Since ancient times, merchants have formed guilds to collectively fund expeditions, establish trade rules, and protect their interests. Later, joint-stock companies and corporations emerged, concentrating decision-making power in the hands of capital owners. However, with the rise of blockchain technology, a new governance model appeared — Decentralized Autonomous Organizations (DAOs). These structures operate without centralized leadership: the rules are encoded in smart contracts, and key decisions are made collectively.
In this article from Crypto Insite, we’ll explore how DAOs work, what their advantages and challenges are, and what the future may hold for this form of governance.
What Is a DAO in Simple Terms?
In the traditional world, companies and organizations are managed by executives — a CEO, a board of directors, or a business owner. They make decisions, control finances, and oversee employees. But with the rise of blockchain technology, a new form of organization has emerged: the DAO — Decentralized Autonomous Organization. In a DAO, management is not handled by a single person or a group of leaders, but by the entire community of participants through decentralization.
Also read: What Is DeFi in Crypto and How Decentralized Finance Is Changing the Financial World?
Here are the key principles:
- Decentralization – There is no central authority; decisions are made by community voting.
- Transparency – All transactions and votes are recorded on the blockchain. This prevents manipulation or behind-the-scenes actions.
- Autonomy – The rules are written in code (smart contracts) and can’t be changed without majority consensus. This eliminates human error or personal bias.
- Openness – Anyone can join if they meet the criteria (for example, holding a specific token).
How a DAO Works
A DAO operates through smart contracts — pieces of code stored on the blockchain. These smart contracts define the operational rules of the DAO, such as:
- Who can vote on decisions
- How funds are distributed
- What actions are allowed
All decisions within a DAO are made through voting by participants who hold the DAO’s native tokens. The more tokens a person holds, the greater the weight of their vote. In this way, governance becomes decentralized and democratic — every member has a chance to influence key decisions.
The Role of Tokens in a DAO
In most DAOs, participants are given tokens that serve several important purposes:
- Voting – Tokens grant the right to vote on organizational decisions.
- Profit sharing – In some DAOs, tokens entitle holders to dividends or a share of the organization’s profits.
- Contributing to development – Participants may earn tokens for completing certain tasks or contributing to specific projects.
The more tokens a person holds, the greater their influence over decisions. Ideally, this means that each member’s power in the DAO reflects their level of engagement and contribution.
History and Evolution of DAOs
The first major and well-known DAO was launched in 2016 and was simply called The DAO. It was an experimental project aimed at raising funds to finance blockchain initiatives. However, shortly after its launch, The DAO was hacked, resulting in the theft of over $50 million. This incident sparked fierce debate within the crypto community and ultimately led to a split in the Ethereum network — creating two blockchains: Ethereum and Ethereum Classic.
In the aftermath, the community became much more focused on the security of smart contracts and the careful development of DAOs. Despite this early setback, the concept of decentralized organizations continued to evolve. Today, we see a wide range of successful DAOs operating in areas such as DeFi (decentralized finance), NFTs, social networks, and more.
Notable Examples of DAOs
1. MakerDAO
About the Project: MakerDAO governs a protocol that enables the issuance of the stable cryptocurrency DAI, which is pegged to the US dollar. Unlike centralized systems, MakerDAO is fully decentralized, with all major decisions—such as token issuance policies, interest rates, and other parameters—being made by participants through voting. It’s a prime example of a DAO providing financial services without traditional intermediaries.
2. Uniswap
About the Project: Uniswap — is a popular decentralized cryptocurrency exchange platform that allows users to swap tokens without the need for centralized exchanges. The Uniswap DAO governs the protocol, making decisions on new features, fee structure changes, and resource allocation. UNI tokens are used for voting and decision-making within the Uniswap ecosystem.
3. Aave
About the Project: Aave — is a platform that allows users to borrow and lend cryptocurrencies. Decisions regarding the protocols, changes in interest rates, and new assets are made through voting by AAVE token holders. This is an example of a DAO that utilizes decentralized governance to provide lending services.
4. Gitcoin
About the Project: Gitcoin manages grants and funding for open-source projects. It enables developers and startups to raise funds for their projects through a crowdfunding system. Gitcoin DAO makes decisions regarding the distribution of grants, project support, and ecosystem improvements through voting by participants.
5. Flamingo DAO
About the Project: Flamingo DAO manages digital assets, including collectible tokens (NFTs), and invests in art and other digital collections. It is a DAO where participants can decide which NFTs and other assets should be acquired for the collection. This DAO is also actively involved in the ecosystems of virtual worlds and digital art.
6. Yield Guild Games (YGG)
About the Project: YGG — is a gaming DAO that invests in blockchain-based gaming assets, such as NFTs and tokens used in games. The DAO manages a collection of gaming objects and assets, and players can earn money by participating in games with blockchain economies. YGG participants can vote on which games to invest in and which strategies to use for profit generation.
7. Friends with Benefits (FWB)
About the Project: Friends with Benefits (FWB) — is a DAO-based community that brings together individuals interested in cryptocurrencies, digital art, and cultural initiatives. FWB members gain access to exclusive events, content, and communities. All decisions related to event organization, funding, and governance are made through voting within the DAO.
8. Aragon
About the Project: Aragon — is a project that provides tools for creating and managing your own DAOs. It is a decentralized protocol for building organizations on the blockchain. Aragon DAO allows users to manage and build their own decentralized autonomous organizations without requiring centralized control.
9. Moloch DAO
About the Project: Moloch DAO — is one of the most well-known DAOs within the Ethereum ecosystem, managing funds to finance projects that support the development of Ethereum. The project operates on the principle of collective decision-making regarding the allocation of funds to various projects. DAO members decide which proposals to support and allocate resources to advance the Ethereum ecosystem.
