A Decentralised Autonomous Organization (DAO) is a new type of organisation that operates without a central leader or traditional hierarchical management. Instead, a DAO is governed by a set of transparent rules that are encoded into smart contracts and deployed on a blockchain. This means that decisions are made collectively by the organisation's members by processes such as voting which are governed by its programmed rules, with all rules and financial transactions being public and verifiable.

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Functioning of DAOs

Typically, the operation of a DAO is based on three core components:

• Smart Contracts: These are the foundational rules of the DAO. They automate decisions, such as how to handle proposals, voting, and the distribution of funds. Once these contracts are deployed on the blockchain, their rules can only be changed if the community votes to approve the changes.
• Tokens: DAOs generally issue governance tokens that give members voting rights. The more tokens a person holds, the more voting power they generally have, which is similar to a traditional company where voting power is tied to share ownership.
• Proposals and Voting: Typically, any member (or in some cases outsiders as well) can submit a proposal for a new project, a change to the rules, or a spending request. Members then vote on the proposal. If it receives enough votes (based on the rules set in the smart contract), the action is automatically executed without the need for a central intermediary.

This model removes the need for traditional corporate structures, allowing for a more open and transparent way for communities to organise and manage resources.

Benefits of DAOs

There are several reasons why an entity or collective group of individuals might pursue a DAO structure. Some of the benefits of this form of management include:

• Decentralisation. Decisions impacting the organisation are made by a collection of individuals as opposed to a central authority that is often vastly outnumbered by their peers. Instead of relying on the actions of one individual (CEO) or a small collection of individuals (Board of Directors), a DAO can decentralise authority across a vastly larger range of users.
• Participation. Individuals within an entity may feel more empowered and connected to the entity when they have a direct say and voting power on all matters. These individuals may not have strong voting power, but a DAO encourages token holders to cast votes, burn tokens, or use their tokens in ways they think is best for the entity.
• Publicity. Within a DAO, votes are cast via blockchain and made publicly viewable. This requires users to act in ways they feel is best, as their vote and their decisions will be made publicly viewable. This incentivises actions that will benefit voters' reputations and discourage acts against the community.
• Community. The concept of a DAO encourages people from all over the world to seamlessly come together to build a single vision. With just an internet connection, tokenholders can interact with other owners wherever they may live.

History of DAOs

The concept of DAOs have evolved over time, even pre-bitcoin whitepaper.

• Pre-DAO: The concept of DAOs builds on earlier ideas of autonomous corporations and software-based organizations. Nick Szabo notably pioneered smart contracts in the 1990s as a way to formalise and automate digital agreements. The term Decentralized Autonomous Corporation (DAC) was later popularised by blockchain developer Daniel Larimer, who envisioned organisations run entirely by code and tokenised governance, with Bitcoin serving as an early prototype. Bitcoin itself was seen by many as an early example, as it was a protocol with embedded rules maintained by a decentralised network without central control. The term DAO gained widespread attention with the rise of Ethereum around 2015-16.
• Post Ethereum DAO: Vitalik Buterin’s work in the Ethereum Whitepaper marked a pivotal moment, as Ethereum provided a Turing-complete platform capable of deploying autonomous organisations through smart contracts. This capability made DAOs not only possible but practical as platforms for collective governance and decentralised collaboration.
• The Rise and Fall of "The DAO" (2016): The first high-profile, large-scale DAO was simply called "The DAO". Launched on the Ethereum blockchain in 2016, it was designed as a decentralised venture capital fund where token holders could vote on projects to invest in. It raised $150 million worth of Ether in a crowdsale, but was quickly a victim of its own success. A critical vulnerability in its smart contract was exploited, leading to the theft of millions of dollars. The community's debate over how to respond led to a controversial "hard fork" of the Ethereum blockchain, splitting it into two separate chains: Ethereum (which reversed the hack) and Ethereum Classic (which preserved the original, unhacked history).
• Evolution and Modern DAOs: The failure of The DAO was a significant setback but it also served as a crucial lesson. It highlighted the need for more secure and well-tested code, as well as more robust governance models. In the years that followed, DAOs became smaller, more purpose-driven, and focused on specific goals. Today's DAOs are used for a wide range of purposes, from managing decentralised finance (DeFi) protocols to funding community-driven art projects and open-source software development.

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