DAOs- the ABCs explained

In your day-to-day lives, you must have come across information and all kinds of news related to some ABC or XYZ company, their CEOs, shares, etc. But have you ever thought of the possibility of existence of some organization which is not constituted by the above elements?

“Decentralized Autonomous Organization (DAO)” defined

/diːˈsɛntrəlʌɪzd ɔːˈtɒnəməs ɔːɡənʌɪˈzeɪʃn/
An emerging structure characterized by the absence of a central governing body and where all its members contribute towards its development and expansion.

Evolution of DAOs 📈

In the 1990s, Werner Dilger first came up with the term DAO and in 2014, Vitalik Buterin used the term officially, labelled DAOs as “entities”.
They are decentralized in the sense that unlike a traditional company, there are no CEOs or a central governing body here and these are solely based on self-governance. 👩🏼‍💻 The rules for its management can preferably be laid down through smart contracts, built on open-source blockchains.
Just like any other technology (even blockchain) DAOs didn’t just drop-down from the sky one day. 👀 Three main steps- DAO 1.0, DAO 2.0, DAO 3.0- are associated with their evolution.

1️⃣ DAO 1.0

This era of DAO evolution was accompanied by Bitcoin and the ‘pre-digital revolution’, i.e. before anyone had heard about the blockchain technology around 1997. Werner Dilger, as mentioned above, propagated this idea of DAO through his articles. 📃
With the creation of the Bitcoin network, the first DAO powered by a blockchain came into existence. In present times, however, Bitcoin is no longer considered to be a DAO because the network is not compatible with smart contracts. 🙅🏼‍♂️

2️⃣ DAO 2.0

The second phase in the evolution brought with it the onset of blockchain-based smart contracts and the credit has been given to ‘Dash Network’. Dash became the first cryptocurrency DAO to have self-funding and self-governance. Their two-tier masternode network paved the way for more decentralization across dApps.
dApps are centered around smart contracts which allowed proposals, voting, delegation of tokens, etc., making coordination amongst members easier.

3️⃣ DAO 3.0

The infrastructure of DAO expanded considerably by the third phase. In 2016, the first DAO built on the Ethereum blockchain was introduced and was called “The DAO” (didn’t even put any effort in naming it 😂).
“The DAO” in 2016 (Source- Medium)
“The DAO” in 2016 (Source- Medium)
Innovations and inventions of relevant tools and other mechanisms was done to make management, polling, operations, etc. less pricey and easier. 😎

How are DAOs different from companies? 🤨

notion image
The main difference between DAOs and traditional companies is in the ownership.
It must not be news to you that all companies have an owner, a CEO, director, etc. This means that there is a whole group of ‘powerful people’ at the top who run the company by taking important decisions and simply implementing them with very less or no involvement of their employees. 👩🏼‍💼
Meanwhile, DAOs are formed by a group of people from literally any country or state who have a common aim and there is no such concept of concentration of power in one or few hands at anytime. 🤝🏼 Everyone is an equal party to decision-making and its implementation is also taken care by all. Say in decisions depends on the governance model of the respective DAOs. Usually, all members of a DAO are a party to decision making, giving them a ‘voice’.

Onboarding of DAO members vs. company employees 🏷

For becoming an employee in a company, one might need to submit assignments, clear a few rounds of interviews, submit portfolios, etc. 📝
None of the abovementioned stuff is required to join a DAO. One thing common between DAOs and company is that each DAO or company might have differing onboarding processes. Earlier many DAOs used to release their own governance tokens and someone wanting to join them had to purchase those tokens. Others would do the onboarding through recommendations from core team members or based on certain contributions, etc.

