Decentralized Decision-Making

DAO

DAO (pronounced "dow") means decentralized autonomous organization. A DAO decentralizes management processes by using smart contracts and giving each member of an organization a vote in how it’s run. All votes are recorded on the blockchain, ensuring transparency. DAOs are often mentioned in the cryptocurrency context, but many different types of organizations may operate as DAOs in the future.

How does a DAO work?

A DAO replaces the central authority of an organization with rules encoded in smart contracts that are stored on the blockchain. Instead of a manager or executive board making decisions, a DAO works based on the consensus of its members, who vote on the details of the contracts.

Smart contracts can be proposed and written by anyone who participates in the DAO. For example, someone might want to change the rules of the DAO, and someone else might have an idea on how to best spend the DAO’s funds.

Once a smart contract is drawn up, it becomes visible to all members on the blockchain. Members then vote — which is also a fully transparent process — on the smart contract. The DAO will only execute the smart contract if consensus is reached among members.

The mechanics of a DAO involve complex cryptography and computer coding. DAOs are also a major part of web3 and the metaverse. There is no human organization or authority involved in the management of a DAO. A DAO operates on its own so no individual member can interfere with the decision-making process. DAOs can only operate based on the contents of the smart contracts, which all members vote on. That makes a DAO more democratic and, in theory, less likely to be corrupted than a conventional, centralized organization.

Decentralization

DAOs give organizations the opportunity to digitize their management structure, which has several benefits. Unlike traditional businesses and organizations, no one is in charge of a DAO. It organizes and executes all decisions without a human authority. All members of a DAO vote on all decisions, and the smart contract executes the decisions automatically. Because a DAO is transparent, all members likely share a common interest in its success. So, equitable decision-making helps the community to thrive without the pitfalls of a traditional organization.

Participation

Anyone who owns a token in the DAO can participate. This motivates each member to engage in the community and have their say. The more members who participate, the more successful the DAO is — especially if the DAO’s aim is community growth. An example might be a social network managed by a DAO. The decentralized structure could allow token holders to propose and vote on new features.

Transparency

When members can see what everyone else is doing within a DAO, the system’s integrity remains intact. All actions in the DAO — including voting — are public. This ensures that all members are held accountable. Bad actors are unlikely to crop up because their actions are instantly visible to the rest of the members. Transparency builds trust in the DAO and ensures that the organization continues to operate in the best interest of its participants.

Community

DAOs bring together people from all over who share a common interest or goal. This can build a sense of community in, say, a social network. Or, it can easily gather like-minded experts for a niche pursuit. A shared connection and a guarantee of equitable results encourage members to engage in the DAO and increase its chance of success.