A DAO is a decentralized autonomous organization that cooperates according to transparent rules encoded on the Ethereum blockchain, eliminating the need for a central, administrative entity. Any member can propose an idea or project, which is then voted on by the DAO’s members.
If the proposal is approved, it is funded by the DAO’s ether balance.
The first and most famous DAO was launched in 2016 and was quickly hacked, losing $50 million worth of ether. The hack exposed a flaw in the DAO’s code that allowed the attacker to siphon off funds.
The incident led to a hard fork of the Ethereum blockchain, with the original chain continuing as Ethereum (ETH) and the forked chain becoming Ethereum Classic (ETC).
Since then, several other DAOs have been launched with more robust governance models. These organizations are often created to fund specific projects or to serve as decentralized venture capital firms.
Some popular examples include MolochDAO, which funds development of Ethereum infrastructure, and MetaCartel Ventures, which invests in early-stage Ethereum startUPS.
DAOs offer a new way of organizing and cooperatings that is powered by code rather than centralized decision-making. By eliminating the need for a middleman, DAOs can be more efficient and transparent than traditional organizations.
However, they also come with risks, as the loss of funds by the original DAO demonstrated. For this reason, it’s important to carefully consider whether a DAO is the right structure for your project or business before launch.