DAOs: How Decentralized Organizations Are Revolutionizing the Crypto World

The cryptocurrency sector is undergoing rapid transformation. After capturing corporate attention and institutional investors in 2021, the industry continues innovating ways to make digital assets truly work. One of the most attention-grabbing innovations is the DAO - Decentralized Autonomous Organization. If you’re not yet familiar with the concept, know that it promises to change how communities invest, govern, and collaborate.

Why Should You Care About DAOs?

Decentralized Autonomous Organizations represent a fundamental application of decentralized finance (DeFi). Unlike traditional organizations with their boards of directors and complex hierarchical structures, DAOs operate in a radically different way.

Think of them as venture capital funds, but completely decentralized. The core idea is simple: eliminate human errors and the possibility of misconduct using smart contracts to automate decisions and a collectively funded model. Billionaire Mark Cuban has already recognized the potential of this approach, describing DAOs as the “perfect combination of capitalism and progressivism” — a transparent system, trustless, capable of generating maximum return on investment.

In DAOs, investors transact globally anonymously and receive tokens that grant voting rights on potential projects supported by the platforms.

What Exactly Is a DAO?

A Decentralized Autonomous Organization is an entity that operates entirely through smart contracts and blockchain technology, with decision-making power distributed among community members.

Each DAO can have varied structures, rules, and governance systems, all defined by the community that sustains it. They use smart contracts to implement rules and assign voting power to participants. When developers create decentralized applications (dApps) — whether DEXs, marketplaces, lending platforms, or games — they often implement DAOs to transfer control to users once the project is successfully operational.

The mechanism works like this: DAOs have community treasuries that can only be spent through voting. Members can submit proposals within specified deadlines, ensuring full transparency and autonomy. The downside: when many governance tokens are concentrated in few hands, those few members gain disproportionate power over voting outcomes.

Despite this, DAOs have already established themselves within the Ethereum community and continue expanding, offering more reliable operations and true decentralization compared to traditional systems.

Understanding the Different Types of DAOs

Protocol DAOs - The DeFi Giants

Protocol DAOs form the largest segment of the DAO universe, driving the entire DeFi market. The biggest DeFi protocols use this mechanism to decentralize lending platforms, yield farming operations, and more, in a fully transparent manner.

These DAOs apply decentralization principles to ownership and governance of DeFi operations, bringing fairness — a critical issue in the traditional financial sector. Examples include Uniswap, Maker, and Aave.

Venture DAOs - Democratizing Initial Investment

Venture DAOs, also called investment DAOs, are the second most popular category. They operate by pooling capital from multiple users to invest in dApps and emerging blockchain and crypto projects.

Unlike traditional investment funds, here the decision on which projects to fund is collectively owned by the community. Users vote and select projects to receive resources. This democratizes early investment opportunities that were traditionally exclusive to venture capitalists and angel investors.

Grant DAOs - Funding Innovation

Grant DAOs operate similarly to Venture DAOs, pooling funds from communities with common goals. The difference: they provide funding for innovative DeFi projects and emerging applications, offering new ventures a reliable way to raise capital.

The community evaluates and votes on projects in a decentralized manner, with greater flexibility and transparency. These platforms foster innovation in DeFi, helping users put crypto assets to work and providing developers with reliable fundraising methods.

Social DAOs - Decentralized Social Networks

When communities with similar interests come together, Social DAOs emerge. They adopt social network concepts but with a decentralized twist.

Potential members pay an entry fee (often used to acquire native DAO tokens). These platforms function as virtual social circles where communities share ideas and interact. Bored Ape Yacht Club is a famous example — a Social DAO that only admits BAYC NFT owners.

Collector DAOs - Fractional Ownership of Premium Assets

Collector DAOs gather communities to acquire high-value assets. This concept offers a unique way for users to obtain fractional ownership of expensive digital assets, such as NFTs.

A Collector DAO community pools members’ resources to buy costly digital art. The acquired items become collective property of all within the DAO, giving retail investors access to premium investment opportunities in NFTs.

Other DAOs

Beyond the above types, there are media DAOs, service DAOs, and many other variations. The common point: bringing together individuals with similar ideas to connect and collaborate on shared goals — from owning valuable assets to investing in promising projects or interacting with like-minded people. The unique feature of DAOs is their governance model, involving the entire community with voting rights.

DAOs in Action: The Cases You Need to Know

Uniswap (UNI) - The Revolutionary DEX

Uniswap is the largest decentralized exchange established on the Ethereum network. It has its own DAO model that governs its operations using the native token UNI.

