Published on:

August 28, 2021
What is DAO – Decentralized Autonomous Organization?
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On“DAO” stands for Decentralized Autonomous Organisation. By breaking it down,we’ll be able to understand what a DAO is.

DAO is an organisation where a group of people come together to pursue a common objective. It is decentralized in nature as it has no central authority such as the Board of Directors who decides its future course of action. It is autonomous because it is run by a smart contract without the need of an intermediary.

Simply put, DAO is like a traditional company or an organization such as Tesla or Apple but governed through a smart contract coded on the blockchain. Just like a traditional company is governed through its article of association (set of rules), DAO’s set of rules is coded through a smart contract on the blockchain.

DAO has two unique characteristics which make it different from any traditional organization:

  1. Automation
  2. Decentralization

The set of rules are embedded into the code of smart contract which executes by itself when certain conditions are met. As a result, the code is executed on its own without the need of intermediaries. The rules once set and coded on the blockchain, they can’t be altered without the consensus of the community.

With the help of DAO, the governance of an organisation can be spread out across the members of the community rather than in a hierarchical manner where decisions are made by only a few people at the top. DAO makes governance in a collective manner where everyone from the community is encouraged and allowed to take part in the decision-making process.

Who is part of the community?

DAO mints its own governance tokens and whoever holds these governance tokens forms part of the community and can take part in the decision process. Generally, the number of tokens one has commensurates with his voting power i.e. larger the tokens, higher the voting power.

Example of DAO:

Bitcoin can be considered as the earliest example of a DAO. It is a self-enforced open source code, run by a community and the community decides its future course. Although, by today’s standards bitcoin isn’t seen as a true DAO as it doesn’t have an elaborated governance mechanism such as a DAO on smart contract-based blockchain like Ethereum.

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