What exactly is a DAO? From principles to practical applications, this article explains it all.

Recently, DAOs have become increasingly popular, but many people still don't understand what it really is. Simply put, a DAO replaces a CEO with code, allowing a group of strangers to collectively manage an organization through voting.

What is the essence of DAO?

DAO (Decentralized Autonomous Organization) breaks the traditional company structure. In the past, when you invested in a project, you could only wait for the management's decisions. Now with DAO, when you buy a token, you have voting rights and can participate in both major and minor decisions.

For example, Uniswap, at the beginning of the year, the community voted to go live on the Polygon chain, directly bypassing the traditional board of directors. This is the power of the DAO — power truly flows to the token holders.

What are the main types of DAO?

Protocol DAO: Uniswap, Aave, and similar ones are used to manage the rules and fees of DeFi platforms. This is currently the most mainstream form of DAO, controlling tens of billions of dollars in the ecosystem.

Investment DAO: Similar to venture capital, the community invests in new projects together. The benefit is that retail investors can also participate in early financing, rather than only institutions being able to play. The downside is slow decision-making, making it easy to be exploited by large holders.

Social DAO: Like Bored Ape Yacht Club, only NFT holders can enter. Essentially, it's a membership club where membership is permanently recorded on the blockchain.

Collectible DAO: Crowdfunding to buy overpriced NFTs or artworks. For example, ConstitutionDAO aimed to collectively purchase an original copy of the U.S. Constitution, and although they ultimately did not succeed, they raised $47 million.

Which DAOs are operating well in reality?

Uniswap: Of the 1 billion UNI tokens, 60% were given to the community. The community modifies fees and configures parameters through voting. On-chain data shows that UNI holders rank in the top three for participation among leading DAOs.

Aave: 16 million AAVE tokens, introduced the “Guardian” mechanism to prevent malicious proposals. This design is clever — it ensures decentralization while preventing attacks.

Decentraland: A model of DAO in the metaverse. The community votes using MANA to decide on virtual land auctions and content policies. Although the number of users is not as high as expected, the governance model is worth learning.

How to join a DAO?

The simplest way: Buy tokens → Join Discord → Participate in voting. Many DAOs do not have special requirements for the amount of tokens held, and the degree of democracy is quite good.

Want to dive deeper? Learn to propose. If you have a promising direction, write a proposal and let the community vote. High-quality proposals will be accepted, and your ideas will directly influence ecological development.

Want to make money from DAO? Invest in quality DAO tokens. UNI has risen from a few dollars at launch to over $10, and AAVE has also increased tenfold. But the risks are high; there are countless examples of junk DAOs collapsing overnight.

Advantages of DAO (Ideal State)

✅ High Transparency: All on-chain votes and fund flows are traceable, and no one can operate behind the scenes.

✅ Decentralization: No longer held hostage by a single CEO or consortium.

✅ Strong sense of participation: Community members are encouraged to actively engage, resulting in high cohesion.

✅ Democratic Pricing: Investment decisions are made by majority vote, which is more reliable than a single fund manager.

The Real Pain Points of DAO (Also Quite Heartbreaking)

❌ Big Holder Dictatorship: Theoretically one person one vote, but in reality, big holders have 1 million tokens, while small holders only have 1. Voting is often determined by big holders, which is worse than traditional democratic systems.

❌ Regulatory Ambiguity: Once the DAO loses money, no one can be held accountable. You cannot find a specific person in charge, and legally it is also a gray area.

❌ Code is Law: If the contract is poorly written, a single BUG can ruin the entire DAO. Some DAOs have had their treasury emptied due to code vulnerabilities.

❌ Low Participation: When the voting threshold is high, no one votes; when the threshold is low, it is easily overwhelmed by the herd effect. Many DAO voting rates are only 5%-10%.

❌ Cold Start Difficulty: New DAOs often have their tokens highly concentrated in the hands of the founders. It appears decentralized, but in reality, it is still controlled by the founders.

Future of DAO?

The Web3 boom will continue to drive up the popularity of DAOs. But the key is to solve the trust issue—how to make DAOs truly decentralized, make efficient decisions, and manage risks. This is the core topic for the future.

Currently, protocol-based DAOs (Uniswap, Aave) are the most mature, as their voting results directly influence the flow of funds, and the incentive mechanisms are clear. Social and artistic DAOs are still in the experimental stage, and their appeal may be limited.

Conclusion: DAO is not some magical tool; it is a way to implement democratic decision-making through code. The advantages are transparency and decentralization; the disadvantages are low efficiency and susceptibility to manipulation by large holders. It is suitable for those who trust the community and are not afraid of slow processes. If you want to make quick money, DAO may not be the optimal choice.