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Digging Deeper into How a Decentralized DAO Works

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Digging Deeper into How a Decentralized DAO Works


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Since the discovery of cryptocurrency, many technological breakthroughs have continuously developed, one of which is Decentralized Autonomous Organizations (DAO).

DAO is an organization in the world of crypto assets formed by world developers in 2016.

However, in this organization, all decisions will be determined by computer algorithms.

So, to better understand what DAO is and its advantages and disadvantages, let’s look at the following review.

What are DAOs?

DAOs are software-driven entities that operate on top of blockchain technology.

The DAO is designed to function in an automated and decentralized manner, with key decisions being taken by token holders or participants in the network.

DAO allows participants to participate in decision-making, propose changes, and contribute to projects or activities carried out by the organization.

The main advantages of DAOs are increased transparency, wider participation, and eliminating of intermediaries.

Historically, DAO became popular in 2016 with the emergence of The DAO, also known as DAO.

The DAO is the first DAO project founded on the Ethereum network. It is designed to be an autonomous entity that allows users to invest in blockchain projects and participate in decision-making.

The DAO raised $150 million in funding in a short period through a token sale.

The concept is that token holders will have voting rights in project investment decisions made by the DAO.

Each token holder will receive a share of the profits from the projects invested.

The concept of the Decentralized Autonomous Organization or DAO itself is an organizational model that is completely based on blockchain technology and smart contracts.

The DAO is designed to operate automated and decentralized without a central authority or controlling entity.

Some key principles in the DAO concept are democratic decisions, transparency, smart contract code, elimination of intermediaries, and collaborative innovation.

How DAOs Work

DAO works with several integrated components and mechanisms.

However, DAO implementation and mechanisms may vary depending on the project or blockchain network used.

Because of this, each DAO may have slightly different features and functionality.

Understanding the documentation and technical specifications relating to a specific DAO can be key to understanding a more detailed and detailed way of working.

In this case, voting and smart contracts are two key components of the DAO.

The following is a further explanation of the two, namely:

1. Voting

Voting is a mechanism used in DAOs to allow participants to cast their voices in decision-making.

Token holders or participants have voting rights in proportion to the number of tokens they own.

Voting mechanisms may vary but typically use a simple majority or percentage-based vote (proportional voting).

2. Smart Contract

Smart contracts are computer code that runs on the blockchain network and governs various functions and rules in the DAO.

Smart contracts contain the logic and rules that control the operations of the DAO, including decision-making, allocation of funds, and execution of automated transactions.

Smart contracts ensure that decisions taken in voting are implemented in a predetermined way.

Meanwhile, the organizational structure of the DAO is a different model from the traditional organizational structure.

Several elements of the DAO organizational structure include participants, token holders, decision makers, curators or managers, smart contracts, communities, and contributors.

Furthermore, using a DAO (Decentralized Autonomous Organization) has several advantages that can affect various aspects of the organization and member participation.

Some advantages of using DAOs are decentralization, security, transparency, broad participation, efficiency and automation, rewards and incentives, flexibility, and innovation.

The Relationship between DAO and Blockchain Technology

Understanding the relationship between DAOs and blockchain technology is essential because DAOs depend on blockchain technology to carry out their operations.

Understanding this is important because of decentralization, smart contracts, transparency, security, and participation and voting rights.

Understanding the relationship between DAOs and blockchain technology is fundamental to understanding how this innovative organizational model works and its benefits.

Please note that Blockchain technology is a fundamental basis for DAOs.

Blockchain plays an important role as the technological foundation for DAOs, enabling decentralization, security, transparency, automation, and broad participation in DAO operations.

By using the blockchain, DAOs can build an organizational model that is decentralized, fair, secure, and innovative.

Using blockchain technology in a DAO (Decentralized Autonomous Organization) provides several significant advantages.

Some of the advantages of using blockchain technology for DAOs, namely:

1. Decentralization

Blockchain allows the adoption of a decentralized organizational model so that no central authority controls or has full power over the DAO.

2. Security

Blockchain provides a high level of security in DAO operations so that every transaction on the blockchain is encrypted and associated with the previous block through strong cryptography.

3. Transparency

The blockchain provides a high level of transparency in the DAO so that all transactions that occur on the blockchain are permanently recorded and verifiable by all participants.

4. Efficiency

Blockchain technology enables automation and efficient transaction processing so that by using smart contracts, transactions can be executed automatically based on predefined rules.

5. Global Access

Blockchain enables widespread participation and global access in DAOs so that individuals or entities from around the world can purchase DAO tokens, participate in decision-making, and contribute to the organization’s development.

6. Innovation

The use of blockchain technology in DAOs encourages innovation and the development of new solutions. DAOs also provide an environment that allows developers and contributors to innovate and create new applications that can increase efficiency and service in various sectors.

Meanwhile, the difference between a DAO (Decentralized Autonomous Organization) and a centralized organization lies in several key aspects, namely:

  • Structure and decision making
  • Trust and transparency
  • Access and participation
  • Flexibility and change
  • Security and recovery risks

The relationship between DAOs and NFTs

Understanding the use of NFT (Non-Fungible tokens) in DAO is very important because it can provide many benefits and opportunities for members and organizational growth.

By understanding NFTs in DAOs, members can take advantage of the opportunities and benefits offered by blockchain technology and NFTs.

It will also help build the economy within the DAO ecosystem, increase member participation, encourage innovation, and create added value for the organization.

The use of NFT (Non-Fungible Token) in a DAO (Decentralized Autonomous Organization) can provide several ways to increase the overall value of the DAO.

