When we speak to people within Web3, it’s a given that most people understand some or the majority of community jargon. However, thinking beyond that space, people might be confused about what’s a DAO or a Foundation and what purpose do these companies actually serve.
Here’s a beginners guide to the common structures within a Web3 framework
DAO
A DAO, or Decentralized Autonomous Organization, is a type of organization represented by rules encoded as a computer program that is transparent, controlled by the organization members, and not influenced by a central government. DAOs are typically associated with blockchain and cryptocurrency technologies, particularly on platforms like Ethereum.
Not to be confused with formal organisations like a private limited company, a DAO as per its name is decentralised, meaning it doesn’t have a legal structure. They are often implemented through smart contracts i.e. directly written into code.
The most famous example of a DAO as created by Ethereum in 2016 saw a massive data breach which caused a third of assets held to be lost.
Foundation
Unlike a DAO, a Foundation refers to a legal entity established to support and oversee the development, promotion, and governance of a specific cryptocurrency or blockchain technology. If the company is thinking about an ICO for an own token, it will most likely have a foundation somewhere along its company structure
A Foundation is often used by companies to rally support on Discord and Telegram channels as an example and educate interested parties on a specific blockchain’s use cases and major milestones. They also offer grants to developers, researchers, and projects that contribute to their native ecosystem. These grants can support innovations and advancements within the project that the Foundation supports.
Private limited companies
Like you’d have in normal corporate structures, crypto entities have traditional needs like employing personnel, conducting R&D and commercialising goods and services. In that sense, they’d have an overarching parent company or a for-profit entitiy/entities that develop, maintain, and commercialize blockchain projects.
They may provide services, and operate in a traditional corporate structure.
DEX (Decentralised Exchanges)
DEXs are platforms that facilitate peer-to-peer trading of cryptocurrencies without relying on a central authority. They operate through smart contracts and decentralized protocols.
The definition by Coinbase is perhaps best suited to understand what they are,
A decentralized exchange (better known as a DEX) is a peer-to-peer marketplace where transactions occur directly between crypto traders. DEXs fulfil one of crypto’s core possibilities: fostering financial transactions that aren’t officiated by banks, brokers, payment processors, or any other kind of intermediary.
It’s fairly normal for Web3 and crypto entities to have one or more combination of these structures as part of their corporate set up. Most will start with a private limited company to facilitate having employees and setting up departmental functions such as a finance function.
If you’re looking to set up a series of entities within your crypto structure, do read through the which will provide a few thinking points for anyone venturing into this world.
References
- https://www.coindesk.com/consensus-magazine/2023/05/09/coindesk-turns-10-how-the-dao-hack-changed-ethereum-and-crypto/
- https://www.coinbase.com/learn/crypto-basics/what-is-a-dex
- All images are Creative Commons licensed and sourced from pexels.com
