What Is A DAO And How Do They Work? by ConsenSys
ConsenSys explained what is DAOs, how they work, and how to get involved in them will help.
A DAO, or “Decentralized Autonomous Organization,” is a community-led entity with no central authority. It is fully autonomous and transparent: smart contracts lay the foundational rules, execute the agreed upon decisions, and at any point, proposals, voting, and even the very code itself can be publicly audited.
Ultimately, a DAO is governed entirely by its individual members who collectively make critical decisions about the future of the project, such as technical upgrades and treasury allocations.
Generally speaking, community members create proposals about the future operations of the protocol and then come together to vote on each proposal. Proposals that achieve some predefined level of consensus are then accepted and enforced by the rules instantiated within the smart contract.
Familiar hierarchical structures seen within large corporations give way to community collaboration under this framework. Each individual member of the DAO oversees the protocol at some level.
🔹How does a DAO work?
The rules of the DAO are established by a core team of community members through the use of smart contracts. These smart contracts lay out the foundational framework by which the DAO is to operate. They are highly visible, verifiable, and publicly auditable so any potential member can fully understand how the protocol is to function at every step.
Once these rules are formally written onto the blockchain, the next step is around funding: the DAO needs to figure out how to receive funding and how to bestow governance.
This is typically achieved through token issuance, by which the protocol sells tokens to raise funds and fill the DAO treasury.
In return for their fiat, token holders are given certain voting rights, usually proportional to their holdings. Once funding is completed, the DAO is ready for deployment.
At this point, once the code is pushed into production, it can no longer be changed by any other means other than a consensus reached through member voting. That is, no special authority can modify the rules of the DAO; it is entirely up to the community of token holders to decide.
About ConsenSys
ConsenSys is the software engineering leader of the blockchain space. Our full-stack Ethereum products help developers build next-generation networks and enable enterprises to launch more powerful financial infrastructure.
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