Exploring DeFi as We Enter 2022: Rise of DAOs
November 23 2021 - 1:57PM
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Debates over-centralization vs. decentralization have always been a
touchy topic. Many argue decentralization should be a vital part of
the cryptocurrency world as it ensures platforms are not controlled
by overbearing authorities or outside third parties. Resistance to
censorship and centralized authorities is important as it means
blockchain-based platforms can reach markets and empower users in
areas with unfriendly governments. In an increasingly
hyper-connected world where commerce and the exchange of ideas
flows beyond borders, decentralization becomes even more vital to
promote innovation and efficiency, especially with an Internet
described as the “biggest decentralized communication system
humanity has ever seen.” Decentralization fosters transparency and
security – elements that only become more important as the crypto
market sees larger amounts of money moving around. Accusations of
insider trading within the OpenSea NFT marketplace have led some to
argue for greater decentralization within the NFT world. “Whether
or not there is truth to the accusations of insider trading—OpenSea
needs to use this as a catalyst to build a more decentralized
platform,” Compound Finance co-founder Robert Leshner noted in
September. DAOs Are Becoming An Integral Part Of Crypto Projects
Interested In Democratic Governance Decentralization is of
particular benefit to projects when it comes to community
involvement and engagement. Decentralized projects are turning to
DAOs to empower users to participate in the governance process
through a democratic voting system where participants create
proposals and cast votes on different initiatives. Decentralized
governance has even proved popular in the traditional financial
world. The private venture capital firm Andreessen Horowitz
announced in August it was “Open Sourcing Our Token Delegating
Program” to share resources like legal agreements and other
criteria to foster decentralization. A number of blockchain
projects are finding success with the DAO model to promote
community involvement. The Maker platform relies on a DAO framework
to guide protocol development, where MKR holders can vote on a
range of issues from changing protocol fees to even forcing an
emergency shutdown of the platform. Another is PhoenixDAO, a
digital identity-based suite of protocols touching on
authentication, payments, and decentralized governance. 1,000
staked PHNX is required to cast votes while proposal creators need
to stake 10,000 of the native PhoenixDAO token. Members can vote
and propose on a wide range of issues from platform governance, to
leadership, marketing, ecosystem participation, and the rewards
structure. Uniquely, Phoenix’s DAO is entirely self-sustaining
through revenue-generating products and does not rely on donations,
unlike other DAOs. In a further nod to transparency, all spending
voted on by members is posted on a running budget page. DAOs Help
Solve Many Problems Plaguing Centralized Structures Phoenix’s open
participation and governance framework allow for anyone across the
globe to get involved. The democratized voting process ensures the
will of the majority (and not just a few developers or leaders)
dictate the platform’s direction. Disputes within centralized
structures are often messy to alleviate due to their bureaucratic
nature. Platforms like PhoenixDAO make dispute resolution easy
since any disagreements can be put to a vote for a final
resolution. As evidenced by platforms like PhoenixDAO, the unique
advantages of DAOs when it comes to governance, transparency, and
engagement make the model an influential one in 2022 and beyond.
Many are starting to believe DAOs could become an integral part of
the future of work and general human organization. DAOs also look
set to continue to make waves inside the traditional business
world. Joseph Raczynski predicted at the 2021 Thompson Reuter’s
Emerging Legal Technology Forum a DAO would own a major sports
franchise within the next four years, later writing how “Imagine
the ability for you and others to vote on which players the New
York Giants pro football team acquires… yet, by owning tokens of
the NYGiantsDAO or whatever it may come to be named…” Decentralized
governance only continues to grow in popularity as protocols look
to harness the collective knowledge and enthusiasm of members to
drive growth and interaction, firmly placing DAOs as an important
component of the already vibrant cryptocurrency ecosystem.
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