Discover DAO: The Decentralized Autonomous Organization Changing Finance

The cryptocurrency world is constantly moving. From major names in traditional finance to a flood of institutional investors entering the space, this field is opening up entirely new profit-making opportunities. Among these changes, the concept of DAO (Decentralized Autonomous Organization) has emerged as one of the hottest trends today. Let’s explore more about what DAO is and why it matters.

What is a DAO? Basic to Advanced Definitions

DAO (Decentralized Autonomous Organizations) can be simply understood as a completely new form of business organization, based on the power of blockchain technology and smart contracts. Compared to the real world, DAOs are similar to venture capital funds, but operate in a fully decentralized manner — no traditional board of directors, no complex management structures.

The initial idea behind DAO is to eliminate risks from human error and the potential for investors to be manipulated. Instead, all decisions are made through automated systems, open-source code, and community voting. This is a perfect blend of technology and democracy.

DAO token holders have the right to vote on potential projects, decide on treasury spending, and even determine how the platform operates. All of this can be done anonymously worldwide, removing traditional geographical barriers.

Billionaire Mark Cuban has praised this model, calling it “the ultimate combination of capitalism and progressivism.” According to him, DAO represents the future of governance — transparent, decentralized, and trustless.

How Does a DAO Work?

DAO is a new way for interested parties to pool capital to support blockchain projects, fund initiatives, or even manage an entire technology platform. Each DAO can have its own rules, structure, and governance methods, but the common point is that they all rely on community and a specific goal.

The main tool for DAO operation is (smart contracts). These contracts automatically execute programmed rules, assign voting rights to members, and ensure everything occurs transparently and tamper-proof.

Some DeFi (decentralized finance) projects have used the DAO model to transfer control from initial developers to the community. This ensures that once the project is stable, it will be managed entirely by and for the community.

Most DAOs have a shared treasury. Members can propose how to use funds, and the community votes to decide. This process is simple but powerful — it removes the need for intermediaries managing finances.

However, a current challenge is that some DAOs fall into concentration of power. If a small group holds too many governance tokens, they can influence decisions, which contradicts the original decentralized spirit.

Different Types of DAOs

Protocol DAOs - The Backbone of DeFi

Protocol DAOs are the largest and backbone of the DeFi ecosystem. Leading decentralized financial protocols use DAO mechanisms to manage lending platforms, yield farming, and a host of other services. Notably, they do this transparently and openly.

These DAOs prioritize principles of decentralization in ownership and management. This is a significant step forward from traditional finance, where power is concentrated in central authorities.

Venture DAOs - Democratizing Investment

Known as investment DAOs, this type pools funds from many users to support early-stage blockchain projects with potential. Instead of traditional venture funds making decisions, the DAO allows the community to vote on which projects to fund.

This offers a major advantage: ordinary investors now have the chance to participate in early rounds, something previously reserved for professional investment funds.

Grant DAOs - Catalysts for Innovation

Similar to venture DAOs, but with a specific goal of funding innovative DeFi projects and new applications. The decentralized community of this DAO operates with high transparency, thorough vetting, and fair voting on funded projects.

These platforms have become catalysts for innovation in DeFi, providing developers with a reputable path to raise capital.

Social DAOs - Decentralized Social Networks

When DAOs are communities of like-minded individuals, it’s no surprise that social interaction-focused DAOs emerge. These DAOs function as virtual social networks, allowing members to share ideas and connect.

Members often pay an entry fee, which can be used to buy the DAO’s native tokens. Bored Ape Yacht Club is a famous example, where only BAYC NFT holders can join.

Collector DAOs - Shared Ownership of Rare Assets

Collector DAOs are ways for communities to pool funds to purchase high-value assets, such as rare NFTs. Instead of one person needing a huge amount of money, many can co-own a portion of the same asset.

This model has helped small investors access valuable digital artworks they could never own alone.

Notable DAOs in Practice

Uniswap (UNI) - Leading Decentralized Exchange

Uniswap is the largest and oldest decentralized exchange on Ethereum. In 2020, they launched the UNI governance token, giving real control to the community.

UNI tokens are widely distributed: 60% to community members, 21% to staff and developers, 18% to investors, and 1% to advisors. UNI holders can vote on policies, manage the treasury, and even decide on expanding to new blockchains.

Recently, the Uniswap community voted to integrate the exchange into the Polygon ecosystem, reducing high gas fees and network congestion on Ethereum.

Decentraland (MANA) - Decentralized Metaverse

Decentraland is one of the most popular metaverse games, and it has a DAO managing its entire ecosystem. This DAO controls LAND contracts, real estate assets, content servers, and the marketplace.

