DAO – What is it in the world of cryptocurrencies and how to participate in it

The cryptocurrency industry is experiencing a period of rapid transformation. A few years ago, the crypto ecosystem primarily attracted startups, but today, traditional corporations and institutional investors are actively entering the space of decentralized technologies. Against this backdrop, one of the key concepts that will define the future of organizational structures in the digital age stands out – DAO. If you want to understand what it is and why DAO is becoming an increasingly popular phenomenon, keep reading.

The essence of a decentralized autonomous organization: how DAO is revolutionizing finance

DAO (Decentralized Autonomous Organization) is not just a new term in the crypto investor lexicon but a fundamentally new organizational model that turns traditional management approaches upside down. Instead of centralized authority, a board of directors, and shareholders, DAO provides equal participation for all community members.

To better understand what a DAO is, imagine a venture fund but without a single dominant investor at the top of the pyramid. Instead, all decisions are made collectively, and funds are managed through transparent and immutable smart contracts. The idea of DAO arose from developers’ desire to eliminate the human factor in investment management and to prevent potential manipulation of investors’ charitable funds.

At its core, DAO relies on automation: the decision-making system is fully programmed and operates according to preset rules. Community members receive special governance tokens that give them voting rights on key development issues of the platform. All transactions are conducted anonymously and instantly, without geographical restrictions.

A prominent supporter of the DAO idea is billionaire Mark Cuban, who actively promotes this concept. In his view, decentralized organizations represent a synthesis of capitalism and progressivism, providing full transparency in management and maximum efficiency in investment processes without the need for central authority.

The five main types of DAO and their functions in the blockchain ecosystem

The world of DAO is remarkably diverse. Each type addresses specific tasks and attracts different user segments:

Protocol DAOs – the heart of the DeFi ecosystem

Protocol DAOs are the most common category of decentralized organizations managing the operation of major DeFi platforms. They use smart contracts to ensure fully transparent management of lending operations, farming, and other financial functions. These DAOs embody the principles of true decentralization in finance, solving fairness issues that traditional financial sectors cannot address. Classic examples include Uniswap, Maker, and Aave.

Venture DAOs – democratizing investments

Venture or investment DAOs operate quite differently. They pool capital from many users to fund new blockchain projects and decentralized applications. Unlike traditional venture funds, where decisions are made by a small group of professionals, investment DAOs make collective decisions on investment directions. This gives retail investors a long-awaited opportunity to influence the fate of promising startups at early stages.

Grant DAOs – supporting innovation

Grant DAOs function similarly to venture DAOs but with a different approach to funding. Instead of investments, they provide grants (non-repayable financial aid) to innovative DeFi projects. A decentralized DAO community reviews and votes on projects, ensuring flexibility and full transparency of the process. This model stimulates creativity within the ecosystem and helps young developers obtain necessary resources.

Social DAOs – virtual communities

Social DAOs transform the concept of social networks into a decentralized format. They create platforms for like-minded individuals to interact, share ideas, and build communities. A classic example is Bored Ape Yacht Club, which has gained status as a prestigious membership club for owners of certain NFTs.

Collectible DAOs – shared ownership of assets

Collectible DAOs open new opportunities for ordinary investors. They pool funds from multiple participants to acquire expensive digital assets, especially valuable NFTs. Each participant becomes a co-owner of the acquired item, allowing retail investors to participate in the premium asset market, which was previously inaccessible.

In addition to these categories, there are media DAOs and service DAOs that address specific tasks within their segments. Their common trait is uniting people with shared goals and interests for collaborative work.

Real-world examples of successful DAOs: from Uniswap to ConstitutionDAO

Uniswap (UNI) – revolution on decentralized exchanges

Uniswap is the largest decentralized exchange on the Ethereum network, which has become a model of governance through DAO. In September 2020, the platform launched its own governance token UNI, distributing it among key participants, community members, investors, and advisors. The distribution structure reflects a democratic approach: 60% of tokens went to the community, 21.3% to the development team, 18% to investors, and only 0.7% to advisors.

The Uniswap DAO gives UNI token holders (current price: $3.40, market cap: $2.15B) full control over platform development. Participants vote on protocol management issues, treasury allocation, and strategic partnerships. A notable example was the recent integration of DEX into the Polygon ecosystem—a decision made by the community to optimize fees and reduce Ethereum network congestion.

Decentraland (MANA) – DAO serving the metaverse

Decentraland DAO manages the entire infrastructure of the virtual world, including smart contracts for land, real estate, wearables, and marketplaces. A significant portion of MANA tokens (current price: $0.10, market cap: $186.89M) is held in DAO reserves, ensuring autonomous governance.

Thanks to DAO, the Decentraland community has real power to determine platform policies, decide which NFTs can be listed, and manage land auctions. An additional layer of security is provided by the Security Advisory Board (SAB), which monitors the integrity of smart contracts.

Aave (AAVE) – democratizing lending

Aave Governance DAO was launched in December 2020 alongside the AAVE governance token. Prior to that, only Aave developers could propose protocol changes—DAO radically changed this.

Aave is an open lending and borrowing protocol allowing users to earn interest on deposits and take collateral-free loans. The platform innovatively introduced flash loans—instant funding within a single transaction block—opening new arbitrage and liquidation opportunities.

The current AAVE price is $116.17 (market cap: $1.76B). The DAO grants each token holder double voting rights for proposals and voting. To protect community interests, developers introduced the role of “The Guardians”—a group of elite users authorized to halt potentially dangerous proposals.

Out of 16 million AAVE tokens issued, 13 million are distributed to the community, with the rest reserved.

