What is DAO? Understanding Decentralized Autonomous Organizations in Crypto Assets

What is DAO?

DAO is an organization based on blockchain, managed by smart contracts - self-executing code that enforces rules without the need for intermediaries. Unlike traditional organizations with central leadership, DAO operates transparently and democratically, with decisions made by token holders through voting. The term 'autonomous' reflects their ability to operate without human intervention after deployment, while 'decentralization' highlights their reliance on distributed blockchain networks such as Ethereum or Solana.
In 2016, 'The DAO' was introduced on Ethereum, and DAO has evolved into a multifunctional tool for managing projects, investments, and communities. For example, Uniswap is a community-managed DeFi protocol, and ConstitutionDAO, which raised millions of dollars through crowdfunding in 2021 to bid on a copy of the US Constitution.

How does DAO work?

DAO operates through a combination of smart contracts and token-based governance:

1. Smart Contract: These define the rules of DAO, such as voting thresholds or fund allocation, and automatically execute decisions after meeting certain conditions.

2. Governance TokenToken holders typically contribute funds or services in exchange for tokens with voting rights. More tokens usually mean greater influence, although some DAOs may limit voting power to prevent centralization.

3. Voting Mechanism: Proposals, such as funding projects or changing rules, are submitted and voted on by token holders. Platforms like Snapshot or Aragon simplify this process.

4. Financial Management: DAOs maintain shared funds funded by token sales or donations, which are spent according to community voting.

For example, MakerDAO manages the DAI stablecoin, and MKR token holders vote to determine the type of collateral and interest rates, ensuring decentralized stability.

Benefits of DAO

Transparency

All transactions and decisions are recorded on the blockchain, visible to anyone, which helps to build trust.

Inclusivity

Anyone holding tokens can participate, enabling global collaboration without geographical or institutional barriers.

Efficiency

Smart contracts eliminate intermediaries, reduce costs, and accelerate processes such as fund or governance.

Innovation

DAOs empower communities to fund specific projects, driving creativity from open-source software to artistic collectives.

Challenges of DAO

Despite having potential, DAOs face significant obstacles:

Security Risks

Smart contract vulnerabilities can lead to hacker attacks. In the 2016 DAO hack, $50 million worth of ETH was stolen, exposing early weaknesses, despite improved security practices since then.

Governance Issues

Low voter turnout or token concentration may distort decision-making, thus undermining decentralization. For example, according to data from 2023, the voter turnout of some DAOs is less than 10%.

Regulatory Uncertainty

The government is reviewing DAO, whose legal status is unclear in many jurisdictions and may limit its growth.

Complexity

Participating in DAOs requires technical knowledge, which may intimidate newcomers, despite user-friendly platforms like Tally.

DAO in 2025: Use Cases and Impacts

By 2025, DAOs are reshaping multiple industries:

DeFi

Protocols like Aave and Compound use DAO to manage lending pools and protocol upgrades, empowering users to control the financial system.

Investment

Risk investment DAOs, such as The LAO, pool funds to invest in Web3 startups, democratizing venture capital.

Social and creative projects

Creator DAOs like Friends With Benefits bring together artists and fans to collectively fund and manage creative ventures.

Real World Applications

DAO is exploring tokenized real estate and carbon credit markets, in line with global sustainable development trends.
The recent X articles highlighted the increasing popularity of DAOs. By the end of 2024, over 4,000 active DAOs will be managing assets worth $10 billion. Their ability to coordinate the global community without central authority aligns with the decentralized concept of Web3.

Start using DAO

To join DAO, please follow the steps below:

1. Research: Explore DAO on platforms like DeepDAO or X, find projects that match your interests, such as DeFi or social impact.

2. Get Tokens: Buy governance tokens on exchanges such as Uniswap or participate in DAO initiatives to earn them.

3. Establish Wallet: Use a Web3 wallet like MetaMask to hold tokens and interact with the DAO platform.

4. Participate: Voting on proposals, sharing ideas, or contributing skills through platforms like Discord or Snapshot.

Beginners should start with mature DAOs like Uniswap or MakerDAO, which provide sound documentation and active communities.

The future of DAO

With the maturity of blockchain technology, DAOs are preparing to expand. Innovations like gasless voting and cross-chain governance are enhancing accessibility, while Layer-2 solutions like Arbitrum are reducing transaction costs. However, regulatory clarity and enhanced security are crucial for mainstream adoption. By 2025, DAOs may redefine organizational structures, challenging traditional companies and governments.

Conclusion

DAO represents a paradigm shift in the organization, governance, and innovation of the crypto asset field. Their transparency, inclusivity, and efficiency make them powerful tools for decentralized collaboration, despite challenges such as security and regulation. As DAOs continue to evolve, they are paving the way for a more democratic and decentralized future. Explore DAOs on platforms like X, join a community, and be part of this transformative movement by 2025.

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