Current data:

• Price: $5.83
• 24h Change: -2.00%
• Market Cap: $3.67B
• Circulating Supply: 629,870,759 UNI

The governance token was launched in September 2020, transferring complete decentralized control of the DEX’s operations and development to the community. UNI holders vote on governance proposals related to infrastructure, services, and platform issues, or delegate their tokens to other participants.

The distribution of the 1 billion UNI tokens was: 60% for community members, 21.266% for the team and future employees, 18.044% for investors, and 0.69% for advisors.

The DAO allows members to control governance, manage the community treasury, activate protocol fee switches, and much more. Recently, the community voted to integrate the DEX into the Polygon ecosystem, achieving greater efficiency and addressing high gas fees and congestion issues affecting Ethereum Layer 1.

Decentraland (MANA) - Governing a Virtual World

Decentraland, one of the biggest names in the metaverse, has the Decentraland DAO that controls all smart contracts and assets within its ecosystem.

Current data:

• Price: $0.12
• 24h Change: -2.34%
• Market Cap: $223.77M
• Circulating Supply: 1,919,110,389 MANA

The DAO oversees LAND contracts, Estates, Wearables, Content Servers, and Marketplace. A significant portion of the MANA token is held in DAO reserves, maintaining autonomy in metaverse operations.

Created to make Decentraland the first fully decentralized virtual world, the DAO empowers the community to control policies, define types of NFTs and featured collectibles in the marketplace, manage LAND auctions, and content moderation. The community proposes and votes on updates collectively, has a say in LAND auctions, and can even list contracts on the whitelist.

A Security Advisory Board (SAB) ensures the security of smart contracts. The wMANA functions as a governance token for proposals and voting.

Aave (AAVE) - Decentralized Lending

Aave is a well-established DeFi protocol using DAO for governance. The Aave Governance DAO was launched in December 2020 with the AAVE token, bringing true decentralization.

Current data:

• Price: $155.12
• 24h Change: +1.65%
• Market Cap: $2.36B
• Circulating Supply: 15,194,455 AAVE

Previously, only developers could propose changes. Now, all AAVE holders can suggest modifications thanks to smart contracts.

Aave is an open-source, non-custodial protocol where users earn interest on crypto deposits and lend assets within the ecosystem. It was one of the first major DeFi names to introduce flash loans — uncollateralized loans that must be returned within a single block, with use cases in arbitrage, collateral swaps, and auto-liquidation.

The DAO grants double voting rights to each token holder, allowing separate delegation of rights. Developers also created “The Guardians” — elected users with the authority to block malicious proposals that could cause catastrophic losses.

Of the 16 million AAVE tokens issued, 13 million were distributed to the community and 3 million reserved.

OpenDAO (SOS) - Supporting the NFT Community

OpenDAO is one of the newest additions to the DAO universe, launched at the end of 2021. It distributed free SOS tokens to OpenSea users — the largest NFT marketplace.

OpenDAO and its SOS token are designed to support the NFT community. Users who transacted on OpenSea before December 23 receive free SOS based on the number and value of their transactions.

Out of a total of 100 trillion SOS tokens: 50% were reserved for airdrops to OpenSea users, 20% are held in the DAO, 20% go to staking incentives, and 10% to incentivize liquidity providers. OpenSea users could claim tokens until June 30, 2022, after which remaining tokens would be absorbed by the treasury.

The DAO plans to use 20% of its holdings to compensate victims of scams on the marketplace, promote artists and NFT communities, and provide grants to developers.

ConstitutionDAO (PEOPLE) - When the Crypto Community Dreams Big

ConstitutionDAO gained popularity immediately after its formation in November 2021. The idea: raise funds in a decentralized manner to buy an original copy of the US Constitution at Sotheby’s auction and transfer it to the public.

Current data:

• Price: $0.01
• 24h Change: -0.51%
• Market Cap: $46.63M
• Circulating Supply: 5,066,434,892 PEOPLE

Created by Jonah Erlich and 30 others, the DAO raised about US$47 million on the Ethereum blockchain to participate in the auction. Although it failed to acquire the document, the generated interest led to maintaining the PEOPLE token.

Although PEOPLE originated as a meme, it captured the attention of crypto enthusiasts who continue buying, keeping the price high. It became a community ownership token. The founders offered full refunds via smart contract on Juicebox, at a ratio of 1,000,000 PEOPLE:1 ETH.