OpenDAO (SOS) – DAO for the NFT community

OpenDAO was one of the first projects to distribute tokens widely to existing platform users. In late 2021, the DAO distributed SOS tokens among OpenSea users—the largest NFT marketplace. SOS holders (current price: not provided) gained voting rights on development directions and community support.

Of the 100 trillion SOS tokens: 50% are allocated to OpenSea users, 20% are in DAO reserves, 20% are reserved for staking incentives, and 10% are allocated to liquidity providers. The DAO aims to compensate victims of scams, support artists, and fund grants for developers.

ConstitutionDAO (PEOPLE) – ambitious crowdfunding experiment

ConstitutionDAO gained fame immediately after its launch in November 2021 with a bold idea—to raise funds to buy the original U.S. Constitution at Sotheby’s auction. Thanks to efforts by Ioni Ehrlich and his team, the community raised approximately $47 million in Ethereum.

Although the attempt to purchase the original document failed, it demonstrated the enormous potential of crowdfunding via DAO. The PEOPLE token (current price: $0.01, market cap: $34.72M) remains in circulation and has become a community symbol. The founders provided full refunds through smart contracts at a rate of 1 million PEOPLE per 1 ETH, demonstrating transparency and fairness in governance.

How to become a DAO participant: a step-by-step guide for crypto investors

Joining an existing DAO

If you’re interested in the world of DAOs, the first step is to choose a project aligned with your goals. Study the DAO’s mission, governance mechanisms, and project history. Join their Discord community and communicate with members before investing.

Next, acquire governance tokens on a cryptocurrency exchange. These tokens give you voting rights. Then actively participate in governance forums, vote on proposals, and suggest your own ideas.

Creating your own DAO

If you see a gap or opportunity that existing DAOs do not cover, you can create your own decentralized organization. The process involves:

1. Defining a clear mission and gathering like-minded people
2. Creating governance tokens and distributing them via airdrops or rewards
3. Setting up voting mechanisms and decision-making processes
4. Establishing reward systems for participants

Investing in DAO tokens

If you want to influence DAO success indirectly without participating in governance, simply invest in project tokens via a crypto exchange. Many DAO tokens show attractive market dynamics.

The benefits of decentralization: why DAOs are changing the game

Democratic ownership and management

DAOs radically change the approach to ownership. Every community member gains a real sense of involvement and responsibility. Unlike corporations where control is concentrated among major shareholders, in a DAO every vote counts. This opens opportunities for a broad range of people to influence platform and project development that was previously inaccessible.

Full transparency of operations

Built on blockchain, DAOs provide an unprecedented level of transparency. All members have access to complete information about voting, fund allocation, and decisions. This openness eliminates corruption, favoritism, and ensures fair governance.

Cryptographic security

Every action in a DAO is protected by smart contracts and cryptography. The system is immutable—no one can alter rules without majority consensus. This provides a security level unattainable in traditional organizations.

Increased community engagement

DAOs reward participants for their contributions, creating strong motivation. Higher engagement levels increase platform value and potential. An active community is a key to long-term success.

Distributed risk

Unlike traditional investments where risk is borne by few, in a DAO, risk is shared among all participants. If an investment decision fails, losses are distributed, minimizing individual losses.

Accessibility for everyone

Anyone able to buy tokens can become a DAO member. This effectively breaks down barriers that traditional finance erects for retail investors. Now, anyone can invest in promising startups early or own a part of expensive digital assets.

Challenges and risks of DAOs: what you need to know before joining

Regulatory issues

The decentralized nature of DAOs creates significant challenges for regulators. It’s difficult to determine who is responsible for the organization’s actions when decisions are made collectively. This can lead to conflicts with laws in different countries.

Incomplete decentralization at early stages

Most DAOs struggle to achieve true decentralization shortly after creation. Founders often retain a large share of governance tokens, maintaining actual control over the platform. This undermines the DAO’s ideals until the community acquires sufficient tokens.

Vote concentration

As DAOs grow, voting power often concentrates in the hands of a few wealthy participants holding the majority of tokens. This can lead to a shift away from genuine democracy and back toward centralized control.

Critical code errors

DAOs are automated systems entirely dependent on smart contract quality. Poorly written code or flawed implementation can cause project failure and huge losses for the community. History has examples of DAOs shutting down due to technical bugs.

The future of decentralized organizations: trends and prospects

The era of DAO’s rise is just beginning. With Web3 development and increasing user awareness of decentralization benefits, demand for DAOs will only grow. End users are becoming more familiar with transparency and decentralized governance advantages.

Although DAOs face serious challenges, innovation will continue. Developers will create new governance systems that address regulation and power concentration issues. Hybrid DAO models combining decentralization with traditional management elements may emerge.

The key to DAO success lies in overcoming current shortcomings and building ecosystems that ensure sustainable, long-term growth of decentralized organizations.

Key takeaways about DAO

1. DAO (Decentralized Autonomous Organization) is a revolutionary management model that uses blockchain and smart contracts to transfer power to communities instead of centralized hierarchies.

2. DAO democratizes access to investments, allowing retail investors to participate in funding promising projects early.

3. There are many types of DAO—protocol, venture, grant, social, and collectible—each with its own specialization and goals.

4. Successful DAO examples include Uniswap (governance of DEX), Aave (protocol governance), Decentraland (metaverse management), and others that have proven the viability of the model.

5. Participation in DAO is accessible to everyone: you can join existing organizations, create your own, or invest in governance tokens.

6. Main advantages of DAO include full transparency, cryptographic security, democratized ownership, and increased community activity.

7. At the same time, DAOs face challenges: regulation issues, risk of power concentration, technical vulnerabilities, and difficulty achieving true decentralization.

8. The future of DAO looks promising. As Web3 develops and crypto adoption grows, new DAO models will address current problems and become a primary organizational form in the digital economy.