Understanding Governance and DAO

Decentralized Autonomous Organizations (DAOs) are reshaping governance in the digital era by replacing centralized control with transparent, code-driven decision-making. Unlike traditional organizations where authority rests with a select few, DAOs run on blockchain through smart contracts, allowing communities to propose, vote, and implement changes collectively. This model creates more democratic, efficient, and tamper-resistant systems, making DAOs one of the most impactful blockchain applications today. For businesses exploring this space, partnering with a DAO development company can provide the expertise needed to design secure and scalable governance frameworks.

Understanding Governance and DAO

DAO is short for a decentralized autonomous organization which is an organization that runs on a blockchain, has a set of rules like working in smart contracts.

An important point to note here is that DAO's are trustless, which means that there is no one controlling which eliminates the need for supervision, it has governance to which everyone has access, instead of some special users.

The difference between a trustful and trustless organization is that you trust the systems and they are sole decision-makers, but the opposite is the case in a trustless organization, where you can be a decision-maker if you have the required criteria to be one.

To be a member of DAO you need to first join them by purchasing the required cryptocurrency required by the platform, COMP for Compound and UNI for Uniswap.

By being a member of DAO you can contribute to the well-being of the platform by creating proposals, voting for decisions to impose, something that needs to be changed, or needs updations for some ongoing things, etc.

The vote weightage is dependent on the number of tokens you are holding, you cannot just buy tokens and vote on an ongoing proposal, you must be a prior holder of the token.

Now let's discuss the contract part for the Governance

Required contracts are -

1. GovernanceToken - a token that is required by the user to be a member of DAO
2. A contract that needs to be governed
3. GovernorContract - having functions like createProposal, execute, etc.
4. TimelockContract - having functions to keep track of the time required for the proposals

To understand the process we can take the help of Compound Governance

Following are the steps for Successful Proposal -

Proposal Created (Reviewing) -> Voting Active (Active) -> Voting Ends (Succeeded) -> Timelock (Queued) -> Executed 

Following are the steps for Failed Proposal -

Proposal Created (Reviewing) -> Voting Active (Active) -> Voting Ends (Defeated) -> Canceled

To write these contracts from scratch is a very difficult task, Openzeppelin has support for the Governance and has really good support.

Link for the contracts by Openzeppelin - https://docs.openzeppelin.com/contracts/4.x/governance