Decentralized Autonomous Organization (DAO)

DAOs are a form of digital-native business that can be organized to do just about anything: management of a crypto protocol (MakerDAO), investment (MetaCartel Ventures), art collection (PleasrDAO), or even completion of a single purpose (ConstitutionDAO). The key distinguishing feature of a DAO—beyond its digital roots—is its decentralized and autonomous governance structure.

Hyper-democratic by nature, DAOs are not historically creatures of state law, unlike the predominant forms that most businesses take—corporations and limited liability companies. Also unlike corporations and limited liability companies, DAOs do not have boards of directors, managers or executive management; instead, in a DAO’s purest form, decisions made by tokenholders are implemented with self-executing smart contracts. While shareholders and bylaws are the backbones of a corporation, the foundations of a DAO are its tokenholders and smart contracts.

DAO membership is derived from ownership of the DAO’s token and is often permission-less. As with most crypto-tokens, these are typically freely tradeable on decentralized exchanges or earned by performing actions the DAO seeks to encourage, such as providing liquidity.

Smart contracts, a type of program stored on a blockchain, allow DAOs to forego many of the management and other authority structures of a typical organization by automatically executing actions when certain conditions are met, without the need for intermediaries. Rules of the organization are made by members and encoded in smart contracts. Among other things, these rules control the DAO’s treasury and spending. Rules can be changed by vote of the membership.