10. DAOhaus
About the Project: DAOhaus — is a platform that helps create and manage DAOs through a simple interface. This DAO provides tools and infrastructure for the creation and operation of other DAOs. DAOhaus also represents a community with decentralized governance, where decisions are made by members who hold DAOhaus tokens.
How to Create a DAO?
The process of creating a DAO includes several stages:
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Developing Smart Contracts: These contracts define the rules of how the DAO will operate (such as voting mechanisms, fund distribution, and other key decisions).
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Launching Tokens: Tokens are created to be used for voting and profit-sharing within the DAO.
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Launching and Attracting Participants: Typically, this is done through fundraising campaigns or by attracting users from cryptocurrency communities.
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Decentralized Governance: Participants start voting on key issues such as system upgrades, resource distribution, projects, and more.
Each participant can contribute to the development of the DAO by voting or proposing new initiatives.
Types of DAO
There are various types of DAOs depending on the goals and tasks they aim to address. Here are some examples:
- DeFi DAO (Decentralized Finance DAOs): These organizations manage decentralized finance protocols, such as MakerDAO, which governs the stable cryptocurrency DAI.
- NFT DAO: These are created to manage collections of NFTs (non-fungible tokens), such as Flamingo DAO, which invests in digital art and collectible items.
- Grant DAOs: For example, Gitcoin DAO, which funds open-source projects.
- Gaming DAOs: These DAOs manage gaming assets and cryptocurrencies in the gaming industry. Yield Guild Games (YGG) is one such example, managing in-game assets for blockchain-based video game players.
How to Participate in a DAO
To become part of a DAO, you typically need to buy tokens of that organization. This can usually be done through cryptocurrency exchanges or by participating in an ICO (Initial Coin Offering). After acquiring tokens, participants can:
- Vote on important decisions.
- Apply their skills to help develop the DAO (for example, developers can create smart contracts, and marketers can promote the project).
- Receive dividends if the DAO is profitable.
Risks and Issues of DAOs
Despite their potential, DAOs face several challenges:
- Vulnerabilities in Smart Contracts: If the DAO’s code contains errors or vulnerabilities, it could result in the loss of funds.
- Slow Decision-Making: Since decisions are made by voting among all participants, the process can take time, making decision-making slower compared to traditional companies.
- Legal Issues: In many countries, DAO legislation is not well-regulated, which can lead to legal uncertainty.
The Future of DAOs
DAOs continue to evolve and open up new opportunities. Many believe that in the future, they could become the primary form of organization for cryptocurrency and blockchain projects. Furthermore, with advancements in technology, we may see DAOs managing not only cryptocurrencies and financial assets but also real-world assets, such as real estate or even government entities. However, for DAOs to become widely adopted, several challenges need to be addressed, including improving security, simplifying user interactions, and developing legal frameworks for these organizations.
Also read: Staking or Yield Farming: Which is the Better Option for Earning in 2025?
FAQ
How to Gain Influence in a DAO?
Influence in a DAO depends on:
- Number of Tokens – The more tokens you have, the stronger your vote.
- Activity – Participation in discussions and proposing ideas.
- Reputation – If the DAO takes into account not only tokens but also the contributions of participants.
What Are the Conditions to Join a DAO?
The conditions depend on the type of DAO:
- Token-based Access – You need to buy the project’s tokens (e.g., UNI for Uniswap DAO).
- Reputation-based DAOs – Access by voting or staking.
- Open DAOs – Simply connect your wallet to the application (e.g., MolochDAO).
Important! At the time of joining, make sure to review the rules—some DAOs require KYC. As a participant, you can propose changes, vote, or receive rewards.
How Does a DAO Attract Investments?
Main methods:
- Token Sale – Initial token distribution.
- DAO Treasury – Part of the fees goes into a communal fund.
- Decentralized Grants – Investors fund projects through voting.
Examples:
- Aave DAO manages the protocol’s reserves and decides where to direct investments.
- The LAO – An investment DAO where participants invest ETH in startups.
How Does a DAO Ensure Security?
Protection measures:
- Multisig Wallets – Multiple members’ signatures are required to manage funds.
- Execution Delays – Decisions take effect after a delay, allowing time to cancel an attack.
- Smart Contract Audits – Code is reviewed before deployment.
- Delegative Voting – Experts vote for less active token holders.
Example: In Compound DAO, proposals undergo a 3-day voting period plus a 2-day delay before execution.
What Are the Advantages of DAOs Over Traditional Organizations?
- Full Transparency
- All decisions, finances, and votes are transparent and stored on the blockchain.
- No risk of manipulation, as in traditional companies.
- Global Accessibility
- Anyone from any country can participate without restrictions.
- No intermediaries (banks, legal entities) are needed.
- Collective Management
- Influence is based on contribution (e.g., the number of tokens).
- Even small holders can make proposals.
- Process Automation
- Smart contracts execute decisions without delay.
- No bureaucracy or corruption.
- Censorship Resistance
- DAOs cannot simply be “shut down” because they operate on a decentralized network.
How to Make Proposals in a DAO?
- Create a Proposal – Through an app, such as Tally or Snapshot.
- Discuss with the Community – Via Discord, forums, etc.
- Vote – Online or through a smart contract.
- Execution – If the majority agrees, the smart contract automatically implements the decision.
Example: In Curve DAO, proposals are first discussed on the forum and then voted on by CRV holders.
Conclusion
DAO is an experimental yet promising form of organization that is changing the way we think about how companies and communities can operate. Understanding the principles of DAO can help you gain a better insight into the world of cryptocurrencies and blockchain, and perhaps even become a part of such an organization.
