What Is a DAO? Decentralised Organisations Explained

Most organisations have a boss, a bank account and a set of people who can overrule everyone else. A DAO tries to do without all three. Its rules are written in code, its money sits in a shared pot and its members vote on what happens next.

I've used ethereum.org's DAO guide as the main source, with the FCA's crypto warnings alongside. It's general education, not financial advice, and I'm not recommending that you join or fund any DAO.

DAO meaning: a group run by code and votes

DAO stands for decentralised autonomous organisation. ethereum.org describes it as "a collectively-owned organization working towards a shared mission". Members can join and work with people around the world, and no single person controls the money.

Because the rules live in code, members don't need to trust one another, only the code. That idea is the whole appeal, and it's also where the risk sits.

How a DAO's smart contract and treasury work

A DAO's rules and treasury are held in a smart contract. ethereum.org says that once the contract is live on Ethereum, no-one can change the rules except by a vote. Actions the code doesn't allow simply fail, and the treasury can't be spent without group approval. If you'd like the basics, here's what a smart contract is.

The treasury is a built-in pot of funds that only approved votes can release. Payments are authorised automatically once a vote passes.

How DAO voting and governance work

Decisions normally go through proposals and votes. ethereum.org shows that the details vary a lot:

• Delegation. Token holders hand their votes to people who commit to looking after the protocol.
• Automatic execution. Transactions run once enough members vote yes.
• Multisig. A small group of trusted, publicly identified members carries out what the community votes for.

Kinds of DAO membership

Model	How you get a say	Suited to
Token-based	Holding the governance token gives voting rights	Broad protocols
Share-based	You propose joining by offering tokens or work, and can leave with your share of the treasury	Charities and investment clubs
Reputation-based	Voting power comes from taking part and can't be bought, transferred or delegated	Communities that want to resist buying influence

ethereum.org gives examples including MakerDAO for token-based, and DXdao for reputation-based. It also describes uses such as a charity that votes on which causes to fund, or a group that pools capital to vote on investments.

The weak points of a DAO

ethereum.org doesn't have a dedicated risk section, but its description points to some sensible questions:

• Code that can't easily be changed means mistakes can't simply be fixed.
• A multisig depends on a small group of trusted signers.
• With token voting, influence can be bought by anyone who holds the token.

The FCA also warns that crypto is high risk, that it isn't regulated yet in the UK and that you should be prepared to lose all the money you put in. Fake DAOs are a favourite scam setup, so read up on decentralised finance and how it works before connecting a wallet anywhere.

Staking, voting and governance tokens

Many DAOs reward people who lock up tokens, which looks a lot like the idea in my guide to crypto staking. The two aren't the same thing, though. In a DAO, locked tokens are usually about voting power, not securing a blockchain.

What DAOs are used for in practice

ethereum.org gives several examples of the sort of thing a DAO can do:

• A charity that accepts donations from anywhere and lets members vote on which causes to fund.
• Collective ownership of physical or digital assets, with members voting on how they're used.
• A fund that pools capital, votes on where it goes and shares out repaid funds.
• CityDAO, which used Wyoming's DAO law to buy land near Yellowstone.

Those examples show why the idea appeals: the group, not a single manager, decides. They also show why the details matter, because the rules of each one differ.

Questions to ask before joining a DAO

1. How are votes counted? Token-based, share-based and reputation-based models behave very differently.
2. Who can execute decisions? A multisig relies on a small group of trusted people, so find out who they are.
3. What can the treasury be spent on? Only approved votes should release funds, so read the proposal history.
4. Has the code been reviewed? Since the rules can only change by a vote, mistakes in the code are hard to fix.
5. Can you leave? In share-based models, ethereum.org says members can leave with their share of the treasury.

A DAO that can't answer these questions clearly is telling you something. Take your time, read the discussions, and remember that the FCA says there's no safety net in the UK if crypto activity goes wrong.

Writing about DAOs for other readers

DAOs are talked about far more than they're explained, and good plain-English writing is welcome. If you cover this topic, there's a list of places to pitch.

Developers and analysts can find blockchain blogs that accept contributor articles listed here.

Frequently asked questions

What does DAO stand for?

It stands for decentralised autonomous organisation. ethereum.org describes it as a collectively-owned organisation working towards a shared mission.

Who controls a DAO?

Its members do, through proposals and votes. ethereum.org says the rules are held in a smart contract and can't be changed except by a vote.

What is a DAO treasury?

It's a pot of funds built into the DAO. ethereum.org says only the group's approved votes can release the money.

Can anyone buy influence in a DAO?

In token-based DAOs, holding the token grants voting rights, so influence can be bought. ethereum.org says reputation-based models are designed to prevent this.

Is a DAO regulated in the UK?

The FCA says crypto activity isn't regulated yet in the UK and there's no safety net if things go wrong. Check the FCA's guidance before taking part.