Blockchain 101: What is a DAO?
Find out how strangers on the internet are using tokens and code to govern millions — without CEOs, lawyers, or endless video calls.
Find out how strangers on the internet are using tokens and code to govern millions — without CEOs, lawyers, or endless video calls.
SMooTH
Posted on May 28, 2025
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Imagine a group chat with a shared wallet.
No CEO, no managers, no meetings that could’ve been emails. Just internet strangers proposing ideas, voting with tokens, and moving millions — all coordinated by code.
That’s a DAO in a nutshell.
“DAO”?..
That’s right. Decentralized Autonomous Organization. Basically, a community-led group that runs on smart contracts instead of org charts.
DAOs let people around the world make collective decisions without needing to know — or even trust — each other.
They’re reshaping how we fund projects, govern protocols, vote, and build products.
Curious to learn more? I know you are!
If you’ve been following along, we’ve been unpacking the biggest things smart contracts make possible — from DeFi to NFTs.
Now it’s time for the next frontier: DAOs.
Let’s dive into the future of online coordination — one vote at a time. 🗳️
1️⃣ What is a DAO?
You already get the gist — a DAO is like a group chat with a shared wallet. But let’s go a bit deeper than that.
At its core, a Decentralized Autonomous Organization is:
- Decentralized: No single leader calling the shots.
- Autonomous: Smart contracts automate the rules.
- An Organization: A group of humans working together toward a goal.
DAOs aren’t corporations in disguise — they’re programmable communities. Instead of managers, you’ve got proposals. Instead of classic signatures, you’ve got cryptographic ones.
Some famous early DAOs:
- The DAO (2016): The original. It raised $150M and got hacked. (Oof.)
- MakerDAO: Oversees DAI, a major stablecoin.
- Nouns DAO: Uses art NFTs to fund public goods.
- PleasrDAO: Buys culturally significant stuff (like Wu-Tang albums).
So who decides what happens?
Well, you do — if you hold the governance token.
These tokens act like voting chips. Got some? You can submit proposals, vote on upgrades, fund projects, or decide where the DAO’s headed.
In short: DAOs turn shared values into shared decisions — all enforced by code, not corporate lawyers.
Did You Know?
By 2023, DAOs collectively managed over $25 billion in treasury assets. That’s not your average group chat budget. In 2024, that number grew to $40 billion!
That all sounds great, but how does the blockchain figure in all this?
Great question.
2️⃣ How Does a DAO Actually Work?
Most DAOs live on Ethereum or Layer 2s (like Arbitrum or Optimism) — but you’ll also find them on chains like Solana or Avalanche.
Smart contracts define the DAO’s logic: how proposals work, how votes are counted, and how funds are moved. Platforms like Aragon, Juicebox, and DAOhaus let anyone launch a DAO with templates — no PhD in coding required.
Each DAO has:
- A contract address (its "home" on-chain)
- A governance token (or NFT) to represent membership
- A front-end interface for interacting (usually web-based, connected to your wallet)
Once the DAO is created, interested members from across the globe can join its mission:
1️⃣ You join a DAO
Usually by buying a token or NFT. This gives you access, voting power, and sometimes community perks (like Discord roles or exclusive drops).
2️⃣ The DAO has a treasury
Like a digital piggy bank, but smarter.
Treasuries are made up of crypto assets — either raised during launch (via token sales or NFT mints), collected from protocol fees, or donated by supporters.
They’re managed by smart contracts, not by humans.
3️⃣ Members make proposals
Want to fund a new project? Hire a contributor? Launch a meme contest?
4️⃣ The community votes
Voting is tied to governance tokens. Usually:
1 token = 1 vote
Votes happen on-chain or off-chain depending on the DAO’s setup, but either way, they’re public and transparent.
5️⃣ Smart contracts execute the decision
If the proposal passes, the contracts run it. Funds move. Code gets deployed. DAO magic happens — automatically.
