What is a DAO?

What is a DAO?





What is a DAO?

Wondering what the term “DAO” means, Here is an in-depth look at how decentralized autonomous organizations work and what they mean for the future of Web3. DAO, as the name implies, is an acronym for “Decentralized Autonomous Organization”, an organization with no central authority in charge. Unlike traditional organizations today, where a Board of Directors and CEOs manage the organization. It is an entity structure in which token-holders participate in the management and decision-making of an entity. There is no central authority; instead, power is distributed across token holders who collectively cast votes.

In the case of a DAO, it’s the people who take matters into their own hands. People are the ones in charge, making the whole thing decentralized. Most DAOs will require users to stake or HODL a certain amount of tokens if they wish to vote and govern the network. Be aware that some DAOs with lower TVLs can be manipulated easier by crypto whales.

DAOs have built-in treasuries that no one can access without the group’s permission. Proposals and voting govern decisions to ensure that everyone in the organization has a voice and that everything happens transparently on-chain.


Who are those that make up a DAO?

The following group of people makes up a DAO, they are:

  • Contributors: they act in the DAO’s best interests and work like employees. They are typically token holders as well.
  • Token holders: they own the DAO token and want to see it grow in value. They are interested in the DAO.
  • Community: this refers to the people in the community who support the DAO in some way. The community could consist of Discord and Telegram users, Twitter followers, and so on.


How do DAOs Work?

To function, DAOs rely on smart contracts. The majority of the work is done by code. The people vote on something, and the code is changed as a result. The people’s collective vote determines the course of action. These smart contracts lay the groundwork for how the DAO will function. They are highly visible, verifiable, and publicly auditable, allowing any potential member to fully understand how the protocol will work at each stage.

Once these rules have been formally written onto the blockchain, the DAO must determine how to receive funding and how to bestow governance. Typically, this is accomplished through token issuance, in which the protocol sells tokens to raise funds and replenish the DAO treasury. Token holders receive voting rights in exchange for their fiat, which is usually proportional to their holdings. The DAO is ready for deployment once funding is completed. Once the code has been pushed into production, it can no longer be changed without a consensus reached through member voting. That is, no special authority has the authority to change the DAO’s rules; it is entirely up to the community of token holders to decide.


Types of DAOs

During the development of the DAO Platform, the core members of the organization must decide how an investor can enter the DAO. There are two approaches to this, which are as follows:

Token-based DAO: DAOs based on tokens are widely used in blockchains and protocols. One of the ultimate states of any protocol is decentralization. As a result, DAO integration is required because it can give the collective community control. Token holders can decide whether to change the parameters of blockchains or protocols that use the token-based DAO mechanism. These decisions will steer development.

Share-based DAO: Share-based DAO uses shares to represent voting rights to anyone who owns them. Contributors must first meet certain requirements to receive several shares. This means that even if they own the project token, they will not be able to obtain shares. As a result, a share-based DAO restricts the number of members who can vote. This simplifies all governance processes, but it is difficult to scale up and become more decentralized. Every project doesn’t need to be a token-based or share-based DAO.


Launching a DAO

  • Smart Contract creation: Firstly, a developer or group of developers will have to create the smart contract behind the DAO. After launch, they can’t change the rules set by these contracts, unless through the governance system.
  • Funding: After the creation of the smart contracts, the DAO needs to determine a way to receive funding and how enact governance. Most of the time, tokens are sold to raise funds; these tokens give holders voting rights.
  • Deployment: Once everything has been set up, the DAO will then be deployed on the blockchain. From here on out, stakeholders decide on the future of the organization. The organization’s creators will no longer influence the project any more than other stakeholders.


Differences Between DAOs and Traditional Organizations


  • DAOs are usually flat and fully democratized.
  • Voting is required by members for any changes to be implemented.
  • The provided services are handled automatically and decentralized (for example distribution of philanthropic funds).
  • All activity is transparent and fully public.

