What Is a DAO?

Last updated on 12/04/2018

A DAO, or decentralized autonomous organization, is a smart contract project that functions through programmable code, voting and automatic execution without the oversight of a central authority.

Features of a DAO

A DAO has the following main characteristics:

  • Structure, purpose and operations configured by rules that are put in place at the time of the organization’s creation in the form of software that controls operations
  • No central authority that directs the organization or has unilateral power to make decisions about how it operates

Thanks to these features, a DAO can operate without human oversight. Think of a DAO as a company without an executive board.

It’s important to note that a DAO doesn’t necessarily eliminate active decision-making by members. Members of a DAO can vote to change the DAO’s governance structure, operations or other features. However, the ability to make such changes would have to be built into the DAO’s rules from the start, and changes would be made only as the result of decentralized decision-making by the entire DAO network.

Blockchains and DAOs

A DAO cannot function without a blockchain to run on. A DAO uses a blockchain to store and execute the software that governs how it operates. However, it is important to note that just because the code that controls a DAO is executed using smart contracts on a blockchain, it is not necessarily safe from malicious attacks.

DAOs also use blockchains to keep records of transactions involving finances and decentralized decision-making.

The DAO

Most observers consider the community associated with Dash to be the first DAO. Dash is a blockchain (as well as a cryptocurrency that runs on that blockchain) in which governance decisions are made in decentralized fashion by community members who control so-called masternodes.

Another prominent DAO example is an organization known as The DAO, which launched in April 2016. The mission of The DAO was to create a decentralized venture capital fund that would invest in blockchain-related projects using ether tokens. The DAO suffered a major attack in June 2016 that exploited security vulnerabilities in the software that governed the organization, and the initiative effectively ceased to operate shortly after.