Decentralized Autonomous Organization (DAO)
What Is a Decentralized Autonomous Organization (DAO)
A DAO, or Decentralized Autonomous Organization, is a group governed by rules encoded as a computer program. It is transparent and controlled by its members, not by any central authority, akin to a co-operative or common. Built on blockchain technology, DAOs use self-executing smart contracts that operate based on pre-set conditions written in code. This setup allows DAOs to function without a central governing body, ensuring decisions are made collectively and transparently by the members of the organization.
How Does a DAO Work
DAOs operate through a network of distributed nodes where members make decisions collectively, often through a voting process. Once set up, a DAO runs independently, with rules that can only be changed if members vote. For example, if a funding proposal gets enough votes, the smart contract releases the funds automatically. This reduces human intervention and minimizes errors and biases. All actions and transactions are recorded on the blockchain, ensuring transparency and allowing anyone to verify activities. This builds trust among members and the wider community.
DAOs function using smart contracts that define rules and execute decisions. The process begins with creating and funding the DAO by writing smart contracts with its rules and goals. After launching on a blockchain, the DAO receives funding from members or investors who buy its tokens. These tokens represent voting power, enabling holders to make decisions and allocate resources. Members can submit proposals for changes or actions, using their tokens to vote. Once a proposal is approved, the smart contract implements the decision, whether distributing funds, starting a project, or changing governance.
DAOs can be used in various sectors, including finance, governance, and creative industries. In decentralized finance (DeFi), DAOs manage exchanges, lending platforms, investment funds, and other services without centralized intermediaries as in traditional finance.