What is a DAO? Simple Guide to Decentralized Organizations
Table of contents
What is a DAO?
A DAO (Decentralized Autonomous Organization) is an organization governed by smart contracts and its community. Decisions are made collectively via proposals and on-chain votes rather than by a central leader.
How DAOs work
- Rules and operations are encoded in smart contracts.
- Membership and voting power are often token-based.
- Proposals are submitted, discussed, and voted on by members.
- Treasury and actions are executed transparently on-chain.
Governance & voting
- Token holders propose changes and vote on spending or rules.
- Voting systems vary: simple token-weighted, quadratic voting, or reputation models.
- All votes and transactions are recorded on-chain for transparency.
Pros & Cons of DAOs
Pros
- Decentralized and transparent decision-making
- Community-driven governance
- Global participation and open membership
- Automated and auditable operations
Cons
- Smart contract vulnerabilities
- Low voter turnout or concentration of power
- Regulatory and legal uncertainty
- Coordination challenges for large communities
Famous DAO examples
- DAOstack — tools for launching DAOs.
- The LAO — investment DAO.
- MakerDAO — manages DAI stablecoin.
- Binance Academy: What is a DAO?
FAQ
Legal status depends on jurisdiction — check local laws before participating.
Most DAOs are open to anyone who holds the DAO token or meets participation criteria.
Through proposals and on-chain voting; mechanisms vary by DAO.
Some DAOs manage on-chain and off-chain assets, but legal arrangements vary.
Smart contract bugs, governance attacks, and regulatory uncertainty.
Conclusion & next steps
DAOs aim to decentralize organizational control and make governance transparent. Start by learning the DAO's rules, check proposals and audits, and participate gradually to understand governance dynamics.