DeFI is made possible by a unique and exciting group of technologies, some of which I’ve mentioned in past posts. Before we go any further down the DeFi rabbit hole, it’s important to take a step back and summarize what these technologies are, especially since they will be the focus of much of my content.
As previously mentioned, DeFi is driven by stablecoins, smart contracts, DApps, and DAOs. Though all of them have been adequately introduced here, DAOs, bear a bit more of an explanation.
Think of a DAO as a mix of a group of smart contracts, a DApp, and said DApp’s users, all of which together make up a governance mechanism. A governance mechanism, is, in a DeFi context, a way to lead and improve decentralized services in a collective fashion.
Think back to the MakerDAO, which allows those who hold the MKR cryptocurrency to use it to vote on all issues related to the overall Maker network. These votes then determine what technical changes are made to Maker’s smart contracts.
To put it even more simply, DAOs facilitate voting with DeFi services.
Without them, DeFi would have no discernible, decentralized leadership.
Most DAOs are easy to join and only require that you buy their native cryptocurrency, then join some sort of web or mobile forum where their members interact with each other. Now that you know the basics of what they do, perhaps you’ll choose to be a part of them one day. In my next post, I’ll introduce decentralized oracles through the Chainlink network, which solve a key issue with smart contracts and the DeFi ecosystem at large.