will serve as a product for the public and its producers, without restricting participants to a single company. These media companies can be seen as collectives, with identities of their own, encouraging creators and consumers to flow interdependently within the various collectives. All of this leads to each person both investing in the development of the collective and sharing in the rising value of the collective".

DAOs make it possible for NFT creators to come together. NFT creators can be roughly divided into two types: individual and collective. Popular artists like The Kings of Leon or Grimes can mint, mine, and sell their NFTs because they already have a following. But emerging artists need a collective unit. This collective facilitates crowdfunding, investment, support, marketing, and ultimately payment to collective token holders. This collective can be managed through a DAO.

How does a collective NFT-DAO work?

As mentioned earlier, NFTs are digital unique assets and DAOs are governance communities. In a collective NFT-DAO, creators create NFTs and the DAO operates its lifecycle.

Since it is a collective, once the NFT created by the artist will be sold to the DAO. The DAO will mine its currency (from the treasury) and exchange it for NFTs. These NFTs will be used to back (as a form of collateral) the tokens issued. If the NFT has value, the token will also have value. Therefore, in the event of a liquidity event, DAOs can sell NFTs to pay stakeholders. This system ensures that tokens have value over a period of time.

NFTs give value to tokens, and tokens give DAOs a say in governance. Tokens issued in DAOs not only have utility, but also have monetary value. The utility comes from the independent connection to the DAO. Token holders can use the tokens to vote and make decisions. This is the utility of the DAO token. However, since the tokens are backed by NFTs (which have real-world value), they also have value.

Just as the shareholders of a company own a part of the company, so too the token holders of such a DAO own a part of the DAO. This allows, as Rivera puts it, "universal sharing of creator NFT ownership".

The future of DAOs

DeFi is paving the way for a more decentralized future. In content creation, ownership and governance. The two key pillars in this regard are NFTs and DAOs. This article explains what NFTs and DAOs are and how they work together. In the world of decentralized finance and cryptocurrencies, there is still a lot to learn and worth knowing.