DAO in the context of decentralization: Everything you need to know about decentralized autonomous organizations

The blockchain industry is undergoing rapid transformation: from attracting large businesses in 2021 to developing innovative ways of organizing work within the crypto ecosystem. One of the most promising phenomena is DAO (Decentralized Autonomous Organizations), which are redefining traditional management and capital-raising models. If you want to understand what a DAO is and why it matters, this overview will answer all your questions.

Why Decentralized Organizations Are Becoming a Revolution

A Decentralized Autonomous Organization is a fundamentally new way for people to coordinate. Instead of a traditional structure with a CEO and a board of directors, a DAO operates through a system of smart contracts on the blockchain, where each participant has a voice in making key decisions.

As billionaire Mark Cuban described this concept in 2022, DAOs represent “the perfect blend of capitalism and transparency,” allowing communities to govern themselves without central authority. The main idea is to eliminate human errors and manipulation through automated decision-making processes supported by crowdfunding.

How Decentralized Organizations Are Structured: Management Mechanics

At the core of every DAO is a smart contract — self-executing code on the blockchain. When community members make a decision, it is automatically implemented without intermediaries.

Participants receive governance tokens, which give them voting rights on proposals for platform development. Anyone can submit a proposal, put it to a vote for a set period, and if the majority votes in favor, the decision is automatically enacted thanks to the blockchain. This creates complete transparency: everyone can see how votes were cast and why decisions were made.

Variety of Forms: What Types of Decentralized Organizations Exist

Protocol DAOs — the Foundation of DeFi

This is the largest segment of DAOs, managing major financial protocols. Instead of a development team controlling the platform alone, governance is handed over to the community. Examples include Uniswap, Maker, and Aave — they allow users to vote on fees, incentives, and infrastructure development.

Venture DAOs — Democratizing Investment

Instead of a single venture capitalist making decisions, dozens or hundreds of investors pool their capital and jointly decide which startups to fund. This is especially significant for retail investors who were previously excluded from early funding rounds.

Grants DAOs — Supporting Innovation

Similar to venture DAOs, but instead of investments, they provide grants to developers. The community votes on which DeFi projects deserve funding, fostering innovation under open conditions.

Social DAOs — Communities on the Blockchain

These are platforms for like-minded individuals to interact. An example is Bored Ape Yacht Club — a DAO open only to owners of the Bored Ape NFT, creating an exclusive community of collectors.

Collectible DAOs — Co-Ownership of Rare Assets

Members pool funds to buy expensive NFTs or digital art, then share ownership rights proportionally to their contributions. This has enabled retail investors to access assets that were previously only available to millionaires.

Real Examples of Decentralized Organizations in Action

Uniswap (UNI) — A DAO That Reshaped Trading

Uniswap is the largest decentralized exchange on the Ethereum network. In September 2020, the team issued 1 billion UNI tokens, distributing them as follows: 60% to the community, 21.3% to the team, 18% to investors, and 0.7% to advisors. Currently, the token trades at $3.65 with a 24-hour increase of +9.16%, and a market cap of $2.32 billion.

UNI holders vote on protocol fees, adding new blockchains, and development. Recently, the community voted to integrate Uniswap into the Polygon ecosystem, reducing fees and addressing Ethereum network congestion.

Decentraland (MANA) — DAO of the Metaverse

Decentraland is a virtual reality project fully managed by a DAO. It owns all smart contracts and assets within its ecosystem. The community votes on allowing new NFTs on the marketplace, content policies, and land auctions. A significant portion of MANA tokens is held in the DAO treasury, ensuring independence. Today, MANA trades at $0.10 with a +4.25% increase over 24 hours, with a market cap of $192.69 million.

Aave (AAVE) — DAO for Lending Management

Until December 2020, Aave was managed by a centralized team. With the launch of the AAVE token, this leading lending platform transferred control to the community. Aave introduced innovative flash loans — uncollateralized loans that must be repaid within a single block. The current AAVE price is $123.89, with a 24-hour increase of +6.82%, and a market cap of $1.88 billion.

Unique feature: each AAVE holder has double voting rights, can delegate votes separately, and submit proposals. The team also introduced “The Guardians” — a group of elected members authorized to block malicious proposals.

OpenDAO (SOS) — DAO Supporting the NFT Community

OpenDAO launched in late 2021, distributing free SOS tokens to OpenSea users — the largest NFT marketplace. Of the 100 trillion SOS tokens: 50% were airdropped to users, 20% allocated to the DAO treasury, 20% for staking incentives, and 10% for liquidity providers.

The DAO aims to compensate victims of scams on OpenSea, support artists, and grant funds to developers.

