How Does a DAO Work?

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How Does a DAO Work?
Sounds great, but how is it supposed to work? How
does the system guarantee trust? When a DAO is
first created, its rules are written into its
code in the form of smart contracts programmed to
run when certain actions take place. Everyone
agrees to abide by the rules when they buy into
the group, and if those rules are violated, its
funds are locked and nobody can use the DAO.
This, in theory, is how a DAO guarantees that
everyone will follow the rules. Every DAO has
a built-in treasury to store its cache of digital
currency that members can only access with
approval by the group, and decisions affecting
the group are made collectively during a set
period. There are three steps to creating and
launching a DAO
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Creating the smart contract The developers of
the DAO code the smart contract(s) that will
dictate the rules of the group and decide on the
groups purpose. This stage involves extensive
testing of the code, because it can only be
changed through group voting once the DAO is
launched. Raising funds DAOs run on their
shared cache of currency, which has to be raised
from its members. Its here that people buy into
the group if they support its mission, agreeing
to purchase a certain amount of tokens in
exchange for a stake. Governance rules can also
be established in this phase. Launch The DAOs
code is deployed onto the blockchain. From here
on out, it can only be changed via collective
voting by the stakeholders. The original
developers no longer retain control of the
project. Since everyone shares the risk of the
group, everyone has a vested interest in making
sure it runs as effectively as possible. Group
members also share the rewardif the group does
well, its members get more currency and that
currency increases in value within the DAOs
ecosystem. Those who buy in also share in the
decision making of the group. New proposals have
to be voted on and approved by a majority of
stakeholders before being enacted. In order to
buy into the DAO, you must purchase whatever
crypto token the DAO is written to run on. Most
of the time it will be a token unique to the
DAO. Friends With Benefits, for example, runs its
entire ecosystem on the FWB token. The smart
contract-encoded rules of the DAO can include
using that currency to buy things within the
ecosystem, like NFTs, digital magazine
subscriptions, or pieces of virtual land. DAOs
are built on open-source blockchains, so anyone
can see whats written into the code. If any
member submits a proposal, or audits the
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groups treasury, or takes any other action
within the DAO, that action is recorded
indelibly on the blockchain, keeping a
transparent record. That transparency is also
supposed to facilitate trust between
members. Source https//in.pcmag.com/old-crypt
ocurrency/148262/what-is-a-dao-decentra
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