A decentralized autonomous organization is a member-owned organization with no central leadership. This organization is, instead, governed by a set of blockchain-based rules enforced by its members.
The Long Explanation
The blockchain has long been touted as a move to return power to the majority. With decentralization at the heart of its emergence, no central entity was supposed to single-handedly control (govern) the activities that shaped the blockchain.
While this has been true for the most part, most of the development within the blockchain ecosystem was long driven by the central entities behind the blockchain. That is, until the first legitimate decentralized autonomous organization emerged in 2016.
A decentralized autonomous organization (DAO) is an organization built on the blockchain and governed via blockchain-based smart contracts. The DAO is designed in a way that returns power to the community by enabling them to participate in issues of future development and governance.
In place of the centralized decision-making body, comes various smart contracts which allow participants to have an equal share in the decision-making process. This community governance system spans over everything, including resource control and future advancement.
Decisions made in a DAO are reached on a consensus basis. Each DAO determines what percentage of votes and/or participation is required for a consensus to be achieved, with voting on issues conducted in public view on the blockchain.
To achieve complete transparency, the smart contracts (and their underlying codes) that power the DAO are made publicly available. This transparency is further matched in the financial operations of the organization, which can be viewed and audited in public.
The goal with DAOs, therefore, is to build an organization that is more transparent than traditional organizations, while giving greater value to the opinions of its stakeholders.
Examples of Decentralized Autonomous Organizations
As of 2022, many internet-native DAOs have been established to varying degrees of success. Some notable examples include:
- The DAO: ‘The DAO’ was the first fully decentralized organization to be built on the blockchain. Powered by Ethereum-based smart contracts, it was an open-source organization designed to act as a venture capital fund for projects built on the Ethereum blockchain. The organization raised about $150 million in Ethereum tokens, and failed after over $50 million was stolen by hackers.
- Cosmos: Designed as a blockchain of blockchains, innovations on the Cosmos hub are driven by a member-run DAO. Any holder of Atom tokens – the native tokens of the Cosmos chain – will be able to make/vote on proposals affecting the Hub.