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What is a DAO? (Decentralized Autonomous Organization)

A DAO is a decentralized, digital organization that’s engineered to run without any human involvement.
| Cryptopress
Updated: March 15, 2022


DAOs, or decentralized autonomous organizations, are a new way for businesses to function. DAOs have been called the “future of entrepreneurship” by Harvard Business Review, and many believe they’ll have enormous implications on how businesses will be run in the future. In layman’s terms, a DAO is a company that runs without any human interference — instead, it operates based on rules encoded in its software which dictate how it spends capital and moves money around.

Understanding the Decentralized Autonomous Organization (DAO)

A DAO is a decentralized, digital organization that’s engineered to run without any human involvement. Apart from being autonomous, a DAO is also self-sustaining and self-governing, making decisions using pre-programmed smart contracts that have been set up by the DAO’s creators.

Is an organization that exists only in the digital world. It has no physical form and cannot be shut down, but it can control digital assets and execute unlimited transactions. The DAO has the logic of a traditional legal entity and its rules can be used to run and operate decentralized/distributed applications built on top of blockchain platforms.

It has no centralized management structure or board of directors. It is an autonomous organization whose bylaws are encoded in the software itself with rules that are followed automatically.

The basic concept of a Decentralized Autonomous 

Organization (DAO) is simple. It’s basically an organization that is run by software, not humans. A DAO operates on computer code that is stored on the blockchain, acting as a distributed ledger that records transactions without the need for any third-party verification.

A decentralized autonomous organization is a way to democratize funding and investment, removing the need for centralized banking institutions. A new model of fundraising, the DAO can issue shares online that are tradable peer-to-peer on a public ledger. While it may seem complicated, it’s likely that blockchain will change your industry in the coming years.

Being run entirely by programming code, eliminates the human factor from the equation, making the code more refined and transparent. The code alone will govern the actions of the organization, ensuring complete impartiality and total transparency in its dealings.

DAOs are open, self-organizing organizations with no single leader. They operate on the principle of collective intelligence: when users combine their knowledge, experience, and skills to create something in which everyone can participate, they can outperform traditional hierarchical organizations that operate under the principle of the ‘wisdom of the few’.

The First DAO

“The DAO” (Decentralized Autonomous Organization) was the first organization that existed on the Ethereum platform, without any central authorities. It was run by rules encoded as smart contracts. The DAO allowed for crowdsourced ventures, companies, and communities to be completely self-directed.

The DAO, the first decentralized autonomous organization (DAO) to be founded on the Ethereum blockchain, was plagued by controversy when hackers discovered a security flaw in the code.

How do DAOs Work?

DAOs are designed to resemble a corporate structure in which rules and regulations are created using open-source code and enforced through smart contracts.

Smart contracts, for those who are unaware, are agreements that are designed to execute if and when specific circumstances are satisfied. The DAO stakeholders, in general, decide on these regulations.

DAOs, unlike conventional companies, do not have a hierarchy. DAOs, on the other hand, reward a dispersed network of users to accomplish their purpose in order to match the organization’s interests with those of its members.

Internal capital is one of the most important characteristics of a DAO since it is utilized to motivate these individuals and keep the organization running properly.

DAOs typically enter a fundraising phase once the first set of rules has been developed and encoded into smart contracts, which anybody interested in participating in may do.


Governance is one of the most important aspects of DAOs. The DAO is regarded as live and functioning after the completion of the financing process, and all critical decisions about the organization are made by users achieving an agreement on ideas.

Users get the capacity to vote on proposals by holding and locking cryptocurrencies into a voting contract, with the voting weight proportionate to the amount of bitcoin locked. The suggestion is then implemented based on the preset network consensus rules, and participants are rewarded with more money.

The DAO (decentralized autonomous organization) acts as a decentralized VC firm. It owns the project, controls the funds, and pays salaries. A company’s token holders are voting members who can own shares in the traditional sense or tokens for products or services.

What are DAOs used for?

DAOs have a wide range of uses, but one of the most popular use cases is the creation of a “Decentralized autonomous fund” or a product that can be invested in and can automatically payback returns to the investors.

DAO’s are also used for decentralized governance or creating organizational structures that have no central management body. Instead, the organization is controlled by its members through voting on decisions made by other members.

For starters, DAOs are used to facilitate the direct exchange of digital assets for fiat currency without the need to access an exchange. Essentially, it provides a decentralized method for exchanging one type of cryptocurrency for another.

What is the importance of DAOs?

DAOs are an exciting breakthrough in the blockchain industry. The concept of automated, self-executing businesses that run on smart contracts is a game-changer. DAOs can be used to run any organization and handle any sort of organizational and financial management task, and the potential to create an entire economy of decentralized applications is enormous.

DAOs could solve big problems due to their decentralization characteristics and the transparency that their decentralized governance gives them.

To understand the dimension of this, there are those who have proposed that a country like Argentina would be better off replacing its Central Bank with a DAO that manages its monetary policy, solving more than a hundred years of financial disaster and economic damage to its inhabitants.

The vision of such a goal alone gives an idea of the enormity of its possible future and disruption.

The DAO Maker may be the most important DAO so far.

Blockchain Vectors by Vecteezy

© 2022 Cryptopress. For informational purposes only, not offered as advice of any kind.


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