What is a Decentralised Autonomous Organisation (DAO)?

Putting your money in a conventional investment management firm means trusting a third party with your wealth.
At the end of the day, how do you know if your money is in safe hands? It could potentially be a Ponzi scheme, or worse the managers could flee with all the money and without notice.

How do smart contracts solve this problem?

What is a DAO?

Imagine an investment management firm where shareholders do not have to trust any fund managers with their money: because shareholders would be the managers.

Well, it’s possible, and it’s one of the outcomes of a Decentralised Autonomous Organisation (DAO).

A DAO is a leaderless entity that runs on a set of rules programmed by smart contracts.
It automates interactions within an organisation and gives a right to its token holders: either by governance, claim on dividends or access to a portfolio.

Through a voting system, DAO members can interact amongst each other and manage the organisation’s funds without trusting anyone but similar investors.

The same way Bitcoin does not require an intermediary in a transaction and offers an alternative to the current financial system, a DAO can make companies operate without a complex hierarchical system and manual processes.

It digitalises and automates a pre-defined set of rules for organisations: it is not confined to financial interactions but can be applied to any sort of decision or governance problematic.

The goal here is to make decision-making more transparent, efficient and collaborative.

Since a DAO is built on programs, changing the purpose or some pre-defined operations can be deemed complex as the rules are set in stone.

If a smart contract has a bug, developers may not be able to fix the issue. As such, depending on how smart contracts are built, they could be immutable and therefore jeopardise the utility of a DAO, in case a programming mistake occurs.