What Is a DAO? A Beginner’s Guide to Blockchain Organizations

As the world of Blockchain has developed to this day, DAO has become a hot topic. Many new investors often ask: What is DAO? How does it differ from traditional organizations? Why are more and more communities choosing the DAO model?

What is DAO?

DAO, or Decentralized Autonomous Organization, is referred to in Chinese as “去中心化自治组织”. It is a form of organization that relies on Blockchain and smart contracts for its implementation, where all rules are explicitly defined by code, and members govern through voting instead of being controlled by a single management team.

The history and origin of DAO

The concept of DAO first appeared in the 2016 project “The DAO”, which was a decentralized investment fund. Although it ultimately failed due to security vulnerabilities, it laid the foundational ideas for DAO. Since then, more and more projects have borrowed from the DAO model, finding widespread application in NFT, DeFi, and GameFi.

Governance model of DAO

The core governance mechanism of DAO includes:

• Token Voting System: Users holding DAO tokens can vote in proportion.
• Proposal mechanism: Any member can propose improvement or funding utilization plans.
• Automatic execution: Once the vote is passed, the smart contract automatically executes the decision.

The advantages and disadvantages of DAO

Advantages:

• Decision-making is open and transparent.
• Eliminated hierarchical management and enhanced community engagement.
• Global members can participate in governance at any time.

Insufficient:

• The technology is heavily reliant, and contract vulnerabilities can lead to significant losses.
• Community voting may be monopolized by large holders.
• The legal and regulatory issues are still unclear.

Typical case of DAO

• MakerDAO: The governance organization of the decentralized stablecoin DAI.
• Uniswap DAO: The governance mechanism for managing the globally renowned decentralized exchange.
• Friends With Benefits (FWB): A DAO community centered around culture and socializing.

DAO compared to traditional companies

Unlike traditional companies, a DAO does not have a CEO or a board of directors, but is jointly governed by users who hold tokens. Traditional companies emphasize hierarchical structures and centralized management, while DAOs emphasize transparency and participation, making them more suitable for open network communities.

The future prospects of DAO

The development of DAO is accelerating, and it may change our understanding of organizational forms. In the future, DAOs may merge with enterprises, governments, and even NGOs, becoming a new way of social collaboration.

Conclusion: DAO is not just a blockchain experiment, but also a form of organization that may be widely applied in the future. Understanding what DAO is helps to grasp the opportunities in a decentralized world.