What Is a Decentralized Autonomous Organization (DAO)?
A decentralized autonomous organization, or DAO, is a community-led entity with no central authority that is governed by computer code. Because the rules that determine the organization’s behavior are built into its design, it has the ability to function autonomously without the need for central leadership.
Unlike traditional organizations, in DAOs there is no single person or group that can make and enforce decisions unilaterally. An emerging form of legal structure with no central authority, the DAO model of governance relies on proposals that community members put up for vote.
Popularized by crypto enthusiasts, DAOs democratize organizational decision-making via a decentralized governance process. By giving each member a say in how the organization is run, a DAO can empower its members to collectively determine the entity's future. This approach is fundamentally different from traditional corporate organizations where executives and large shareholders often exercise majority control.
Understanding Decentralized Autonomous Organizations (DAOs)
Permissionless and censorship-resistant, a major feature of cryptocurrencies like Bitcoin is their decentralized nature. Instead of being controlled by a single institution like a government or central bank, such assets are maintained by computer networks whose rules are built into their code.
Inspired by the decentralized nature of cryptocurrencies, a group of developers extended the principle to the level of organizations. In 2016, the first DAO was launched with a vision to have all its members collectively act as the governing body.
How do DAOs work?
A DAO is usually run by a community of stakeholders incentivized to participate in the organization’s operations by a shared goal, and often by an additional cryptoeconomic mechanism. The rules of a DAO are inscribed by a core team of community developers into smart contracts that lay out the foundational framework of how the DAO functions.