Most MANA tokens are held in the DAO treasury, ensuring the community has full control over Decentraland’s development. Members can vote on which NFTs are allowed to be sold, LAND auction policies, and even decide which content is valid.

Aave (AAVE) - Leading Lending Protocol

Aave is one of the biggest names in DeFi, and in 2020 they launched DAO governance with the AAVE token. Previously, only developers could propose changes.

Aave is famous for its “flash loans” — uncollateralized loans that must be repaid within the same transaction block. Now, the AAVE community decides the future direction of this technology.

The DAO also has a “Guardians” group — elected members tasked with preventing harmful proposals. This adds an extra layer of protection for the community.

OpenDAO (SOS) - NFT DAO

OpenDAO was launched at the end of 2021 to support the NFT community. They distributed free SOS tokens to all OpenSea users — the largest NFT marketplace.

Anyone who traded on OpenSea before a certain date could receive SOS for free, based on their trading volume. Of the total 100 billion SOS:

• 50% distributed via airdrop
• 20% held in the DAO
• 20% for staking
• 10% for liquidity providers

ConstitutionDAO (PEOPLE) - When DAOs Become Phenomena

ConstitutionDAO gained almost instant fame upon its formation in 2021. Their idea? Pool funds to buy the original U.S. Constitution at Sotheby’s auction and put it into public hands.

Thanks to Jonah Erlich and 30 others, they raised $47 million on Ethereum. Although the auction was unsuccessful, the level of interest they generated was huge. The PEOPLE token they issued continues to trade, demonstrating strong community engagement.

How to Join a DAO?

Step 1: Find a DAO that fits you

First, identify what interests you. There are many DAOs with different goals — from DeFi to NFTs, gaming, and social causes. Learn about each DAO’s mission to find the one that suits you best.

A great tip is to join the DAO’s Discord community to get a closer look before deciding to participate.

Step 2: Buy DAO tokens

To be recognized as a member, you need to purchase some DAO tokens. You can do this through cryptocurrency exchanges.

Step 3: Participate in voting

Once a member, join governance forums. Vote on important decisions and help shape the future of the DAO.

Create Your Own DAO

If you have an idea, you can create a new DAO:

• Define clear objectives
• Find like-minded collaborators
• Create tokens and distribute them via airdrops or rewards
• Set up voting and governance processes
• Establish reward systems for contributions

Key Advantages of DAOs

Democratized Ownership

The decentralized model of DAO ensures every member feels ownership and responsibility for the shared vision. Instead of decisions made by a small group, the entire community has a fair and transparent voice.

Absolute Transparency

Built on blockchain, every decision and transaction is publicly recorded. There’s no room for manipulation or secret decisions. This provides higher fairness compared to traditional organizations.

Encrypted Security

All actions within a DAO are protected by smart contracts and encryption. No one can alter voting results or steal funds from the treasury. The governance system cannot be tampered with without community approval.

Strong Community Engagement

Members are rewarded for contributions, making them more committed to the common goal. Higher interaction levels increase the value of DAO tokens. This creates a positive feedback loop encouraging participation.

Risk Distribution

Instead of one individual or small group bearing all risks, DAO shares it among all members. If an investment fails, losses are shared fairly, not borne entirely by one person.

Easier Access

Anyone with enough funds to buy tokens can join a DAO. This opens early-stage investment opportunities for small investors — something traditional finance often denies.

Current Challenges Facing DAOs

Regulatory Issues

Most governments lack clear laws to regulate DAOs. This results in no one being responsible when issues arise. If a DAO causes harm, who can be sued? This legal gray area remains unresolved.

Incomplete Decentralization

Most DAOs struggle to achieve full decentralization, especially initially. Developers often retain control until the community grows large enough. This can violate the original decentralized spirit of DAOs.

Voting Participation Problems

As DAOs grow, governance becomes more difficult. Some DAOs have increased minimum token requirements for voting. While this helps reach consensus, it can also lead to power concentration among the wealthiest token holders.

Code Bugs

DAOs rely entirely on smart contracts. If the code has bugs, it’s problematic. Some DAOs have suffered technical errors leading to significant losses for the community.

The Future of DAOs

With the rise of Web 3.0 and decentralized technologies, users will better understand the power of these models. The demand for highly accountable and truly decentralized organizations is expected to grow strongly.

Developers currently need to address existing challenges. They must create improved DAO ecosystems with long-term, flexible, and genuinely decentralized solutions. If successful, DAOs will not only transform cryptocurrency but could also revolutionize how society is organized.

Currently, we are only at the early stages of DAO development. Today’s DAOs will lay the foundation for more complex, powerful DAOs in the future. And you can be part of this revolution.