What is a DAO?

📸 Darren Hughes

What is a DAO?

A Decentralized Autonomous Organization (DAO) is a community-governed coalition on the internet. 

It can have many different functions. So far we’ve seen DAOs develop as businesses, social clubs, crypto exchanges, art collectives, and one even tried to purchase a copy of the US Constitution.

How Does a DAO work?

A DAO is governed by a smart contract rather than centralized leadership. 

A smart contract is a computer program, or transaction protocol, that automatically executes, controls, and documents legally relevant events and actions according to the terms of the agreement.

The rules and direction of a DAO’s treasury are also recorded in code on the blockchain. Once the smart contract goes live, changes cannot be made except by vote. 

Rules and objectives for every DAO vary.

How Do DAOs Differ from Centralized Organizations? 

DAOs are not governed by a single entity. There is no CEO or CFO — everything is open and the rules of the DAO are set in the smart contract. 

The Advantages of a DAO

DAOs are transparent, open to anyone, and change within the DAO is a democratic process.

DAOs can move fast. Communities can form, raise capital, and deploy a project within weeks. 

DAOs are trustless. They are not dependent on a centralized organization such as a corporation or board of directors. 

Early Examples

It’s early in the evolution and application of DAOs and we will likely see a bunch of emerging use cases over the coming months and years. Here are a couple examples of early DAOs — 

ConstitutionDAO was a single-purpose DAO developed to purchase a copy of the Constitution. It raised $47M from thousands of participants in a week. 

It lost the auction, but raised awareness for this new type of organization.

PleasrDAO is a digital collective created to buy culturally significant art. 

It’s early, but obvious — the kids are toying with DAOs on the weekends.

Additional Resources 

Here are some additional resources to lead you down the rabbit hole:

Decentralized Autonomous Organization FAQ — Wyoming Secretary of State 

DAOs (feat. DXdao) by Proof of Decentralization

The Ownership Economy: Crypto & The Next Frontier of Consumer Software

Stanford BioE 60: Beyond Bitcoin – Decentralized Autonomous Organizations (DAOs)

Web 3.0 Talks: Future Normal? DAOs and Decentralized Governance

A Deep Dive Into How the Top 10 DAOs Work

Ethereum.org — Decentralized Autonomous Organizations (DAOs)

This is the fourth installment in The Osprey Crypto Made Simple Series where we describe a concept clearly and concisely. If there’s something you would like us to define, please reply to this Newsletter email or, if you are reading this on the web, hit us directly at riley@ospreyfunds.io.