5 Ways DAO Smart Contracts Benefit NFTs

By 

Filip Dimkovski

 on November 21, 2022. 
Reviewed by 

Korana Braun

Illustration of shaking hands emerging from two computer screens.

The main reason NFTs are a hot topic in the crypto world for a while now is their elegant use of smart contracts. Namely, it is precisely smart contracts that give NFTs their special and unique ability to be stored and traded on blockchains like Ethereum without the need for mediation.

On the other hand, smart contracts are also the culprits behind the recent rise of DAOs (decentralized autonomous organizations). DAOs allow for the effective use of smart contracts that allows groups of people to cooperate on a blockchain project. However, unlike traditional organizations, DAOs are not controlled by a central authority but rather by the code of their smart contracts, which makes them much more efficient and transparent than traditional organizations.

Thus, smart contracts are precisely the bridge that connects NFTs and DAOs. In this article, we will discuss how the intelligent use of smart contracts can allow DAOs to support the growth of NFTs.

» New to smart contracts? Here's everything you need to know about creating a DAO smart contract

1. DAOs Are Communities for NFTs

One of the biggest benefits that DAOs can provide to NFTs is that they can effectively create and maintain a community for the NFT holders. As decentralized organizations are run by their members, the NFT holders within a DAO can join forces with other like-minded individuals to help grow and develop the ecosystem collectively.

For example, an NFT holder could join a DAO that is focused on developing new applications for NFTs. This would allow them to be a part of the community, listen to new & innovative ideas, and expand their areas of interest, which ultimately helps shape the future of NFTs and the blockchain. Moreover, the DAO will receive valuable feedback from an actual holder, which will prove to be invaluably beneficial in the long term.

2. DAOs Can Help Manage and Fund NFT Projects

Another great thing about DAOs is that they can help manage and fund all kinds of projects, including NFT projects. Namely, DAO members do this by voting on proposals and allocating funds to the projects that they believe in, which is a much more efficient way of funding projects than the traditional method of going through VCs or other investors.

In addition to this, DAOs can also help manage NFT projects by providing a clear & precise structure for them. This is something that can be especially beneficial for larger projects that have many moving parts. Having a DAO in place can help keep everything organized and running smoothly.

3. DAOs Help Protect the Ownership of NFTs and Ensure That NFTs Are Used for Their Intended Purpose

A benefit of using DAOs with NFTs that's worth mentioning is that they can help protect the ownership of the NFTs and ensure that everything is running smoothly. This is because DAOs can hold the NFTs in a trustless manner, which means that the owners do not have to worry about losing their NFTs to hacks or scams. Since DAOs use smart contracts to store and manage NFTs, even if the DAO itself is hacked, the NFTs will still be safe.

Simultaneously, smart contracts also give DAOs the ability to enforce the rules that are written into their smart contracts. So, if an NFT is meant to be used for a specific purpose, the DAO can make sure that it is only traded or sold for that purpose.

Let's take a look at a simple example. If an NFT is meant to represent a piece of digital art, the DAO can make sure that it is only used for that purpose and not sold for other uses such as gambling or speculation. This is all thanks to smart contracts and the notion that “code is law”.

4. DAOs Can Help Increase the Liquidity of NFTs and Reduce the Cost of Transactions

DAOs can trade or sell NFTs on behalf of their members (if it's needed). This is a benefit that doesn’t apply only to the members of that DAO, but to the entire blockchain ecosystem because it increases the liquidity of the NFTs.

For example, if an NFT owner wants to sell their NFT but cannot find a buyer, the DAO can help by selling the NFT on their behalf. This allows NFT owners to liquidity their assets without having to go through exchanges and all the hassles that come with them. Of course, this will be entirely processed by a smart contract, so you can rest assured that all parties will be fairly treated.

In this regard, DAOs can pool together resources and negotiate better deals with providers such as wallets and exchanges, which will ultimately reduce transaction costs. For example, if a group of potential investors wants to buy an NFT but doesn’t have enough ETH to cover the transaction fees, the DAO can help by pooling together the resources and paying the transaction fees on behalf of the group.

5. DAOs Are Helpful With the Marketing and Promotion of NFTs

Finally, DAOs can also help with the marketing and promotion of NFTs. By using their resources, DAOs can reach larger audiences and spread the word about new and upcoming NFT projects.

For example, a DAO could use its resources to create a website or social media campaign to promote an NFT project. This would help raise awareness about the project and get more people interested in it.

Final Words

As you can see, DAOs and NFTs go hand-in-hand. The truth is that almost every area of the NFT ecosystem can be improved with the help of DAOs, including:

  • The management, funding, and promotion of NFT projects.
  • The protection of the ownership of NFTs.
  • The NFT liquidity and reduction of transaction costs.

» Ready to get started with DAOs? Check out 7 best crypto DAO projects to join in 2023

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