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Decentralized Automous Organization (DAO) Meaning

Jul 17, 2023 | Updated Jul 19, 2023
A decentralized autonomous organization (DAO) is a community with no centralized authority, in which members collectively make decisions in a bottom-up manner regarding its governance and operation.

What Does Decentralized Autonomous Organization (DAO) Mean in Crypto?

Decentralized Automous Organization (DAO) are communities that function without a hierarchy in place, and instead run based on a set of rules enforced via a smart contract. The members of a DAO share a common goal which is to work together to achieve a common goal. As an example, users can form a DAO dedicated to charitable courses, pool funds together and members will vote on who and where to donate their funds to. 

The DAO model operates like a traditional financial corporation but with better transparency and shared voting power. DAOs are governed by members of the community who share equal responsibilities and vote on oversight decisions. Unlike a traditional organization, there are no executives and every member partakes in governance. 

With DAOs, members do not have to trust each other, they only need to trust the smart-contract. This is another departure from traditional institutions which require trust between executives and investors. A DAOs’ source code is available to the public and is tested severally before launch. This builds trust. 

How Does a Crypto DAO Work?

DAOs function using smart contracts which define and enforce the DAO’s rules. Participants who buy tokens for a DAO have voting rights and the privilege to suggest and implement new governance proposals. For a proposal to pass, the majority of stakeholders in the DAO have to approve it. The voting process is available on the blockchain and voting power varies depending on the number of tokens a participant holds. For instance, a user with 500 tokens of the DAO will hold more voting power than another participant with 50. 

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