What is a DAO?

A DAO is a collectively-owned, blockchain-governed organization working towards a shared mission. Most DAOs pool funds in a shared treasury where members vote on how they’re used. In a traditional company, investors and founders own the majority of shares, make the decisions, and allocate the capital. In a DAO, members act as peers - contributing capital, proposing and working on projects, and making decisions as a group. Top-down management is replaced by blockchain-based rules, encoded in smart contracts, for example, funding a project if a vote passes.

They are decentralized because a wider group has a say in what happens and no single person or team controls the organization or its resources. They are autonomous because decisions are automatically executed according to rules outlined in smart contracts. In the next chapter, we'll explore how blockchain is the catalyst that led to both being possible, through its distributed database that frees us from trusting centralized authorities like a manager or bank.

While the name Decentralized Autonomous Organization might conjure up a leaderless, self-propagating robotic assembly line, DAOs are often very human, relationship-based systems. DAOs are groups of people working together, using the blockchain to help coordinate resources like money. While the original DAOs were limited to only blockchain-based activities, more recently, DAOs have also been stretching past the original definition by interfacing the real world, for example by purchasing physical assets that require trusting a DAO member to faithfully execute a transaction.

As it's used today, the term DAO is imperfect since it makes lofty promises about decentralization and autonomy that are upheld to varying degrees across the ecosystem. In an ideal world, DAOs would be called on-chain organizations, which makes no promise as to the decentralization and autonomy of the organization, but the term DAO is already more well-known. Each DAO has its own set of rules, with some acting more like traditional companies with DAO-like characteristics and others that are pushing the boundaries of decentralization.

In this book, we'll explore DAOs at varying degrees of purity, focusing on this unique moment in history where we are suddenly able to conceptualize and build radically new types of organizations and free ourselves from old constraints. DAOs offer us an opportunity to reimagine the organizations of tomorrow, rethink incentive structures, distribute ownership more widely, and create more democratic systems.