DAOs have quickly emerged as a new way of constructing communities for like-minded individuals within Web3. While still in their infancy, DAOs represent another significant shift towards decentralization.
When someone hears about DAOs, they may instantly think of decentralized groups built on the Ethereum network. However, many more blockchains are becoming a digital community hub, including Bitcoin.
As building on Bitcoin gains momentum, DAOs are becoming an integral part of the growing ecosystem.
In this article, we will cover the key characteristics of a DAO, how they work, and some of the projects actively growing Bitcoin communities.
What is a DAO?
A DAO (Decentralized Autonomous Organization) is a community-led group that operates without a central authority and yields its governance to every member, rather than a select few.
In a traditional organization, a leadership team ultimately controls that organization's decision making and direction. This often leaves average members out of the loop, and without a voice.
With a DAO, there is no top-down hierarchy. Instead, the organization gives each individual an equal opportunity to participate in the DAO’s management. This system operates according to a predefined set of rules that are embedded in the blockchain.
Furthermore, DAOs are created on a trustless framework that leverage smart contracts to uphold the principles of the group. Compared to traditional organizations, DAOs offer more autonomy and transparency - all while putting the power in the hands of its community members.
So far, DAOs have seen a diverse range of use cases, including:
- Decentralized application governance
- Real-world investments
- NFT projects
- Social Communities
How Does a DAO Work?
Decentralized Autonomous Organizations are operated within a system that uses blockchain and smart contracts to uphold its governance.
There are 3 key pillars that define a DAO model:
1. Collective Ownership
DAOs encourage any collection of individuals with similar interests to assemble and pursue common goals without needing a leader. Their “bottom-up” structure creates a unique sense of community for its members. Being fully democratized, no one party has the ability to alter the DAOs governance.
Because of this structure, members can freely submit proposals that are in the best interest of the DAO. Activity in the DAO can also be incentivized through token distribution and other reward systems.
2. Established Principles
Rules that govern the DAO are encoded in the blockchain through its smart contracts. This means that a DAO can run autonomously and never require intervention by a third party. The protocol rules are visible to anyone, and DAO members can view how the smart contracts were programmed and validate how they function. This mechanism ensures the integrity and decentralization of any DAO.
3. Voting Rights
Without a central authority, network protocols are determined through a DAO’s open voting system. Members can make their voices heard by voting on changes to the governance of a DAO. Thanks to its trustless mechanisms, any outcome can be automatically executed.
In most cases, DAOs create their own native token or NFT to represent membership in the organization. By investing in governance tokens, members of the DAO are not just token holders. Rather they are partial owners of the protocol. While their utility can be vast, the main purpose of governance tokens is to serve as voting power for each member.
DAOs on Bitcoin
On its own, Bitcoin’s base layer would be incapable of hosting decentralized autonomous organizations. This is due to the fact that the blockchain lacks complex smart contract functionality.
However, this all changes with the addition of layers.
Protocols like Lighting Network, Stacks, RSK, and Liquid Network are built directly on top of Bitcoin and bring smart contracts and more functionality to the network. With the addition of layers, an entirely new ecosystem of decentralized applications (dApps), NFTs, and DAO projects is being created on the world’s largest, most trusted, and most stable blockchain.
DAOs formed on a Bitcoin layer have many benefits.
- 1. They are reinforced by the robust security and stability of Bitcoin’s base.
- 2. They are exposed to billions of capital on Bitcoin.
- 3. They inherit the brand recognition of the largest, most well-known cryptocurrency.
Here are some of the leading Bitcoin DAOs:
Arkadiko is a Bitcoin DeFi application built on top of the Stacks layer. Arkadiko has a non-custodial liquidity protocol, where users can collateralize their digital assets and mint USDA (a Stacks-native stablecoin). Arkadiko DAO Members can participate in the future direction of the protocol through its governance token, DIKO. By holding DIKO tokens, members can vote on proposals for governance decisions.
Lydian DAO is a decentralized treasury management protocol on Stacks. Lydian’s treasury is actively supervised by its DAO, which controls the assets that back the protocol’s governance token, LND. Holding LND represents your stake in the total treasury, and is your entry into Lydian’s Guild Membership. The more LND tokens in a wallet, the more weight a vote in the DAO will carry.
Sovryn is a Bitcoin-based decentralized trading and lending platform built on RSK. The protocol is managed by a DAO under its “Bitocracy'' governance system. By staking Sovryn tokens (SOV), Bitocracy members can receive voting power. Subsequently, members may vote on proposals that improve or expand the protocol, such as modifying a smart contract, issuing a grant, or initiating a bounty.
Other DAO Infrastructure on Bitcoin
Beyond active DAOs, several tools are built on the Stacks layer for launching and growing Web3 communities secured by Bitcoin.
MultiSafe.xyz is a shared, multi-signature crypto safe for Stacks (STX) and Bitcoin (BTC) developed by Trust Machines. With MultiSafe, DAOs can deploy a decentralized ownership system to manage their treasury of tokens, Bitcoin NFTs, and other digital assets. Instead of one entity holding the keys to a DAO’s funds, an entire group can access a wallet. However, many keys held by different members are required to execute a transaction. This way, DAO funds are protected from hacks or bad actors.
StackerDAOs is a Stacks platform that is transforming how Bitcoin DAOs are assembled. StackerDAO Labs has a suite of products, including smart contracts operating systems, developer tools, and legal solutions. Their framework drastically lowers the barriers to launching a DAO and managing its resources.
A Trust Machines product, Console is an innovative decentralized messaging platform. Console fixes the shortcomings of current chat platforms. Currently, many DAOs use Web 2.0 chats to host their community’s communication. Applications like Discord are flooded with spam, fake accounts, and channel hacks, which can all be detrimental threats to a DAO.
Console utilizes blockchain technology to fend off these types of attacks. Features such as digital identity verification, voting systems, and multisig transactions will increase the security of a DAO.
Ballot is a decentralized polling application that provides tools for DAO governance. Polls can be based on the number of tokens held, .BTC domain names, or even NFTs. With Ballot, communities can reach consensus for proposed changes or updates in a transparent and verifiable manner.
Building Communities on Bitcoin
At its core, a decentralized autonomous organization is a group of like-minded individuals that strive for common goals through the governance of its community members. DAOs empower individuals to run blockchain-based organizations themselves, rather than a central authority. In turn, this yields a new level of transparency and decentralization not found in traditional organizations.
DAOs are quickly becoming a popular method for fostering an online community of like-minded individuals. Decentralized organizations have even gained traction in government, with three US states (Vermont, Wyoming, and Tennessee) currently recognizing DAOs as legal entities.
Under the Bitcoin network, DAOs have the potential to reshape how people assemble online. Layers like Stacks provide a solid foundation for developers to come and build a Bitcoin DAO.
Many decentralized applications are growing across Bitcoin, and an important part of onboarding their new users will include them in the communities that run them.