Because digital technology is moving so quickly, groups and communities are rethinking how they operate themselves. Decentralized Autonomous Organizations (DAOs) have been leading the way in revolutionizing how choices are made, how power is shared, and how trust is formed online for the past 10 years. DAOs are transforming how we do things in the digital age by employing tokens, smart contracts, and blockchain technology to reward individuals. This is making things more welcoming, open, and useful than they have ever been.
This comprehensive article goes into great detail about how DAOs work, why they are significant, and the issues and opportunities that lie ahead. This book offers all the information you need, whether you’re an expert on blockchain, the head of a group searching for new ways to do things, or just interested in how digital cooperation may alter in the future.
What does the term DAO mean?
A Decentralized Autonomous Organization (DAO) is a group that is run by code instead of a single person. A DAO is a group of smart contracts that run on a blockchain, primarily Ethereum, and make decisions without any outside help. People who own tokens vote on proposals, and the smart contract automatically carries out a proposal when it meets certain conditions.
When an organization is decentralized, it is not run by one individual or board.
People don’t have to do as much labor because smart contracts put down the regulations.
Everyone can observe all of the ideas, votes, and transactions that happen on-chain.
Token-based governance: The number of tokens you possess often decides how you can vote, which makes sure that everyone is working toward the same goals.
Changes in how things are done
Things are run quite differently now:
- People at the top of traditional hierarchies, such boards and CEOs, make decisions, but they don’t necessarily do a good job of explaining them.
- Cooperatives and NGOs are more democratic, yet they still need people to administer them.
- Online Communities: Social media groups and forums made it easier for people to talk to one other, but they didn’t have any norms to follow.
- DAOs are the next stage in blockchain governance since they utilize automated enforcement and make the chain clear.
- By putting rules for governance in code, DAOs fix a lot of the flaws with earlier systems. They also make sure that judgments are made quickly and that there is less potential of corruption.
- Smart contracts are pieces of code that can’t be changed that teach a DAO how to operate itself, handle its money, and carry out proposals.
- Government tokens are digital items that let you vote. For example, MKR stands for MakerDAO while ANT represents for Aragon.
Voting and Proposal System
A user brings in a proposal, and those who possess tokens have a set length of time to vote on it. The smart contract indicates how many individuals need to be there for a quorum and to provide their consent.
The Treasury
A certain sum of money that can only be used with a smart contract or more than one signature. People in the community need to agree on how to spend the money in the treasury.
Tools for organizing off-chain
On Discord, Snapshot, and Discourse, you can speak about topics before you vote on-chain.
- DAOs are open and trustworthy, which changes how we govern.
When there is a public ledger that keeps track of all the proposals, votes, and money that is given out, people are more responsible. Unlike business choices, which are kept hidden, anybody may see the history of a DAO in real time. - Getting people from all over the world involved and included
DAOs can go anywhere. Anyone with an internet connection and governance tokens can join. This makes it easier for people from developing nations to help out. - Usefulness and speed
Smart contracts take care of activities that need to be done on a regular basis, such sending money or changing settings. This lowers the number of mistakes people make and the costs of running the business. - Making sure the rewards are fair
When people vote using tokens, they may work together better in the community. People that have governance tokens are immediately affected by decisions, which makes them want to get active. - Coming up with new things to accomplish and trying them out. DAOs help you make modifications more quickly. The community can build code for novel ways to operate things, reward people, and keep track of the money. They can then test the code and fork it.
Examples from the real world
MakerDAO: Stops the Dai stablecoin from going up and down.
It was the first to employ multi-collateral governance, which lets anyone with MKR tokens modify the kinds of collateral and the level of risk.
Effect: By the middle of 2025, more than $10 billion worth of Dai will be in use.
Read the documentation to find out more about MakerDAO.
Aragon aspires to give individuals the tools they need to make and run DAOs on Ethereum and other blockchains.
Some of the better features are dashboards that are easy to use, modules for resolving disputes, and modular governance frameworks.
Impact: It enables hundreds of DAOs maintain trillions of cash in their banks.
Learn more about the Aragon Project
MolochDAO’s purpose is to give money to projects that make Ethereum’s infrastructure and public goods better.
The “ragequit” option is simple to use, and if members don’t like it, they can leave and obtain a piece of the treasury.
As a result, I paid for a lot of essential Ethereum initiatives.
There is additional information about MolochDAO on GitHub.
The Good Things About DAO Management
Anyone with tokens can speak up. This makes it easier for people to offer their thoughts and less likely that people will keep others out. This helps everyone make choices more easily.
Cutting Costs
Automated processes cut down on the cost of legal and administrative work.
Strength: A decentralized infrastructure is less likely to have censorship, shutdowns, or a single point of failure.
People from all across the world working together
People from all over the world can suggest, vote on, and complete work without any hassles, even if they live in different time zones.
Control over money
Communities are in command of Treasuries because they work by code and don’t need any intermediaries.
Issues and threats
- Don’t know what the regulations are
Governments are still attempting to decide whether to name DAOs businesses, partnerships, or something else. There are laws just for DAOs in some places, including Wyoming in the US. Not everywhere is like this, though. - Issues with safety
Once smart contracts are live, you can’t update them. Bugs can cost a lot of money, as we saw in the 2016 DAO breach. - People don’t care about voting, and there are too many tokens in one spot.
