What are DAOs?

A breakdown of Decentralised Autonomous Organisations and their world-changing promise.

Token Takeaways

Decentralised Autonomous Organisations allow people to unite around a common purpose or cause, with rules for the group embedded on the blockchain.

DAOs typically use tokens to represent membership in the group, and they can be used to vote on key decisions.

While still a nascent space today, DAOs could change the way humans coordinate at scale in the future.

The token universe has grown at a staggering pace over the past few years. As the ecosystem has evolved, many promising use cases for blockchain technology have emerged. Without a doubt one of the most exciting developments has been the growth of DAOs. While still a nascent area of the space, the first DAOs to gain traction have shown the huge potential of where things could lead in the future. We’re so convinced that DAOs will change the world that we curated a Collection of some of our favourites, and you can read more about it in our guide to the ecosystem below. 

What are DAOs? 🤔

DAO stands for “Decentralised Autonomous Organisation.” DAOs are groups that typically form over the Internet and govern themselves according to rules that have been hardcoded on the blockchain. DAOs use smart contracts and typically form on Ethereum. 

The key difference between DAOs and other types of groups found in the traditional world is that they focus on community ownership. Where most organisations or companies operate a hierarchical structure with a centralised authority, DAOs hand ownership over to a group aligned around the organisation’s core beliefs. 

As DAOs operate a flat structure, they give communities a way to govern themselves in a way that was never previously possible. DAOs typically issue tokens to members, which represent ownership in the project.  

By using blockchain-based smart contracts, DAOs also offer a high degree of transparency. DAOs typically run public votes on all key decisions affecting the project, and every vote gets recorded publicly on-chain. Voters usually need to hold the DAO’s token to participate in governance decisions. 

While DAOs are “autonomous,” they also rely on participation from their members. As Ethereum co-founder Vitalik Buterin noted in a 2014 essay

​​“The idea of a decentralised autonomous organisation is easy to describe: it is an entity that lives on the Internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automation itself cannot do.”

Community members typically contribute to DAOs by assisting with tasks such as outreach, social media management, copywriting, and community management. In exchange, they can earn the DAO’s governance token. 

As DAOs live on the Internet, they allow anyone in the world to join. While some DAOs have certain entry criteria, their global nature means they can welcome people from many different backgrounds and scale faster than traditional organisations.

How DAOs may evolve 🔮

To date, DAOs have played a key role in advancing Ethereum’s decentralised finance ecosystem. This is because they have allowed projects to decentralise their organisations by issuing governance tokens to users. Aave, Maker, Uniswap and other key Ethereum DeFi projects are governed by active community members, who vote on key decisions affecting the project’s future. 

Members of PleasrDAO pictured with Wu Tang Clan's “Once Upon a Time in Shaolin” (Source: Griffin Lotz for Rolling Stone)

After the evolution of the DeFi space in 2020, many other DAO experiments have formed in the token ecosystem, showing the space’s boundless potential. GrailersDAO formed to acquire “grail” NFTs; its goal is to support the generative art NFT ecosystem. PleasrDAO also focuses on NFTs after launching to acquire a piece by the crypto artist pplpleasr, but has since engaged in other ventures, including buying a copy of Wu Tang Clan’s one-of-a-kind “Once Upon a Time in Shaolin” album. ConstitutionDAO raised $45 million from Ethereum community members to acquire a physical copy of the US Constitution (it was ultimately outbid). UkraineDAO, meanwhile, was established to raise funds to support Ukraine following Russia’s invasion, and has received support from Vitalik Buterin and other prominent members of the token ecosystem. 

GrailersDAO members pictured alongside a piece from Tyler Hobbs’ Incomplete Control NFT collection (Source: Grailers)

While the first examples of successful DAOs include those focused on DeFi, NFTs, and social causes, blockchain technology potentially allows for all kinds of groups to form and flourish. In the future, it’s possible that some traditional organisations and companies could be displaced by DAO structures as communities look to embrace hierarchy-free structures. 

While DAOs have huge potential, it’s worth noting that there are some potential risks. As voting in DAOs is typically decided by token holders, those holding more tokens can have greater influence over the DAO’s future. This can create a centralised dynamic similar to the traditional world in which those with greater financial means have more power than others. 

There are also risks associated with pursuing economic growth within DAOs, as members may vote according to their own financial interests rather than the interests of the DAO itself. This is particularly pertinent to DeFi as many votes relate to protocols and how their revenue is managed.  

Community is key within DAOs. The most successful DAOs are those where community members are aligned around a common purpose and vision. While the DAO space is still in a nascent, experimental stage, the combination of human coordination and hardcoded blockchain-based rules will continue to be integral to the various types of DAOs that form as the space evolves. What types of DAOs will form next is anyone’s guess. 

The DAOs of the Future Collection 💫

As we believe that DAOs will be core to the evolution of the token ecosystem for many years to come, we curated a Collection called The DAOs of the Future.  

The Collection features some of the most active and successful DAOs that have launched in the token ecosystem to date, including the DAOs behind some of the top Ethereum DeFi projects. Aave, Curve, MakerDAO, and Yearn, four early DeFi projects that are often described as “blue chips” of the ecosystem, all feature in the Collection. 

The DAOs of the Future also includes the Ethereum Name Service DAO, the community that governs the DAO behind Ethereum’s popular Web3 domain name service. The Collection also features another of Ethereum’s most vital projects, Gitcoin. The popular public goods funding platform has become a key part of The Ethereum Ecosystem and is focused on contributing to DAOs making a positive impact on the world. 

The Collection also includes the Yield Guild Games DAO, a group that votes on key decisions that affect how the future of the popular YGG gaming guild will look. Additionally, the Collection features the Merit Circle DAO, a group focused on revolutionising the gaming space by uniting play-to-earn gamers in the Metaverse. 

As the DAO space evolves, we will look to add tokens for new promising DAOs to our Collection. Our team is always hard at work researching the token ecosystem so that we can keep our Collections up-to-date and best serve our customers by offering access to all of the hottest projects in the space. 

Discover more 👀

While DAOs are still in a highly experimental stage, the early examples that have emerged show the huge potential for how DAOs could impact the world over the years ahead. To learn more about DAOs and look into joining some for yourself, why not start by exploring our Collection of the most promising DAOs of the Future? 

Learn more about token.com here 

Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.