DAO: From Theory to Practice - Everything a Crypto Investor Needs to Know

Decentralized Autonomous Organizations (DAO) — they are not just a new trend in the crypto ecosystem but a radical rethinking of how collective resource management and decision-making can work in the digital space. If you still don’t understand what it is and how to make money from it, this material is for you.

The essence of DAO in one sentence

DAO is a fully decentralized organization based on smart contracts and collectively managed through token voting. No bosses, no board of directors, no central authority — only community and code.

The main idea is simple: unite people with similar goals, give each person a voice proportional to their contribution (through token ownership), and allow them to make decisions together. It’s like a joint-stock company, but without corporate bureaucracy.

Billionaire Mark Cuban called DAO “the perfect combination of capitalism and progressivism,” emphasizing that such organizations can completely replace outdated corporate models thanks to full transparency and the absence of a need for central authority.

How exactly do DAOs work?

Behind the beautiful idea lies a technically sound solution. All DAO operations are managed by smart contracts — software code that automatically executes participants’ agreements.

The process usually looks like this:

• Developers create a DAO and issue governance tokens
• Participants buy these tokens, gaining voting rights
• Community members propose ideas and changes
• Voting takes place over a set period
• The result is automatically executed by the smart contract

However, not all DAOs are the same. Some give control entirely to the community immediately, others gradually. And here lies the first problem: initially, most tokens remain in the hands of developers, which can affect the true decentralization.

Five types of DAO dominating the market

Protocol DAOs — the most popular and largest by managed assets. They control key DeFi platforms, providing decentralized control over trading, lending, and other financial operations. Examples: Uniswap, Aave, and similar projects.

Venture DAOs — collective funds that pool capital from many investors to finance promising blockchain projects. Unlike traditional venture capital, decisions on funding are made by the community, not a few wealthy angels.

Grant DAOs — provide funding for innovative DeFi projects and applications. They operate as decentralized development funds, helping new ideas get initial capital.

Social DAOs — communities united by common interests. A vivid example is Bored Ape Yacht Club, an exclusive club for owners of certain NFTs.

Collectible DAOs — pool money to buy expensive digital assets (rare NFTs, artworks), and then these assets belong to the entire community.

Real examples of DAOs that are already operational

Uniswap (UNI) - the number one decentralized exchange

The largest DEX on Ethereum launched the governance token UNI back in 2020. Today, the value of UNI is $5.82 with a daily change of -2.00% and a market cap of $3.66 billion.

The system is simple: UNI holders vote on platform development — from fee updates to integrating new blockchains. Recently, the community voted to expand to Polygon to avoid high gas fees on Ethereum itself.

Decentraland (MANA) - a metaverse with governance

The virtual world Decentraland is fully managed by a DAO. The current MANA price is $0.12 with a daily decline of -2.34% and a market cap of $223 million.

The DAO decides which NFTs are allowed on the marketplace, manages land (LAND), and sets platform policies. A special advisory council, responsible for financial security, reviews smart contracts for errors.

Aave (AAVE) - a lending protocol with community voting

Aave allows borrowing without collateral — one of the first innovations in decentralized finance. Aave DAO management was launched in 2020 with the issuance of the AAVE token.

Unique feature: each AAVE holder has double voting rights — they can propose ideas and vote on them simultaneously. To protect against malicious proposals, Guardians — trusted users — can halt dangerous initiatives.

OpenDAO (SOS) - supporting the NFT community

OpenDAO distributed free SOS tokens to all active users of the OpenSea marketplace. The DAO raised funds to compensate victims of market fraud.

ConstitutionDAO (PEOPLE) - the most unusual DAO

Born in November 2021 with an ambitious idea: raise money via crowdfunding to buy the original U.S. Constitution at Sotheby’s auction. They raised $47 million, but the DAO lost at auction.

However, the PEOPLE token survived. The current price is $0.01 with a daily decline of -0.51% and a market cap of $46.59 million. Although the project started as a meme, it demonstrated the power of the crypto community and remains alive.

How can you join a DAO?

There are three strategies:

Investing: Simply buy DAO tokens through a cryptocurrency exchange. This gives you voting rights and potential income if the token’s price increases.

Active participation: Join the community on Discord, learn about the DAO’s mission, buy the necessary tokens, and start voting on proposals you like.

Create your own DAO: If you have an idea and like-minded people, you can create your own organization, issue tokens, and start decentralized management.

Main advantages of DAO (and why billions support them)

Democratization of power: Every member has a vote, regardless of wealth. This fundamentally differs from traditional corporate hierarchies.

Full transparency: All decisions, votes, and transactions are recorded on the blockchain and accessible for verification by each participant.

Cryptographic security: Smart contracts guarantee that decisions cannot be canceled or altered without community consent.

Greater member engagement: People participate more actively when they know their vote counts and can influence the project’s future.

Fair risk distribution: Instead of one venture fund losing all its money on a failed project, losses are spread among many participants.

Inclusivity: Anyone with internet access can join if they can afford tokens. Traditional venture funds are only accessible to the elite.

Serious issues that not everyone talks about

Unresolved regulation questions: Who to judge if a DAO commits something illegal? Regulators have no clear answer.

Reliability concerns: Declaring full decentralization, many DAOs remain semi-centralized because developers hold a large portion of tokens.

Concentration of power: If voting requires holding a large number of tokens, ordinary members can be pushed out by large token holders.

Code is law, but code can be faulty: Poorly written smart contracts can lead to DAO crashes and total loss of community funds. Cryptocurrency history has several such tragedies.

What’s next for DAOs?

As web3 develops and understanding of blockchain technology grows, DAO popularity will only increase. People realize the benefits of decentralized management and begin demanding such models in other areas of life.

However, for mass adoption, current issues need to be addressed: creating clear regulatory frameworks, improving tools for managing large communities, and ensuring smart contract reliability.

Responsibility for this lies with developers and the DAO community. If they succeed, DAOs could revolutionize not only cryptocurrencies but also traditional corporate structures.

The main about DAO — seven key points

1. DAO is a decentralized self-governing organization operating through smart contracts and managed by collective voting.

2. There are five main types of DAO: protocol, venture, grant, social, and collectible.

3. The most well-known DAOs are Uniswap (UNI), Aave, Decentraland (MANA), OpenDAO, and ConstitutionDAO (PEOPLE), each solving different tasks.

4. You can join a DAO in three ways: invest in tokens, actively participate in governance, or create your own organization.

5. The main advantages of DAO are democratized management, full transparency, cryptographic security, and inclusivity.

6. Serious issues include unclear regulation, power concentration among large token holders, and the risk of errors in smart contract code.

7. The future of DAO depends on how quickly developers can solve current problems and create sustainable ecosystems for mass use.