Decentralized Autonomous Organizations (DAOs)

The abbreviation DAO stands for Decentralized Autonomous Organization. In its simplest form, a DAO is an organization governed by computer code and programs. In other words, DAOs have the ability to operate autonomously without the need for a central authority. A decentralized autonomous organization (DAO) is a blockchain-specific organizational model that exists in almost every industry and organization.
A DAO's rules and transaction records are stored transparently on the blockchain. Rules are usually decided by stakeholder votes. Typically, the way decisions are made within a DAO is through proposals. If a proposal is voted on by a majority of stakeholders, it is then implemented.
In some ways, a DAO functions similarly to a company or a nation-state, but in a more decentralized way. While traditional organizations operate with a hierarchical structure and many layers of bureaucracy, DAOs have no hierarchy. Instead, DAOs use economic mechanisms to align the interests of the organization with those of their members, often using game theory.
While the specific underlying mechanisms that power a DAO and different blockchain projects will vary, there are several general stages for a DAO to work sustainably:


Smart contract setup


Before a DAO is deployed, ground rules must be defined and coded in a set of smart contracts. Any failures could potentially destabilize the project, as future changes to the DAO's operational workflows, governance system, and incentive structures will need to be voted on to take effect.


Financing


Once the creators of the DAO have set up their smart contracts, the DAO needs funding to operate. The DAO's smart contracts should involve the creation and distribution of some kind of internal property, such as a native token that can be spent by the DAO, work in voting mechanisms, or be used to promote certain activities. From there, individuals or organizations interested in participating in the DAO's growth can purchase or otherwise acquire the DAO's native token, often resulting in voting rights.


Distribution


Once a DAO has received sufficient funds to be deployed, all decisions are made by consensus. As a result, all token holders become stakeholders who can make recommendations about the future of the DAO and how their funds are spent. If the DAO's token distribution policy and the consensus mechanisms defined in the underlying smart contract architecture are well designed, the DAO's stakeholders will naturally work towards the most beneficial outcome for the entire DAO network. Members of a DAO are not bound by any formal contract. They are more interconnected by network incentives based on a common goal and consensus rules. These rules are completely transparent and are written in the open source software that governs the organization.
As the name suggests, a DAO is decentralized and autonomous. It is decentralized because no one has the authority to make and implement decisions. And it is autonomous because it can operate on its own.

Simply put, DAOs provide an operating system for open collaboration. This operating system allows individuals and institutions to collaborate without needing to know or trust each other.


DAO Examples


Although very primitive, the Bitcoin network can be considered the first example of a DAO. It works in a decentralized way and is coordinated with a non-hierarchical consensus protocol among the participants.
The bitcoin protocol defines the organization's rules, while bitcoin as currency provides an incentive for users to secure the network. This allows different participants to work together to make Bitcoin work as a decentralized autonomous organization. In the case of Bitcoin, the common goal is to store and transfer value without a central entity coordinating the system.

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