Honestly, I’ve been thinking for a long time about how to explain what a DAO is without too much academic jargon. Because most descriptions sound like a textbook, but the essence is simpler: it’s an organization without a boss, where decisions are made by the community through voting.

Here’s the logic. A DAO is essentially an online organization owned and managed collectively by its members. Everything operates through smart contracts — these are blocks of code that automatically execute under certain conditions. Whoever owns the DAO tokens has the right to vote. No CEOs, no hierarchies. Proposals are put to a vote, and if approved by the majority, they are executed. Everything is transparent, all recorded on the blockchain.

What I like about this model is the lack of need to trust people. In traditional companies, you have to trust management not to embezzle your money. Here, you only trust the code, which is open to everyone and can be verified before deployment. Once a DAO is deployed, every action requires community approval and is fully auditable.

The story of The DAO in 2016 is a good lesson. The project raised $150 million USD in Ethereum, launched on April 30, 2016, but a few days later, a vulnerability was found in the smart contracts. Hackers stole over $60 million. That was about 14% of all ETH in circulation. The Ethereum community was divided: some proposed a soft fork to block the attacker’s addresses, others argued that the funds were obtained “legally” according to the contract rules. Ultimately, they implemented a hard fork, rolled back the network history, and returned the funds to investors. Those who disagreed moved to Ethereum Classic.

But the problems remain. DAO is still a new technology with security concerns — vulnerabilities in smart contracts are hard to fix even if discovered. Legally, DAOs are in a gray area: they can be spread across multiple countries, and there’s no unified legal framework. In 2017, the SEC already stated that The DAO violated securities laws.

However, in recent years, DAOs have gained popularity. DeFi applications use DAOs for full decentralization. Dash is considered the first true DAO with a governance mechanism where token holders vote on fund usage. In 2020, lending protocols launched governance tokens through liquidity mining — anyone interacting with the protocol receives tokens. Other projects quickly copied this model.

Today, DAOs are a well-defined concept and are becoming increasingly popular. Some organizations are gradually moving away from centralized control, transferring power to the community. Over time, as legal issues are clarified, DAOs could revolutionize corporate governance. An exciting time.