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Have you ever imagined joining an organization without a boss? One where members from all over the world come together, and unlike traditional companies, everyone can wear multiple hats: they’re shareholders, employees, and active community members. In this organization, ownership and decision-making are shared, and organizational matters are decided through open discussions or voting, with the entire governance process being transparent. Members participate voluntarily, having the opportunity to realize their personal value while earning financial rewards.
This might sound like a utopian dream, but with the rapid development of cryptocurrency and blockchain technology, Decentralized Autonomous Organizations (DAOs) are working to make this vision a reality. As of August 2024, over 50,000 DAOs have been established globally, with more than US$10 million governance token holders and collective treasuries exceeding US$21 billion[1]. Without a doubt, DAOs have become a large-scale global social experiment, showcasing the immense potential to reshape how people organize and collaborate. So, what exactly are DAOs? What are their main features, and how do they achieve collective decision-making?
Types and Goals of DAOs
There are many types of DAOs, such as investment, social, and media DAOs (Figure 1). About 40% of DAOs are closely related to decentralized finance (DeFi)[2], with a primary focus on profitability. These DAOs aim to enable members to easily engage in financial activities like lending and trading without the need for banks or traditional financial institutions. However, DAOs extend far beyond just finance. Many DAOs are dedicated to building communities and achieving shared ideals. Through collective power, a variety of impressive projects have emerged. For example, VitaDAO is revolutionizing traditional research funding by supporting projects aimed at extending human lifespan[3], while ConstitutionDAO raised over US$47 million in just six days to bid on a copy of the U.S. Constitution[4]. From finance to culture to politics, DAOs are expanding their influence.
Although different types of DAOs have varying goals, they generally balance profitability with building sustainable communities. The former requires DAOs to generate profits for token holders in the ever-changing crypto market, while the latter emphasizes the importance of serving the common good. In fact, this focus on community benefits is seen as the key distinction between DAOs and their earlier concept, Decentralized Autonomous Corporations (DACs)[5].
Characteristics and Definition of DAOs
There is no consensus in academia or industry on the definition of a DAO. Current discussions mainly focus on two core features: decentralization and autonomy, with emphasis on both technological and governance aspects. On the technological front, DAOs rely on blockchain technology and smart contracts[6-8]. Blockchain provides the decentralized infrastructure, allowing DAOs to operate without centralized entities. Smart contracts, which are code deployed on the blockchain, follow the principle of “code is law.” Once specific conditions for decision execution are met, the code automatically executes without human intervention, showcasing autonomy in decision-making. This is similar to a vending machine that automatically completes a transaction when the right amount of coins is inserted. For example, MakerDAO is a decentralized financial platform where users can borrow cryptocurrency pegged to the US dollar by collateralizing other cryptocurrencies. The entire process is handled by smart contracts, ensuring transparency and immutability. However, it is important to note that not all decisions are executed via smart contracts, as many complex decisions cannot be encoded as program rules.
On the governance side, decentralization means that decision-making power is shared among all members and that the decision-making process is democratic. Unlike traditional companies where a few leaders hold decision-making authority, DAOs distribute this power among all members. According to community rules, all members have the right to propose and participate in governance deliberations. Notably, each DAO issues governance tokens to ensure members share voting rights. Governance tokens, which are virtual assets with both incentive and governance properties, are collectively owned by members and used for voting on proposals. The democratic nature of decision-making means DAOs follow the principles of deliberative and voting-based democracy during governance processes. Furthermore, autonomy in governance is a less defined concept, with many studies interpreting it as participant autonomy. This is often seen as a result of decentralized governance—under the dual incentives of shared economic benefits and democratic culture, DAO members voluntarily and actively contribute to community building.
Decision-making process of DAOs
In a typical DAO, the complete decision-making process includes forming a proposal within the community, deliberating the proposal on a public forum, and voting on the proposal on a voting platform (see Figure 2). Take BanklessDAO as an example, which is an organization dedicated to promoting the application and societal consensus of decentralized financial systems, using BANK as its governance token. The amount of BANK tokens held determines both membership level and voting weight. For instance, holding 35,000 BANK qualifies one as a Level 1 member, granting greater proposal and voting rights. According to the BanklessDAO website[9], the process from idea to decision generally includes the following key steps:
1. Community ideation. Those with project ideas directly communicate with community members on the Discord chat platform, typically conducting extensive brainstorming through meetings, mainly to attract like-minded individuals.
2. Drafting a proposal. Write a post using a template, collaborate via shared documents, and establish a specific channel on Discord to advance the project.
3. Proposal refinement. Once a preliminary proposal is formed, it is posted on the more formal Discourse forum for public deliberation by all community members, allowing for revisions and iterations.
4. Formal voting. Conducted on the Snapshot platform, the proposal passes if it meets the requirements of a 7-day duration, at least 30 votes, and a majority agreement.
(Note: Asterisks indicate mandatory steps; common governance platforms are in parentheses)
Based on the above analysis, we define a DAO as an organizational form based on blockchain, smart contracts, and cryptocurrency technologies, where decision-making rights shared by all members. Community members voluntarily participate in proposal-based democratic decision-making, aiming to achieve both commercial profits and the common interests of the community. This emerging organizational model brings unprecedented opportunities to redefine “organization” and “collaboration.” Whether for individuals or businesses, understanding and actively engaging in this global experiment may be the key to future success.
References
[1] https://deepdao.io/organizations
[2] https://cryptodose.net/learn/how-many-daos-are-there/
[3] https://www.nature.com/articles/s41587-024-02189-0
[5] DAOs, DACs, and On-chain Org Design: A DAC Manifesto,
[8] Singh M, Kim S. Blockchain technology for decentralized autonomous organizations[M]//Advances in computers. Elsevier, 2019, 115: 115-140.
[9] https://www.bankless.community/about-us/governance
The work described in this article was supported by InnoHK initiative, The Government of the HKSAR, and Laboratory for AI-Powered Financial Technologies (AIFT).
(AIFT strives but cannot guarantee the accuracy and reliability of the content, and will not be responsible for any loss or damage caused by any inaccuracy or omission.)
