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DAO

An organisation run by rules in smart contracts, where token holders vote on decisions instead of a board or chief executive.

A DAO (decentralised autonomous organisation) is an organisation that follows rules written in smart contractsSmart contractA program that runs on a blockchain and automatically carries out what it was written to do once certain conditions are met. on a blockchain. Instead of a board and a chief executive, its members vote on decisions, and the shared treasury can't be touched unless a vote allows it.

How does a DAO work?

Voting rights usually come with a governance tokenGovernance tokenA token that gives voting rights over a DeFi service's rules and treasury. It is not a share and gives no ownership stake or right to dividends.: the more tokens you hold, the more your vote counts. The process typically goes like this:

  1. Someone puts forward a proposal, and it is discussed on an open forum.
  2. A poll held off the blockchain shows whether the proposal has support.
  3. A formal vote takes place on the blockchain.
  4. If enough people take part and a majority approves, a smart contract carries out the change automatically after a short waiting period.

The Aave DAO is one example. Holders of AAVE tokens vote on matters such as which cryptocurrencies can be used as collateral, risk settings and how Aave's funds are spent. The on-chain vote runs for three days, and approved changes take effect after a waiting period of one or seven days, depending on their type.

The DAO of 2016

One of the first organisations of this kind was simply called The DAO. It was meant to invest in new projects according to the votes of those who put money into its fund. In June 2016 an attacker exploited a bug in its code and drained more than 3.6 million ETH. To recover the funds, Ethereum's rules were changed on 20 July 2016. Part of the community rejected the change. With this ForkForkA change to a blockchain's rules; if not every node follows the change, the chain can split into two separate chains, each with its own coin. the chain split in two, and the old chain lives on as Ethereum Classic.

The legal status of DAOs is unclear in many countries. In some places, such as the US state of Wyoming, laws have been passed that let them register as companies. In 2023 a US court found that Ooki DAO could be held liable for breaking the law, like any other party.

Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.