DAOs (Decentralized Autonomous Organizations) are organizations represented by rules coded as a transparent computer program, controlled by the members of the organization and not influenced by a central government.
Because these rules are embedded in the code, no managers are needed, eliminating all bureaucratic and hierarchical hurdles. “Decentralized autonomous organizations” or DAOs represent exactly what they are called; they are:
- decentralized, so the rules cannot be changed by anyone person or central party;
- autonomous, so they operate based on logic written into a smart contract, without human intervention. They remain functional as long as the underlying blockchain is functioning;
- Organizations or entities that coordinate activities among a distributed community of stakeholders – for example, developers and users on a particular blockchain network.
DAOs are examples of what is referred to as “on-chain governance.” In traditional corporate governance, for example, companies have bylaws that dictate certain policies, such as the election of a board of directors. A DAO extends this concept into the digital world by encoding bylaws into smart contracts.
Bitcoin is generally considered the first fully functioning DAO because it has programmed rules, operates autonomously and is coordinated through a consensual protocol. The explosion of decentralized finance (DeFi) in 2020 has led to a renewed interest in DAOs: To date, DAOs have been used for many purposes, such as investing, charity, fundraising, borrowing, or buying NFTs, all without an intermediary. A DAO, for example, accepts donations from anyone around the world and members can decide how to spend the donations.