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In DeFi, almost every project has a DAO. DAO, or Decentralized Autonomous Organization, is
one of the most popular crypto systems and represents one of the most innovative
developments in decentralized finance.
Decentralized organizations are structures less complicated than it might seem: consider them
as a replacement for traditional organizations, where actions are automatized, rules are pre-set
and must be respected, people have participation and voting rights according to the number of
tokens they own — and this makes it possible to participate anonymously.
Throughout this article we’ll review all aspects of DAO, from what it is to the pros and cons.

What are Decentralized Autonomous Organizations?
DAO stands for decentralized autonomous organization.
The name says it all: the meaning of DAO can be found in all those groups of people coming
together to accomplish a common goal.
These, in very simple terms, are DAOs. These organizations are internet-based and people who
participate don’t necessarily need to know each other — in line with one of the main principles
of DeFi, privacy.
The focus is on decentralization: cryptocurrencies are by nature decentralized assets, and a
group of people, inspired by this kind of distribution, came up with the idea to use
decentralization not only for financial assets, but also to replace traditional organizations — but
we will talk about this group of people later.
However, also some CEXs are developing their own DAOs — so, this kind of organization might
not be limited to DeFi in the future.
Everyone who joins a DAO has a common purpose, and may not necessarily have anything to do
with financial institutions: there are countless DAOs that do anything from collect NFTs to
manage charities.

The most significant feature of these organizations is that there are no leaders: every participant
can vote on proposals and decide on the future of the organization.
As part of the DeFi space, the backbone of these organizations is represented by smart
contracts. A DAO is created from a smart contract that not only sets rules, but also collects funds
to reach a common goal. For more information on smart contracts, please go to my channel and
found the video with what is smart contract title .
A DAO is actually self-funded, in the sense that each participant contributes to the treasury of
the organization. But there are different kinds of self-financing:
DAOs can be token-based: anyone can buy the crypto that fuels the organization and become a
member, and will have voting rights according to the amount of tokens they own. These DAOs
are usually fully permissionless
You can also join a share-based DAO by submitting an application. If the application is accepted
by the community, you’ll be asked to purchase a minimum amount of tokens, and you’ll have
voting rights according to the number of tokens you have. A very popular DAO, Friends With
Benefits, is an example of a share-based DAO.
But to better understand how it’s possible to manage an organization without any central
authority, let’s have a look at the elements that make up a DAO and how it works.

How Do DAOs Work?
First off, let’s see how a DAO is made.
These are the elements common to any DAO:
Structure to reach the common goal: this first step is of course dependent on someone having
an idea, so there is always a team or individual behind the project. The organization needs to set
a goal, think about the rules that will govern the organization, the budget that may be required,
how to reward participants, what should be the characteristics of the token used, and how to
pass proposals.
Smart contracts: as we said, they are the backbone of the whole DeFi space. These pieces of
code allow developers to set rules that, if not met, would prevent any blockchain-based
operation from being executed and finalized. Smart contracts not only contain the rules that will
manage the organization, but also allow for the creation of the token that will be used by the
DAO.
Treasury: any project requires funds. DAOs issue crypto tokens that will be used to attract
investors: they will represent the part of the treasury owned by each participant, as well as the
allocation of voting rights.

Community: people can participate in DAOs according to the structure of the organization — as
we mentioned, DAOs can be either permissionless or ask for applications that need the approval
of the other participants. Participants will be able to make decisions concerning the DAO, to
approve proposals or new participants, or decisions on how to spend the funds of the
organization.
#Crypto #DeFi #DAO #andcrypto

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