A Decentralized Autonomous Organization, or DAO, is an organization that harnesses the power of blockchain communities to make executive decisions in a collaborative way.
Rather than depending on the choices made by a core group of executives or any one person, DAOs run on a governance model where the immutability, transparency, and security of blockchain technology allows a group of people with a common goal to cast votes and make decisions from all corners of the world by means of crypto tokens, known as governance tokens.
No one owns a DAO. No one has direct control over a DAO, and in its purest and most decentralized form, a DAO follows a set of rules set in code, written into a smart contract on a blockchain, and any changes to these rules are made based on majority votes cast by the DAO’s members by spending governance tokens in a transparent and structured process.
In this article, we present a short history of DAOs, how they work, and how Hubble plans to become a DAO as one of the long-term goals we've set for the future.
A Short History of Decentralized Autonomous Organizations
It can be argued that Bitcoin, launched in 2009, was the first DAO. Although the anonymous Satoshi Nakamoto created Bitcoin and brought us to where we are today, there is no leader of Bitcoin, and there’s no figurehead that can sway the future direction of its blockchain.
It’s often said that one of the greatest gifts Satoshi gave to the world is his or her disappearance since Bitcoin became a project controlled entirely by its community from the outset. Bitcoin is a rare bird in that it has seemingly fallen into a decentralized decision-making structure by accident since it launched, and by doing so, Bitcoin demonstrated that a project, once properly set up, could reach a trillion-dollar market cap without a leader at the helm.
Years later, a community-guided investment fund called The Dao, the namesake for the organizational model we’re talking about, was founded in 2016. The Dao was built as a smart contract on the Ethereum network, and it quickly raised $150 million in token sales.
Unfortunately, The Dao was hacked due to some less-than-stellar coding in its smart contract. In response to the hack, Ethereum implemented a hard fork in order to recoup the lost funds, which amounted to around 15% of all ETH minted at that time. In the aftermath, The Dao disbanded, members’ funds were returned, and the experiment was chalked up to a failure.
A lot has changed since The Dao fiasco, and many big names in DeFi operate under varying degrees of DAO governance today. It’s estimated that close to $10 billion in AUM are managed by around 150 DeFi DAOs with a little over 900,000 members participating in total.
In 2019, there were only 10 recorded DAOs operating on the blockchain. That number rose to nearly 100 in 2020, and today in 2021 it’s getting harder to count how many DAOs exist, as various projects have developed tools that lower the technical bar for creating a DAO for just about any purpose, not just DeFi.
It’s becoming increasingly clear that DAO governance is here to stay. The American state of Wyoming gave DAOs a legal structure for operating in the United States in the spring of 2021, and this is good news for DAOs, since Wyoming was the first state to legalize the Limited Liability Company (LLC) in 1977.
By the 1990s, forming an LLC finally became increasingly popular, and today LLCs are formed at a rate much higher than corporations. LLCs are now the predominant form of organization for businesses in the United States and elsewhere, and the future of DAOs hope to follow the same rising trajectory in popularity as the benefits of operating as a DAO become clearer as the world of business grows in connectivity and participation from those who stake their interest in an organization from the bottom are given higher priority.
One of the most famous DAOs in DeFi, Uniswap, has shown tremendous success as an organization that benefits its users. Over the span of Uniswap’s short history, meaning over just three years, the protocol has earned its users over $1 billion in revenue generated from its services, and its governance token has become one of the most highly valued assets in all of crypto.
How DAOs Operate Through Decentralized Governance
Here’s how DAOs usually work: DAO members who want to make a change to their organization or suggest a course of action can submit a proposal by writing their idea and spending governance tokens in order to publicly submit the proposal for an initial review. Other members then vote on accepting or rejecting this proposal in a preliminary round of voting, also spending their governance tokens in order to vote.
This vote decides if the proposal is worth putting forth for another round of voting where the proposal will be either accepted or denied. If the vote is accepted by a majority, the DAO implements the proposal, and the changes are put into effect.
Of course, different DAOs have different methods for submitting and voting on proposals, and these methods can even be altered by the voting process itself. One of the benefits of operating as a DAO is the fluid nature this creates in how a protocol does business.
A top-down corporate structure does not allow for the kind of inclusive decision-making process possessed by a bottom-up and democratized leadership system via a DAO. In a DAO, the community that is most invested in the success of the protocol can react together and change with the times in a timely fashion in order to foster better outcomes for the organization.
One of the hallmarks of a successful DAO is transparency and accountability. No DAO can operate successfully if its users are not working with the most information at their disposal, and the benefits of game theory that make DAOs a productive shift away from the closed-door operations of traditional corporations are lost when a DAO’s founders withhold information.
On that note, Hubble is operating as transparently as possible so that the future of our DAO can leverage as much information as possible towards improving the state of our protocol and community.
Hubble’s Journey Towards Becoming a DAO
Hubble Protocol has chosen to give its community the right to govern the future of the organization through DAO governance. We believe this will secure Hubble’s future as a community-centered DeFi platform built to benefit the many over the few.
We also believe that we must help Hubble reach a point of stability where becoming a fully decentralized DAO makes the most sense for the community.
Hubble will begin its DeFi journey on Solana as a protocol led by a core team that makes decisions on behalf of Hubble’s best interests, and once the protocol’s infrastructure has matured to a level that can sustain community governance, we will undergo full decentralization and hand over all control to the community invested in Hubble’s success.
Our native token, HBB, which can be staked to earn rewards from the protocol, already has inherent utility within Hubble’s DeFi ecosystem. By making HBB Hubble’s governance token, additional value will be added to holding HBB and the governance rights it confers.
Hubble is looking far into the future of DeFi, and becoming a DAO is 100% the kind of future we see for Hubble. Join us today on our mission to create a sustainable future for DeFi run on the world’s fastest blockchain, Solana.