Why Would One Want A Stake In A Dao?

We have previously discussed what a DAO, or Decentralized Autonomous Organization, is and how it works. As explained, this type of organization as it relates to cryptocurrency would revolve around a Proof of Stake model where those who control digital tokens associated with the DAO would have some involvement in decision making. Here is an explanation of why one would want to hold a stake in a DAO.

Becoming a DAO Shareholder

It is first necessary to understand how to become a shareholder in a DAO. It isn’t a hard proposition. In most cases it is as simple as buying tokens that are associated with a particular DAO. If you have ever purchased Bitcoin or Ethereum you will know how to do this, and Cryptoswede has many useful resources on how to buy cryptocurrency.

Owning the digital tokens of a DAO is essentially the same as owning shares in a publicly traded company. These tokens will generally be purchased during the funding phase of a DAO, which is typically conducted by means of an ICO. An ICO is an Initial Coin Offering. This is when the developers of a new cryptocurrency will offer tokens for sale to investors before the tokens are made available on cryptocurrency markets. Investing in an ICO carries its own risks. Many of these offerings can be scams, and the tokens associated with them never get off the ground as an investment.

After the ICO is completed, those who hold tokens will have some decision making power regarding the future development of the DAO. It will be possible for the stakeholder in a DAO to make proposals. These will need to be paid for with the DAO’s token. Stakeholders can also vote on important matters. These matters will typically involve changes that are proposed to the underlying code that is responsible for the DAO’s function.

The voting power that you have is directly related to the amount of tokens you control. In theory, you could become a major factor in the DAO’s development if you hold enough of its currency. And this is where holding shares in a DAO is not that different from controlling a lot of fiat currency.

Think for a moment about men like Warren Buffet. These men are instrumental in affecting financial policy for the US because they control a lot of money. In the case of Buffet, they can also affect the operation of large companies. When you purchase an ice cream sundae from Dairy Queen, one of the companies that Buffet’s Berkshire Hathaway owns large amounts of stock in, you should know that Buffet and his partners have some influence over how much that sundae will cost.

So, there is a certain amount of leverage and power in owning shares in a DAO. If you are the kind of person that wants to shape the future of cryptocurrency, owning stake in a DAO might be for you. Just remember that there is always risk in any type of investment. The good news is that the source code for a DAO will likely be open-source. This means that you can review it if you have the knowledge to do so. Those with coding experience could even make suggestions or improvements to the code.

Is a Stake in a DAO Profitable?

This is a hard question to answer because there have not been any large-scale experiments with DAO structures that have worked. The DAO company which was the first company to attempt an autonomous structure failed because the code was imperfect. One can only theorize how holding a stake in a DAO could be profitable.

Imagine again the example of an automated company that has the ability to function without the need for management. This means that the operating costs of the company could be much lower. A lower operating cost could mean greater profits which could then be passed on to investors. There is great potential for DAOs to become an accepted business model, but until that happens no one will know exactly what the profit potential is.