Example
Bob joins a DAO for indie game devs. He proposes funding a new soundtrack. Members vote yes. The DAO releases 1 ETH from the treasury to the musician. Boom. Collaboration, no meetings required.
That’s nice, but do we really need the blockchain for this? What’s wrong with traditional organisations?
Let’s find out!
3️⃣ DAO vs Traditional Orgs
DAOs aren’t just a new kind of organization — they flip the whole playbook.
Instead of hierarchies, they use code. Instead of CEOs, they use community votes. And instead of office buildings, they live entirely on the internet.
That doesn’t mean they’re better in every way. Just… very different.
Let’s compare them across a few key areas:
🧱 Structure
No CEO or hierarchy — just token-based voting where everyone (in theory) has a say.
🔍 Transparency
All decisions, votes, and treasury movements are visible on-chain. Nothing’s hidden.
🌍 Access
Anyone with a wallet can participate. No résumés, no HR departments.
💰 Treasury
Instead of a company bank account, funds are held in smart contracts governed by the community.
🗳️ Decision-making
Proposals are submitted, debated, and voted on by members. Power comes from tokens, not titles.
So far, so good? Sure, but the grass isn’t always greener on the blockchain.
While DAOs offer new freedoms, they also come with a new set of headaches:
- Low voter turnout: Most DAO members don’t vote. Proposals can pass with just a handful of participants.
- Token whale dominance: Got more tokens? You have more power. That’s great for efficiency — less great for fairness.
- Coordination chaos: Imagine trying to build a company… on Discord… with people in 12 time zones… who’ve never met. Yeah.
- Code bugs = real money lost: If a smart contract has a flaw, there’s no “undo” button. Just ask the original DAO.
- Legal limbo: Many DAOs operate in regulatory gray zones. Who’s liable if things go wrong? Still TBD in many jurisdictions.
Now that we understand what DAOs are, how they work, and why they’re useful, let’s explore what they’re actually used for!
4️⃣ What Are DAOs Used For?
DAOs come in all flavors. Here are some of the most popular types:
🧪 Protocol DAOs
These DAOs govern DeFi protocols, handling everything from upgrades to fee structures and liquidity incentives.
They’re essential to keeping decentralized platforms truly community-run.
🫂 Social DAOs
Online communities with token-gated access, where culture, vibes, and collaboration take center stage.
Often overlap with creator collectives or learning groups.
🛠️ Service DAOs
Decentralized talent networks offering client services, bounties, and project work — like Web3-native creative agencies or dev shops.
🖼️ Collector DAOs
Focused on acquiring culturally significant assets, from NFTs to memes to historic documents.
Often driven by community values or memes.
🌱 Grant DAOs
DAOs funding open-source tools, education, infrastructure, and other stuff that benefits everyone — whether or not they’re in crypto.
💼 Investment DAOs
Groups that pool capital to invest in NFTs, startups, tokens, or even real-world assets. Think of it like a decentralized VC fund.
Example: Flamingo DAO
An invite-only collective known for early NFT bets like Autoglyphs and Bored Apes.
Each of these DAOs runs differently, but the principle is the same: code + community + coordination.
5️⃣ Conclusion
DAOs are still an experiment — but a powerful one.
They’ve proven that with the right incentives and tools, strangers on the internet can:
- Build communities
- Share ownership
- Coordinate at global scale
..all without traditional institutions.
And that’s impressive all by itself. But there’s a long way to go. Governance is hard. Legal clarity is lacking. Voter apathy is real.
And like most NFT projects in 2021.. most DAOs start with a dream and quietly die out.
The ones that don’t?
They’re reshaping how we work, fund, and build — not just in crypto, but across the digital world.
They put the “we” in “Web3”.
So far, in our Blockchain 101 Series:
Author
SMooTH
@thisissmooth
🐍 Confident Cobra 📢 Communication is my passion 🔎 Research at Pluid 🦉 Ambassador at DYLI 👍
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