What is a Decentralized Autonomous Organization (DAO)?

By Julia Cook
Published Nov 29, 2022 and updated Mar 21st, 2023

A decentralized autonomous organization (DAO) is a blockchain-based organization that is governed by all its members via smart contract-enforced governance rules.

A decentralized autonomous organization (DAO), also known as a decentralized autonomous corporation (DAC), is an organization whose platform is built on a blockchain and is owned and run by its community members by means of smart contracts. All decisions are made via voting on proposals between set timeframes. There is no hierarchical or central management within a DAO.

Aside from the democratic nature of the DAO, another benefit is that the project is blockchain-based, meaning that it is decentralized and that all transactions and other activities on the DAO or stored on the platform’s blockchain ledger. This means that they are, in theory, completely transparent and infallible. This acts as a protective measure against bad actors such as hackers and scam artists. However, the effectiveness of the implementation is largely dependent on the early coding, since it is extremely difficult to change the base coding once that platform has been launched and more and more member nodes join the network.

DAO Voting Rights

The way voting rights work in a DAO will differ from platform to platform. Some DAO’s require a certain amount of cryptocurrency to be staked in exchange for voting rights, with the more cryptocurrency staked, the greater the weight of the HODLer’s vote.

These types of governance tokens are also often awarded to early investors who participated in the ICO or other early fundraising rounds of the project. Others have separate altcoins that are specifically for voting purposes. These can either be bought for other cryptocurrency, earned through activity or can be built into the system to only apply to administrators. In the latter case, it is not a true DAO, but usually a governance system that is applied to a consortium or private blockchain.