ConstitutionDAO (PEOPLE) — Ambitious Crowdfunding

In November 2021, a group of enthusiasts led by Ioni Erlich created a DAO to raise funds to buy an original copy of the U.S. Constitution at Sotheby’s auction. They raised $47 million in ETH, but the attempt was unsuccessful.

Instead of disbanding, the DAO kept its token PEOPLE, which became a symbol of the crypto community. Today, PEOPLE trades at $0.01 with a +3.28% increase in 24 hours, with a market cap of $35.01 million. The founders proposed a full refund of funds via smart contract at a rate of 1,000,000 PEOPLE per 1 ETH.

How to Get Involved in Decentralized Organizations

Join an Existing DAO

Research the mission and governance principles of the DAO that interests you. Join their Discord community to get a feel for the atmosphere. Then, acquire governance tokens and participate in voting on key decisions.

Create Your Own DAO

Define your organization’s purpose and find like-minded individuals. Create and distribute governance tokens via airdrops or rewards. Set up a voting mechanism (simple majority, supermajority, etc.). Establish reward rules for active members.

Invest in a DAO

If you prefer not to actively participate in governance, you can simply buy governance tokens on a crypto exchange, hoping for their value to grow as the organization develops.

Why Decentralized Organizations Are Attractive

Democratization of Power

Every member has a voice, regardless of investment size (ideally). This contrasts with traditional companies, where small shareholders are often ignored. In DAOs, retail investors gain real influence over strategy.

Full Transparency

All decisions, votes, and financial flows are recorded on the blockchain. No one can hide fund withdrawal schemes or manipulate voting results. This creates a fairer system than traditional organizations.

Cryptographic Security

Smart contracts are immutable. No one can alter voting results or steal the DAO treasury without majority approval. This is significantly safer than conventional management systems.

Increased Community Motivation

When participants know their contributions are recognized and rewarded, they engage more actively. High community involvement directly correlates with DAO success and token value growth.

Risk Distribution

Unlike venture capitalists, who can suffer huge losses if investments fail, losses in a DAO are spread among many participants. This is especially important for venture DAOs, where failures are more common.

Accessibility for All

You don’t need to be a millionaire or have connections in the financial elite to invest in promising projects. Just buy tokens and join the community.

Real Challenges and Problems Facing DAOs

Regulatory Uncertainty

Governments are unsure how to regulate decentralized organizations. If something goes wrong, it’s unclear who is responsible — the organization is spread worldwide, with no single decision-maker.

Insufficient Decentralization

In early stages, most governance tokens often remain with founders and investors. This can lead to a situation where a small group effectively controls the DAO, despite claims of decentralization.

Vote Concentration

As DAOs grow, some introduce minimum token holdings for voting. While this simplifies consensus, it can turn DAO into an oligarchy of large token holders, contradicting the original idea.

Code Vulnerabilities

DAOs depend entirely on smart contract quality. A bug in the code can lead to loss of all funds. History has seen cases where DAOs were hacked or lost significant sums due to poorly written contracts.

The Future of Decentralized Organizations in the Web3 Era

With the development of Web3 and increasing societal awareness of blockchain’s potential, demand for DAOs will only grow. The technology could revolutionize not only financial management but also social organizations.

However, for DAOs to achieve mass adoption, developers need to address current issues: create mechanisms for genuine decentralization, improve code security, develop governance standards. Collaboration with regulators to establish clear legal frameworks will also be essential.

Despite these challenges, the future of DAOs looks promising. They are rethinking not only finance but also the very concept of organized human collaboration in the digital age.

Key Takeaways About Decentralized Autonomous Organizations

1. DAOs are self-governing organizations operating via smart contracts, where community members have voting rights in decision-making.

2. There are many types of DAOs: protocol DAOs (managing financial protocols), venture DAOs (investing in projects), grant DAOs (funding developers), social DAOs (interest communities), and collectible DAOs (joint ownership of assets).

3. Real-world examples include Uniswap (trading), Decentraland (metaverse), Aave (lending), OpenDAO (NFT support), and ConstitutionDAO (crowdfunding).

4. DAOs promote democratization, transparency, security, and inclusivity, enabling people to participate in management and investment at a new level.

5. However, DAOs face challenges such as regulation, power concentration, code vulnerabilities, and achieving true decentralization.

6. The future of DAOs depends on solving these issues and integrating into the broader Web3 ecosystem.

7. You can participate in DAOs by joining existing ones, creating your own, or investing in governance tokens.

8. As the technology develops, DAOs will become increasingly important in management, finance, and social organization.