DAO: A Complete Guide from Theory to Practice

Why is it Important to Understand DAO Now?

The development direction of the blockchain industry is changing. From attracting the attention of traditional finance and large institutions in 2021 to now emerging with a completely new organizational operation model—this is the core significance of decentralized autonomous organizations(DAO). DAO is no longer a topic for a few enthusiasts but is beginning to influence the way the entire crypto ecosystem operates.

What Exactly Is a DAO?

Simply put, a DAO is an organizational form that achieves automated management through smart contracts. Unlike traditional companies with centralized decision-making by a board of directors, DAOs decentralize power to all participants. Each member gains voting rights by holding governance tokens, collectively deciding the organization’s development direction.

The core concept here is to eliminate intermediaries. No CEO, no headquarters, no cumbersome bureaucratic processes—all operations are executed by code, and all decisions are made through community votes. Because of this, billionaire Mark Cuban once said that DAO represents the “perfect combination of capitalism and progressivism.”

Various Forms of DAO: Case Comparisons

Transaction Protocol DAO: Represented by Uniswap

Uniswap is the largest decentralized exchange on Ethereum, and its governance approach is exemplary. In September 2020, Uniswap launched the UNI token, transferring control of the entire platform to the community.

Current UNI Performance: Price at $5.80, down 2.22% in 24 hours, with a circulating market cap of $3.66 billion. Distribution of 1 billion UNI tokens: 60% to community members, 21.27% to the team and future employees, 18.04% to investors, and 0.69% to advisors.

Users holding UNI can directly vote on platform upgrades, fee adjustments, and new feature development. Recently, the community also voted to deploy Uniswap on the Polygon network, which effectively reduced users’ trading costs.

Metaverse Ecosystem DAO: Decentraland’s Exploration

Decentraland has built a virtual world managed entirely by a DAO. Everything here—from land contracts to wearable devices—is governed collectively by community members.

MANA Latest Market: Price at $0.12, down 2.92% in 24 hours, with a market cap of $223 million. The DAO controls 20% of the MANA token reserves within the ecosystem, ensuring sufficient funds to promote development when needed. Community votes decide which NFTs can be listed on the market, how land auctions are managed, and even participate in content moderation. This highly transparent decision-making mechanism has built trust among users.

Lending Ecosystem DAO: Aave’s Dual Governance

As the largest decentralized lending protocol, Aave launched its governance mechanism in December 2020. Aave has 16 million AAVE tokens, with 13 million allocated to the community and 3 million as a reserve fund.

AAVE Price Tracking: Currently at $155.22, up 1.04% in 24 hours, with a circulating market cap of $2.36 billion. Interestingly, Aave innovatively introduced the “Guardians” system—selected users form a group with veto power to block proposals that could cause catastrophic consequences. Token holders can vote or delegate proposal rights and voting rights separately, enabling more granular power distribution.

Emerging Social DAO: Insights from ConstitutionDAO

ConstitutionDAO was born from a bold idea: crowdfund to purchase the original U.S. Constitution and display it publicly. Although the auction ultimately failed, the project successfully demonstrated DAO’s power in rapid resource mobilization.

PEOPLE Token Status: Price at $0.01, down 1.08% in 24 hours, with a market cap of $46.47 million. Despite not achieving its initial goal, PEOPLE tokens still gained community support and became truly member-owned assets.

How DAO Operates and How to Participate

There are three ways to participate in a DAO:

Join Directly: Purchase governance tokens, join community forums, and vote on important decisions. Before participating, it is recommended to experience the community atmosphere on Discord and understand the DAO’s mission and governance principles.

Create a DAO: After defining your goals, find like-minded individuals, create tokens, and allocate ownership. Clear governance processes are needed—how to vote, how to distribute rewards and incentives.

Asset Allocation: If you are more optimistic about a particular DAO’s future, you can also invest by purchasing its tokens on exchanges. Many DAO governance tokens have shown good market performance.

Why Is DAO Gaining Attention? Six Major Advantages

Decentralization of Power: Every participant has actual decision-making power, which is difficult to achieve in traditional organizations. Small investors can participate in early project financing and have equal opportunities.

Complete Transparency: Based on blockchain features, all voting processes and fund flows are traceable, leaving no room for shady operations.

Security and Reliability: Smart contracts execute in encrypted form, making them tamper-proof and resistant to human interference. Malicious behaviors cannot be hidden by changing code.

Community Incentives: Members contributing to DAO development are rewarded, significantly increasing community engagement and sense of belonging.

Risk Diversification: Investment decisions are shared among multiple people, and failure consequences are borne by all participants, reducing individual risk exposure.

Inclusiveness: Anyone can participate by purchasing tokens, regardless of capital size. This breaks the monopoly of traditional venture capital.

Challenges Facing DAOs

But DAOs are not perfect. The lack of regulation is increasingly evident—when losses occur, it is difficult to hold any individual accountable.

Many emerging DAOs have centralization concerns. In early stages, most control remains with the founding team, and only when more participants buy tokens can true decentralization be achieved.

Some DAOs set token holding thresholds to improve governance efficiency, but this may inadvertently reinforce power concentration, contrary to initial intentions.

Code quality is critical. Poor execution or logical flaws can paralyze DAO functions, leading to significant community asset losses.

Future Outlook for DAOs

The arrival of Web3 will accelerate large-scale DAO adoption. As users’ understanding of decentralized technology improves, more industries will attempt to adopt DAO models. The key in the future is how to establish DAO frameworks that ensure genuine decentralization while preventing risks. Developers need to keep innovating, solving existing problems, and laying the foundation for the long-term sustainability of the DAO ecosystem.

Core Summary

DAOs are redefining organizational operation logic. From Uniswap and Decentraland to Aave, these DAO examples have demonstrated the feasibility of decentralization and autonomy across different fields. Whether participating in voting, creating new DAOs, or investing in tokens, everyone can find their place in this organizational revolution. Although DAOs still face issues like regulation, security, and governance efficiency, their transparency, democracy, and inclusiveness suggest that this new organizational form will play an increasingly important role in the future.