1 What Is a DAO? Let''s start with the basics. DAO stands for "decentralized autonomous organization." You can think of DAOs as digitally native vehicles for organizing a network of humans toward a common goal. Compared with traditional organizations, they have an internal economic model already built in thanks to blockchain, allowing for smooth financial coordination. DAO membership is collective, with decisions made from the bottom up rather than the top down. The rules of a DAO are embedded in the code itself on a blockchain-a decentralized, incorruptible digital ledger that securely encrypts data and can execute smart contracts-eliminating the need for a central governing body. A blockchain records transactions across many computers in a way that prevents any future alteration of the record without the consensus of the network. This technology is enabled by a peer-to-peer network, where participants can directly interact without needing trusted intermediaries (such as banks).
It provides transparency, security, and immutability without a centralized authority, which is why it''s the backbone of crypto assets like BTC and ETH, or DAO assets like GTC. It even has applications beyond financial transactions-for example, Web3 social networks allow users to manage their own identity, instead of being beholden to giant technology companies. Just like how traditional organizations have a bank account, many DAOs have a shared treasury. And just like most traditional organizations are incorporated in a legal jurisdiction, DAOs are incorporated onchain. When a dispute arises among members of a traditional organization, it is settled in court. When a dispute arises among members of a DAO, it is settled onchain. In their most simple form, DAOs can be thought of as a "group chat with a bank account." This is a phrase coined by investor Cooper Turley, and because of its simplicity, it has since gone viral.
Many DAOs have "one commandment": something they believe is wrong with the world that they aim to change by rallying people from around the globe. This is usually a meme or a phrase that can be concisely stated and shared by its members. For example, Gitcoin wants to "fund what matters," creating a space for people who believe in backing causes that enhance the world, even if there is no direct financial benefit to them. Similarly, MakerDAO is on a mission to construct the first unbiased currency, appealing to those who feel that the current financial system is unfair and wish to reform it. Yet it''s crucial to recognize that DAOs are not only about addressing what''s wrong or deficient but are equally about pioneering something fresh and innovative. They leverage the borderless nature of digital coordination, assembling a diverse group of people across the world to not only facilitate change but also to give birth to new, vibrant initiatives and entities that reflect their collective ideas and skills. This union of alteration and creation is central to a DAO, enabling it to navigate uncharted territories and conceive radical possibilities in a decentralized, internet-native world. Not only can they be accessed from anywhere like traditional websites, they also can be governed from anywhere, meaning that someone across the world can be your partner in your DAO, putting everyone on the same footing.
Are DAOs companies? Sometimes, but not always. In its purest form, a DAO has no centralized governing body, and decisions flow bottom up through proposals on a public forum. Rules are enforced by code, and there are no executive roles. Don''t be fooled by the word organization. As opposed to hierarchical organizations, DAOs can resemble networks of individuals more than traditional organizations. The aperture of the DAO world is very wide, which can present challenges in reasoning about them in the abstract. To ground our discussion in the tangible, we will get into examples later in the book. To begin, just know that DAOs encompass a range of utilities.
Some DAOs exist to distribute money; others are designed to make investments. Some exist to facilitate social connections among members, others to collect digital artifacts like NFTs. DAOs are really good at: Providing equal access for everybody, from anywhere. Providing a way to earn from anywhere. Providing tools for making better democratic decisions. Providing tools to evade censorship or attacks from powerful entities. Providing tools to create credible fairness, where traits like predictability, adaptability, and neutrality are valued above efficiency. Providing tools to establish internal economic (tokenomic) systems that incentivize and coordinate members toward a common mission.
Providing tools to coordinate without relying on an intermediary between you and your transactions. Providing audit trails. Confusing your older relatives about what it is that you do for work. DAOs are a new frontier in human coordination. At a time in which our Industrial Age institutions are lumbering, creaking, and failing to capture the support of the populations they serve, DAOs offer a new way to create Information Age institutions that can be democratically governed by the very populations they serve. The DAO ecosystem is in a constant state of evolution. Every new experiment leads to new lessons that can accelerate the next experiment. There will be giant successes in the future and giant failures.
In many ways we are just at the beginning of the journey. Chapter Summary: What Is a DAO? Decentralized collaboration: DAOs break down geographical and hierarchical boundaries, enabling global, seamless collaboration without central control. Autonomy and self-execution: Through smart contracts, DAOs autonomously execute decisions, manage resources, and uphold rules, diminishing the need for intermediaries. Nurturing innovation: DAOs are a hub for global transformative initiatives, leveraging collective ideas and talents to drive creative innovation. 2 Why Crypto? In order to understand DAOs, you must understand the environment in which they''ve sprouted: the crypto ecosystem. The beginning of the modern crypto movement began with Satoshi Nakamoto, the pseudonymous person or group of people who created Bitcoin, the first and most well-known cryptocurrency. The true identity of Satoshi Nakamoto is unknown, and it remains one of the greatest mysteries in the tech world. In 2008, Nakamoto published a paper outlining his ideas for a new digital currency and, in 2009, he released the first Bitcoin software, which launched the network and the first units of this new cryptocurrency, which Nakamoto called Bitcoins.
The primary invention behind crypto is Satoshi''s solution to what''s known as the Byzantine Generals'' Problem. This is a term originating from a thought experiment in computer science, particularly in the field of distributed computing (connecting several computers to solve one problem in tandem) and decentralized systems. It highlights the difficulties that several parties can encounter when trying to agree on a single course of action in an unreliable communication substrate (like the internet), symbolized by the challenge faced by a group of generals who are trying to coordinate an attack while situated in different locations. Satoshi solved this problem within the context of digital currency by implementing blockchain technology in Bitcoin. Transactions are verified and agreed upon on a public ledger without requiring trust in a central authority. Through a process called mining, the people functioning as network participants (also called miners) solve complex mathematical puzzles to "seal" each block of transactions and link them in a chain. This system makes it extremely difficult for a bad actor to change the historical record or introduce fraudulent transactions, for they would need to command a majority of the system''s computational power (a situation commonly referred to as a "51 percent attack"). This innovation was extended in 2013 with the Ethereum white paper.
Vitalik Buterin, the cofounder of Ethereum, did not directly extend Bitcoin''s functionality; instead, he created a completely new platform, Ethereum, which has some similarities to Bitcoin but is fundamentally different in terms of capabilities and purpose. Ethereum enables "smart contracts," self-executing contracts where the terms are directly written into code and automatically enacted. These contracts run on the Ethereum blockchain, making them tamperproof and independent of any central authority, and they can handle a broad range of applications beyond simple monetary transactions. For the first time, anyone could create and program their values into money. This created a massive new design space, and it had profound implications for what types of economies could be built in the coming decades. One of the things smart contracts enabled was the creation of DAOs. Now you could incorporate an organization onchain using a smart contract and facilitate the creation of a new internet-native coordination mechanism. A significant early figure associated with the formalization and promotion of DAOs as we understand them today is Daniel Larimer.
He is known for creating the concept of a decentralized autonomous corporation (DAC), which can be considered an early form of a DAO. He discussed these ideas in 2013 and 2014 in the context of the BitShares project, a decentralized platform that he cofounded. These concepts were part of broader discussions within the community.