Traditional Organization:

  • They are usually hierarchical.
  • Traditional Organization depends on its structure, changes can be demanded from a sole party, or voting may be offered.
  • Unlike a DAO, a Traditional organization Requires human handling, or centrally controlled automation, and is prone to manipulation.
  • Activity is typically private and limited to the public


Examples of some Notable DAO’s

Here are some reputable DAOs you can do some research on, or check out the articles on my website:

  • Uniswap: Uniswap is a cryptocurrency exchange that uses a decentralized network protocol.
  • Lido_DAO: Lido DAO (LDO) is a liquid staking solution for ETH 2.0 backed by industry-leading staking providers. Lido lets users stake their ETH – without locking assets or maintaining infrastructure – whilst participating in on-chain activities, e.g. lending.
  • ApeCoin: ApeCoin is an ERC-20 governance and utility token used within the APE ecosystem. The token is administered by the Ape DAO and anyone holding the coin is allowed to vote on the relevant governance decisions.
  • Olympus DAO: Olympus DAO is a decentralized reserve currency protocol powered by the OHM token. Olympus DAO includes its protocol-managed treasury, bond mechanism, and staking rewards that are designed to control supply expansion.
  • Bankless DAO: Bankless DAO is a decentralized community that coordinates and propagates bankless media, culture, and education.
  • MakerDAO: MakerDAO is a decentralized organization providing a smart contract platform built on Ethereum.
  • Pitch: Pitch is a DAO that builds governance and economic infrastructure for web3, which was launched in February 2022.
  • JonesDAO: Jones DAO is a yield, strategy, and liquidity protocol for DeFi options, built on the Dopex platform.
  • SharkDAO: A Decentralized Autonomous Organization, a group of people, working together and pooling their resources to acquire Nouns, a recently launched series of Non-Fungible Tokens (NFT).

Pros and Cons of a DAO

Yes, Decentralized Autonomous Organizations (DAO) have both pros and cons, some of which will be highlighted below.


  • DAOs facilitate simple and efficient collaboration. People from all over the world can unite and act as a single entity.
  • More people have a say in the entity’s planning, strategy, and operations.
  • One of the advantages of DAOs is that the votes are recorded on the blockchain, which is accessible to the public. A DAO’s stakeholders and stakeholders are compelled to act responsibly, which means that decisions are well-considered and involve calculated moves by voters.
  • Members of a DAO may feel empowered to collaborate with others who share their goals within a single community.


  • Decisions often take longer to make when there are more voting participants.
  • Because of the entity’s decentralized nature, it takes more time to cast votes or gather users.
  • If the DAO’s security is not properly established and maintained, severe exploits such as theft of treasury reserves are possible.

What they mean for the future of Web3

DAOs have the potential to help democratize financial services by making them available to all people, regardless of financial situation.

This has the potential to democratize venture capital and other financial services. More sophisticated investment products, such as exchange-traded funds (ETFs) and artificial intelligence embedded in smart contracts, are likely to emerge as the technology matures.

So far, DAOs have been used for a variety of purposes, including investment, charity, fundraising, borrowing, and purchasing NFTs without the use of intermediaries. To give you an example, a DAO can accept donations from anyone in the world, and the members can decide how to spend the funds.

Another added value of a DAO and web3 is the ability to build community. DAOs represent “a powerful alignment engine to collapse the categories of user or buyer, company or team, and investor into a single group that’s aligned and part of a community that cares about a certain artifact or a certain experience.

Conclusion & Links

We must note that DAOs play a very vital role in Cryptocurrency, making it more Decentralized. The DAO is open to all because it is built on the blockchain. Anyone with access to the code can examine it. As a result, the code should be thoroughly tested for vulnerabilities. Because DAOs have been hacked in the past. A public, decentralized, people-centered organization sounds exciting, as it adds a democratic element.


  • https://ethereum.org/en/dao/
  • https://iq.wiki/categories/daos
  • https://coinmarketcap.com/alexandria/article/what-is-a-dao
  • https://crypto.com/university/what-is-a-dao-decentralised-autonomous-organisation


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