DAO
Decentralized Autonomous Organization
A DAO is an organization governed by rules encoded in smart contracts, where token holders make decisions by voting and there is no single central management.
What is DAO (Decentralized Autonomous Organization)?
## How it works
The organization's rules (who can vote, how the treasury is managed, how proposals are submitted) are written into a smart contract on a blockchain. A proposal goes to a vote, and once quorum and the support threshold are met, the decision can be executed automatically, without a separate decision from an administrator.
## Tokens and voting
Voting rights are usually tied to a governance token: one token equals one vote, or a weight that depends on how long tokens are locked. Vote delegation is common, as are off-chain votes (for example, via Snapshot), where executing the decision requires a separate step on-chain.
## Where it is used
DeFi protocols use DAOs to change parameters such as fees, the list of supported assets, and grant allocation. Investment clubs and communities use DAOs to manage a shared treasury jointly. The legal status of DAOs is undefined in many jurisdictions, which determines who bears responsibility for decisions.
## Common mistakes
Decentralization is often overestimated: if several large holders control the majority of votes, decisions are effectively made by a narrow group. Risks in the voting smart contract and flash-loan attacks that temporarily seize voting power are also frequently underestimated.
## What to check in practice
Check who holds the governance token, whether there is a timelock between approval and execution of a decision, and who holds admin keys to the contracts. The presence of an admin key means that governance is not fully decentralized.
FAQ
Is a DAO a company?
Not in the traditional sense. A DAO is governed by code and voting by token holders, but depending on the jurisdiction it may be legally structured as a partnership, foundation, or association.
Can money be withdrawn from a DAO?
It depends on the rules of the specific contract. Withdrawing from the treasury usually requires a vote and may be restricted by a timelock or limits, so the terms should be checked in the source code or documentation.
How is a DAO different from an ordinary project with a token?
In a DAO, decisions about development are made by token holders through voting recorded in a smart contract. In an ordinary project, the team makes decisions even if a token exists.