How Can You Participate in a DAO

Joining an Existing DAO

Identify your goals and interests, research DAOs aligned with them. Study their mission and guidelines to better understand their purpose. Join their Discord community before becoming an official member.

Next step: buy some DAO tokens to be recognized as a participant. Then engage in governance forums, vote on important decisions, and contribute to projects and developments.

Creating Your Own DAO

Define your goal and find interested collaborators. Establish ownership by creating and transferring tokens via airdrops or rewards.

Confirm the governance method — this determines how voting works. Also define how rewards and incentives will be distributed to members for their contributions.

Investing in DAOs

Many DAO tokens perform well in the crypto market and are attractive investment instruments. If you want to participate in their success indirectly, the most effective method is to invest in DAO tokens through cryptocurrency exchanges.

Why DAOs Matter: Main Benefits

True Democratization of Ownership

The decentralized model ensures each member feels ownership and responsibility. By participating in governance, token holders vote to shape the future openly and transparently, making exciting opportunities accessible to the general public.

Total Transparency

Based on blockchain, DAOs offer complete transparency in decision-making. Everyone has full visibility into votes and how decisions are made. This promotes fairness in operations toward shared goals.

Security at a New Level

All actions in a DAO use smart contracts — cryptographically secure and immutable. The governance system cannot be tampered with by malicious actors without others’ knowledge. Decisions are executed via smart contracts, much more resilient than traditional organizations.

Community Engagement Enhanced

DAO communities receive rewards for contributions. Result: much higher engagement with a shared vision and purpose. The greater the engagement, the higher the value and potential of the DAO and its token. Incentivizing members is essential for long-term success.

Decentralized Risk

Just as they distribute ownership, DAOs spread risk. Each member is exposed to much lower levels of risk through fractionalization. If investments fail, losses are limited and automatically managed among members — especially important in investment DAOs compared to traditional venture capitalists who lose much more in failures.

Unprecedented Inclusion

Anyone buying tokens can join a DAO and contribute to objectives. DAOs have empowered retail investors to aim higher — entering early-stage investments in promising startups or acquiring expensive digital assets.

Traditional finance industry has strict verifications that exclude interesting opportunities for small investors with limited capital. DAOs have come a long way since their early days, working to level the playing field, reducing entry barriers for investors.

The Challenging Side: Limitations of DAOs

Regulatory Obstacles

While decentralization offers benefits in risk distribution, it makes DAOs extremely challenging to hold accountable under regulation. Authorities cannot identify individual entities responsible for misconduct, posing extreme risks to participants.

Hidden Centralization

Most DAOs struggle to achieve full decentralization, especially in early stages. As more members acquire governance tokens, much control remains with developer teams, who can use majority ownership to dictate directions.

This creates governance challenges — community participation may be insufficient to enforce true democratization.

Governance Dilemma at Scale

As DAOs grow and more members participate, governance becomes difficult. Some DAOs set minimum token holdings for voting. This solves consensus issues but reduces the horizontal structure, concentrating power among stakeholders with majority tokens — compromising the original vision of true decentralization.

Code Vulnerability

A DAO is an automated entity relying on smart contracts. Poorly executed code or misguided vision can cause collapse, resulting in huge losses for the community. Several DAOs have faced this fate, shutting down activities without success due to inadequate development.

The Promising Future of DAOs

With emerging technologies like web3, awareness of decentralized technology’s capabilities will grow in the coming months and years. This will drive demand for viable online communities as autonomous organizations.

Although DAOs have disadvantages, increased awareness can foster innovation. There may be a rising demand for systems with high accountability that offer true decentralization.

Responsibility will fall on developers to meet these demands, creating DAO ecosystems that address existing challenges and deliver more resilient and lasting solutions.

Essential Summary

• A DAO is a decentralized entity operating via smart contracts and blockchain, with decision-making power distributed among members
• There are multiple types: Protocol DAOs, Venture DAOs, Grant DAOs, Social DAOs, Collector DAOs, and others, each serving different purposes
• Popular examples include Uniswap, Decentraland, Aave, OpenDAO, and ConstitutionDAO, demonstrating diversity and potential in the crypto space
• Participation involves joining existing DAOs, creating your own, or investing via governance tokens
• Benefits include democratization of ownership, transparency, security, community engagement, decentralized risk, and inclusion
• Disadvantages involve regulatory challenges, potential trust issues, the need for high voting participation, and code vulnerabilities
• The future of DAOs is promising for revolutionizing industries and governance structures, but facing challenges is essential for long-term success