Organizational structure of DAOs vs. Hierarchical structure of companies

This feature has been and will be re-emphasized upon again and again. A company always needs to have (or just has) a governing body at the top.
There is an hierarchy with respect to the positions people within that company or organization are supposed to hold (CEO- directors- managers- shareholders).
DAOs are not constituted by any kind of hierarchy. The main feature and advantage of these decentralized organizations is the fact that everyone shoulders responsibilities as per the requirements and individual work ethos within a DAO. A whole group of participants here serve both as the leader as well as the governing body. 👨🏿‍🤝‍👨🏿

Decision making in DAOs vs. companies 👩🏼‍⚖️

Suppose that you are the owner of a company and there are certain things going on within the organization that, in your opinion, are hindering the growth of your company. Being an associate, you would report the issue along with suggestions to the manager. The manager will communicate it to the higher authorities, provided that person is open to criticism. Otherwise your opinion may just not be considered. 🤔
Decision-making revolves around expertise and seniority. This decision is then communicated to your employees and they have to follow those orders if they want to keep their jobs! 😈
Now, consider a second scenario. You and your group of 10 friends are running a DAO. You are faced with the problem of, say, management. Instead of one of the members declaring himself/herself as the ‘head’ or ‘leader’, it becomes each and everyone’s responsibility to come up with a solution.
No one is to be excluded from these decision-making processes and the decisions cannot just be imposed on other members by one. This process might be automated due to AI and smart contracts. However, many DAOs are run through Discord.

Contribution in DAOs vs. climbing the ladder in a company 📈

Working with a traditional company requires all employees to climb the “corporate ladder” in the sense that one has to keep moving towards the upper rungs in the form of promotions with time and experience.
Different companies have different kinds of ladder, depending on their work culture. Moving up the ladder is directly linked with the provision of job satisfaction and higher pay.
In the context of DAOs, there are no such notions of promotions or hierarchy. The kind of contribution a member is expected to provide here is in the form of the amount of time a member can dedicate to the organization.
For this, they need to be an active part of any or most of the community activities, join the important projects and teams, and gradually try to become a ‘core’ contributor. But before all this, you first have to join a DAO and start making even the smallest possible contributions- ranging from creating content to its promotion on social media. 💻

Compensation in DAOs vs companies 💰

Compensation basically refers to the fiscal benefits provided to employees by companies in return for the work performed. Different companies have their own policies for compensations depending on their business goals, needs, resources, etc. and the purpose behind them is largely to expand the company by providing incentives to the employees for doing the needful.
In the case of DAOs too, the way of providing compensation varies. For instance, those DAOs which are based around governance tokens pay their members in those tokens itself for their contribution and some even do so in some fiat, cryptocurrency (Bitcoin, Solana, etc.), or any monetary value (INR, USD). It all depends on what kind of resources the DAO has in store. 💸

Why DAOs? 🤔

After reading the information above, you might be thinking- “ still I want to know some good reasons for believing why DAOs are better”. Okay, here you go! 🚀
Firstly, DAOs enable people with a common motive and cause to come together and vote for any decision within an autonomous organization. So, it might be well-suited for a group of small “like-minded people”. 🤝🏼 This provides incentive to the members to improve and expand their DAO by working whole-heartedly on a project.
Then, you must have come across cases where funds are manipulated by some central authority. 💸 DAOs prevent this kind of mishandling of funds by making the ’balance sheets’ available on the public blockchain, thus facilitating the members in keeping an eye on any transactions made. This makes DAOs the first choice for fundraising purposes. For example, Charity DAO is one such example of an organization that holds fundraising activities.
DAOs also provide easy access to people sitting in any part of the globe along with an anonymity to respect user privacy. This must have been done with the purpose of forming communities of people coming from different walks of life. You can have interactions with members belonging to Canada while you yourself work from India.
Members get to know what changes are being implemented. In other words, DAOs make the work environment more democratized and welcoming, and the various related processes transparent. Depending upon the culture of a particular DAO, members may get a say in decision making and the contribution made by them is well-balanced too!

Almost there!

By now you must have understood that your traditional companies are not the only forms of organization that exist. At the same time, it should not be interpreted that DAOs are better than other companies in all respects. Everything has pros and cons and both are necessary to maintain a balance by doing the respective works suited as per their culture and needs.
Now we can proceed to learn about the different types of DAOs that exist!

Dive deeper

  1. The Evolution of DAOs | Tally
  1. What is a DAO? Theory Guide and Practical Application in Business | Ergonized
  1. Decentralized Autonomous Organization (DAO) | Investopedia
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