DAO = Decentralized Autonomous Organizations What are DAO’s and how do they work? Here’s everything you need to know 👇
In some ways, a DAO works similarly to a corporation or a nation-state, but it’s one that operates in a more decentralized fashion. While traditional organizations work with a hierarchical structure and many layers of bureaucracy, DAOs have no hierarchy. Instead, DAOs use economic mechanisms to align the interests of the organization with the interests of its members, usually through the use ofMembers of a DAO are not tied by any formal contract.
Once a DAO is deployed, it cannot be controlled by a single party but is instead governed by a community of participants. If the governance rules defined in the protocol are designed well, they should steer actors towards the most beneficial outcome for the network. This situation allows the agent to take risk on behalf of the principal. What deepens the problem is that there might also be information asymmetry between the principal and the agent. The principal might never know that it is being taken advantage of and has no way to make sure that the agent is acting in their best interest.
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