DAO

A DAO (decentralized autonomous organization) is a group that coordinates and makes decisions through rules written into smart contracts, rather than through a traditional management hierarchy. Members typically hold governance tokens that grant voting power.

How it works

Proposals — such as how to spend a shared treasury or change a protocol’s parameters — are submitted on-chain, and token holders vote. If a proposal passes the required threshold, the smart contracts can execute it automatically. Because the rules and the treasury live on the blockchain, the process is transparent and resistant to unilateral changes.

Why it matters

DAOs offer a way to run protocols, investment clubs and communities with open, verifiable governance. The challenges are real too: voter apathy, concentration of tokens among a few large holders, and the difficulty of encoding nuanced human decisions in code.

Example

Many DeFi protocols are governed by DAOs, where token holders vote on fees, upgrades and treasury spending.