What is a DAO?

A DAO (Decentralized Autonomous Organization) is a web-based organization of individuals governed according to pre-established, encoded rules.

How does it work?

The rules, decisions, and treasury of the DAO are tracked and managed on the blockchain, which provides maximum transparency and enables everyone to collaborate with confidence. Though the governance structure - including, how much voting power you have - can vary from DAO-to-DAO, typically, actions taken by a DAO are decided upon by the collective through a blockchain-based vote, rather than by central leadership.

Because everything is managed on the blockchain, DAO participants can be pseudonymous. It's worth noting that just because technology allows participants to join a DAO from essentially any geography, and with varying degrees of anonymity, they are not necessarily exempt from the local and federal laws of their homeland.

Is it legal?

We cannot offer any legal advice. At its core, a DAO is simply a technology deployment that allows for transparent collaboration and collective governance on the blockchain. What people do with it is entirely up to them. Depending what you do with your DAO, and where you operate your DAO, you may have legal obligations. For example, if your DAO operates as an investment DAO, then you will likely have to comply with the financial regulations of your jurisdiction.

Does this group really need to be a DAO?

Can some groups calling themselves DAOs exist without the DAO infrastructure? Perhaps, but then they wouldn't be DAOs.

While there's some debate - even amongst DAO architects - to what exactly makes a DAO a DAO, essential elements include transparency in decision-making and treasury management, and the ability for all members to have a voice.

In the "real world" you can't know for certain if your investment is in the hands of someone whose incentives are aligned with yours. You can't even know if the investment is actually there (e.g. Bernie Madoff). In a DAO, contribution amounts and ownership percentages are visible.

A typical organization can't offer timely transparency into how its funds are used. In a DAO, the on-chain treasury is fully visible and many DAO treasuries require signatures from multiple parties before a transaction can take place.

Most organizations are steered by a central leadership. In a DAO, governance can be owned - equally or proportionally - by all members according to pre-established governance rights, and on-chain decision-making is visible to all.

There's no single best thing about the DAO structure, but we are huge fans of the option for distributed governance, visible treasuries and decision-making, and the ability for people from all parts of the planet to collaborate towards a shared goal. Still have questions? Let us know what you want to know at [e-mail].