What is a DAO?

Published on 
20 April, 2022

Decentralized Autonomous Organizations (DAO) were born to give power back to the participants of a cryptocurrency protocol, without exposing them to central authorities and freeing them from censorship and third-party associated risks. Find out what DAOs are and how they relate to Money On Chain protocol in this article.

One of the most innovative qualities of Bitcoin is that it provides a simple solution to the challenges of coordinating parties with each other.

This is better referred to as a solution to the Byzantine Generals Problem, which basically consists of the challenges faced by the participants of some coordination process in agreeing with each other about certain information to be delivered when there are limitations in communication or a lack of absolute trust between them.

A Decentralized Autonomous Organization or DAO is a scheme derived from the resources that Bitcoin historically brought to the table to be able to coordinate several participants around the same goal.

How can different parties agree about certain data integrity? How to make decisions together without someone taking unfair advantage of the rules of the game? How to be sure other participants are not cheating?

A DAO puts technology at the service of democracy, making it possible for thousands of participants to reach a consensus in a fair and balanced way.

What is a DAO or Decentralized Autonomous Organization?

DAO interna

How can critical decisions be made between big organizations while peers keep their autonomy in a free and independent way? That’s what a Decentralized Autonomous Organization (DAO) tries to achieve.

The DAO definition was created originally in 1997, thanks to computer science professor Werner Dilger. However, it was not until 2015 that the technical limitations of the initial approach to DAOs were solved, when the Ethereum network and its protocol began to implement specific algorithms known as smart contracts.

Smart contracts are computer programs or software that allow DAOs to be:

Transparent: The rules of the protocol are clear and visible to all. Participants can check the code of smart contracts and effectively validate how they function. DAOs must be auditable and have total integrity.

Decentralized: By implementing smart contracts, rules are enforced as described 100% of the time. A DAO has no central authority to enforce the rules, or worse, one unique entity that can modify the rules for its own benefit.
Trustless: When it removes the central entity, there is no one to interfere between the participant and the rest of the organization. There are no gatekeepers to regulate access to the DAO, discriminating against its participants. The rules and opportunities are the same for everyone, always under the framework or code delimited by smart contracts.

Ok, but how DAOs relate to cryptocurrencies?

Bitcoin solves coordination and consensus problems between parties in order to maintain the qualities that make its cryptocurrency safe and reliable.

But many times cryptocurrency protocols have other purposes and objectives to fulfill, and this is when technology must accompany it. What if we want to provide a service to general users? What if the users want to do something more than managing money?

These protocols have developed functionalities different from Bitcoin, allowing them to give another utility to their cryptocurrencies or tokens, making them part of interconnected and decentralized tools and services.

Can we emulate banking and financial services, while making users autonomous on crucial decisions in a sustainable way? Yes.

Designing the functioning of a DAO it’s not easy. Beyond programming the smart contracts -which must be audited and tested by specialists-, outlining how users will participate in this organization, how they will interact with each other, and how decisions will be made, are the challenges of creating a DAO.

Is Money On Chain a DAO?

Money On Chain is a cryptocurrency protocol regulated by a governance system.

This governance system is a Decentralized Autonomous Organization (DAO), as it puts the responsibility of crucial decisions in the hands of Money On Chain users.

The values of Money On Chain are not dissimilar to those of Bitcoin: to be a decentralized and censorship-resistant protocol, avoiding placing trust in third parties or intermediaries.

While adding smart contracts, provided by RSK technology, Bitcoin's sidechain, Money On Chain brings decentralized finance to the bitcoiner ecosystem based on 4 tokens or derivatives:

DOC: a stable coin valued on the US dollar (USD) price.

BPro: a token that is leveraged on bitcoin (BTC) and generates passive income for its holders.

BTCx: a position to leverage bitcoin (BTC) price.

As you can see on our Wiki page, each of these tokens and derivatives has a specific function. With the MoC token users of the protocol can vote on proposals to improve the Money On Chain protocol, proposals that can add new functionalities or change some of the existing ones.

In other words, MoC token holders can decide how other tokens among the protocol can be used and which benefits they can leverage, under a democratic voting system.

If you want to learn how Money On Chain governance works, visit our explanatory article.

Learn more about Money on Chain in our blog.

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