Low participation rates hurt decentralization. If whales hold most of the tokens, they might have too much say in what happens. - Legal duty
Members of a DAO could be sued if the group breaks the law. Clear legal coverings, such as LLC registers, can minimize hazards but not get rid of them totally. - More work for the bosses
Voting on the blockchain and having to go through a lot of steps to make a proposal can slow down decision-making. It’s always challenging to achieve the appropriate balance between being quick and being comprehensive.
How to Set Up a DAO in a Way That Is Legal
If you live in a place where DAOs are allowed, make sure to register them as legal entities (such LLCs or non-profits) so that you can’t be sued.
Checks for Safety
Before you start, appoint reliable auditors to check the smart contracts and governance modules.
Strong Leadership Frameworks
Make it clear what people need to do to submit suggestions, how many people need to be there for a quorum, and when the voting will take place.
How to Make Incentives To keep contributors, maintainers, and partners in the ecosystem interested, give them tokens.
Starting out and learning
Create extensive guidelines, FAQs, and lessons, both on-chain and off-chain, to help new members get involved in a meaningful way.
Community moderation
Use specific guidelines to moderate discussion channels so that the topic keeps continuing and spam stops.
What will digital governance look like in the future?
As DAOs get bigger, we can expect the following:
Interoperability: Cross-chain governance lets DAOs run well on more than one blockchain.
Layer-2 Scaling: Sidechains and rollups make it easier and cheaper to vote and make suggestions.
AI-Augmented Governance: Using machine learning technologies to add up proposals, guess what will happen next, and determine the optimal course of action.
On-Chain Identity Solutions: Reputation systems that protect your data and stop Sybil assaults.
Mainstream Adoption: Businesses and government organizations are testing out hybrid governance models that use DAOs.
A new method of doing things could come about because of blockchain’s openness and new standards for how things are run. In this new manner, communities would utilize code-based accountability to set up their own systems, pay for public goods, and keep track of resources that everyone uses.
Common inquiries (FAQs)
- What sets a DAO apart from a typical business?
A DAO runs its operations on a blockchain using smart contracts. Token holders vote on decisions instead of a central board. No one can change any of the facts about how things work. - What do I need to do to become a member of a DAO?
You can normally receive the DAO’s governance tokens by buying them, giving them away, or getting them via an airdrop. Once you have tokens, you can vote and submit ideas. - Is it illegal to use DAOs?
Laws in different places say that different things are legal. Some places in the US, like Wyoming, think of DAOs as LLCs. You should always talk to a lawyer before you start or join a DAO. - What does a DAO do with the money it has?
Smart contracts help DAOs keep track of their on-chain treasuries. People who possess tokens vote on how to split the money, and everyone can observe all the transactions. - What happens if the DAO’s smart contract has a bug?
Multi-signature “circuit breakers” and upgradeable proxy patterns can assist fix significant security problems. It is very vital to check your security on a frequent basis. - Can those who hold tokens sell their voting rights?
Yes, you may usually shift governance tokens around. But if a lot of significant holders leave at once, the government can become unstable since so many people are leaving. - How do DAOs make sure that people cast their votes?
Some DAOs contain minimal voting requirements, quorum criteria, or delegate mechanisms that let active members speak for the interests of token holders. - What are some additional relevant DAOs that we haven’t talked about yet?
Some examples are Yearn Finance, the Ethereum Name Service (ENS DAO), and Compound Governance. There is a different approach for each one to do things and a different focus on the people. - Can DAOs function with businesses that aren’t DAOs?
There are now some hybrid vehicles out there. DAOs collaborate with businesses, non-profits, or legal entities to follow the regulations while yet being decentralized. - What skills do people need to be part of a DAO?
People actually need people who know how to do things like making smart contracts, building blockchains, managing communities, following the law, marketing, and making financial models.
Last Thoughts
Digital government has come a long way with the help of decentralized autonomous organizations. DAOs employ smart contracts on the blockchain to make choices. This makes things operate more smoothly, provides more people access to information, and spreads power. There are still issues to deal with, such as unclear laws and security dangers, but the DAO area is always coming up with new ideas that lead to workable solutions and hybrid models.
DAOs are a terrific choice for businesses all around the world that are battling with too much centralization, corruption, and inefficiency. Now is the moment to learn about and help shape this swiftly evolving landscape if you’re a business owner seeking for new methods to manage your business or a community advocate who cares about decentralized coordination.
References
- “What Is a DAO?” Aragon, 2025. https://aragon.org/
- “MakerDAO Governance Documentation,” MakerDAO, 2025. https://makerdao.com/en/wallet
- MolochDAO GitHub Repository, 2024. https://github.com/MolochVentures/moloch
- Hassen, M., “Legal Frameworks for DAOs,” Blockchain Law Review, Vol. 3, No. 1, 2024. https://blockchainlawreview.org/legal-frameworks-for-daos
- Wright, A., “Decentralized Governance: Principles and Practice,” Journal of Digital Innovation, 2023. https://jdi.org/articles/decentralized-governance
- Carles, J., “Security Audits in Smart Contracts,” SmartContractAudit.io, 2025. https://smartcontractaudit.io/reports