Several ways NFT can provide benefits and increase the value of DAO, including through fundraising and funding, the economy in the DAO ecosystem, rewards and incentives, governance and voting rights, and partnerships and collaboration.

Meanwhile, examples of NFTs in DAOs can be seen in digital art collections, gaming platforms, NFT markets, exclusive access, project crowdfunding, and intellectual property licensing.

Advantages and Disadvantages of DAO

Understanding the advantages and disadvantages of this technology to make informed and effective decisions.

By understanding the strengths and weaknesses of the DAO, members, and stakeholders can make more informed decisions and manage risks that may arise.

It also enables the more effective and sustainable development and use of DAOs in various industries and communities.

Here are some of the advantages of DAO that you need to know including:

1. Decentralization

DAO enables decentralized decision-making and organizational management.

In this case, there is no single central entity that controls the DAO, but decisions are made democratically by DAO members through a voting mechanism.

2. Transparency

DAO operates on transparent blockchain technology. This means that all transactions and decisions taken in the DAO are permanently recorded and can be accessed by all members.

This transparency increases trust and accountability within the organization.

3. Member Engagement

DAO members have the opportunity to participate in decision-making and organizational development actively.

With the voting mechanism and using NFT as voting rights, members can contribute directly and feel a sense of belonging to the DAO.

4. Cost Efficiency

DAOs can reduce traditional operational costs because they do not require high physical infrastructure or central management costs.

Blockchain technology in DAOs enables transactions and more efficient operational activities.

On the other hand, DAO also faces several challenges that must be overcome to achieve success and sustainable growth.

Some of the challenges faced by DAOs include:

  • Security

Due to blockchain technology’s decentralized nature and use, DAOs are vulnerable to cyberattacks and security breaches.

Efforts should be made to protect digital assets, user information, and DAO technology infrastructure from possible threats.

  • Scalability

The DAO’s ability to manage growth and increase member numbers and activity is challenging.

Some blockchain platforms still have scalability limitations that may affect the performance and operational efficiency of the DAO as the number of transactions and users increases.

  • Decision-making

In DAO, decisions are taken through a voting or consensus mechanism.

However, this democratic decision-making process can take time, and not all members have the same knowledge or understanding of the issues.

  • Regulatory Compliance

DAO operates under a complex regulatory framework that varies across jurisdictions.

Challenges arise in ensuring compliance with applicable regulations, including consumer protection, tax, and anti-money laundering compliance.

The presence of clear and consistent regulations can complicate the development and operation of a DAO.

  • Conflict Management

Conflict management is a challenge in a DAO with many members with diverse interests and perspectives.

Decisions may affect members differently, and disagreements can lead to tension and conflict.

Effective mechanisms for dealing with disputes and reaching agreements should be implemented.

  • Awareness and Acceptance

There is still a need to increase awareness and understanding of DAO among the general public.

The DAO and blockchain technology concept is still relatively new and complex for some.

Gaining support and acceptance from society and government is challenging to develop and widely adopt DAOs.

Overcoming the weaknesses of the DAO (Decentralized Autonomous Organization) involves a holistic approach and attention to several aspects.

Here are some steps that can be taken to overcome the weaknesses of the DAO, namely:

1. Security:

  • Implement security best practices
  • Security audits
  • Education and Awareness

2. Scalability:

  • Evaluation of blockchain technology
  • Tech fix

3. Decision Making:

  • Efficient decision-making mechanism
  • Member education and participation

4. Regulatory Compliance:

  • Collaboration with regulators
  • Proactive legal approach

5. Conflict Management:

  • Conflict resolution mechanisms
  • Effective communication

6. Education and Admission:

  • Marketing and education campaigns
  • Industry collaboration

DAO example

Knowing examples of DAO that exist in the real world is important to understand the application of DAO in various industries and communities.

DAO examples are important to understand to provide an overview of DAO’s various applications and potential in various industries and communities.

Each DAO has unique goals, decision-making mechanisms, and operational models according to their needs and vision.

There are several examples of DAOs that have achieved significant levels of success, including:


MakerDAO is one example of a very successful DAO. They operate the well-known DeFi (Decentralized Finance) protocol, including the Dai stablecoin system.

MakerDAO allows users to lock up their crypto assets as collateral and generate stable Dai as loans.

This DAO has successfully created and sustained value Dai that remains in line with the goals of stablecoins.


Aave is a decentralized lending and lending protocol run by DAO.

Users can borrow and lend their crypto assets within the Aave ecosystem.

Aave DAO gives users a say in adding new assets, adjusting interest rates, and changing other parameters in the protocol.


The compound is another decentralized lending and lending protocol run by DAO.

Users can lend their crypto assets and get the resulting interest rates.

Compound DAO allows users to participate in decisions about assets that can be used as collateral, interest rates, and other decisions that affect the protocol.

Yearn. finance

Yearn.finance is a DeFi protocol run by Yearn DAO. This protocol provides a variety of automated investment strategies to optimize user returns.

Yearn.finance DAO allows users to participate in making decisions about the investment strategy, use of funds, and new product development.


Uniswap is a decentralized exchange protocol run by DAO.

This protocol allows users to exchange crypto assets without going through a third party.

Uniswap DAO allows users to participate in decisions regarding introducing new trading pairs, deleting inactive trading pairs, and other changes in the protocol.

On the other hand, there are also several examples of DAOs that have faced failures or obstacles in their operations, including:


The DAO is one of the best-known examples of a DAO but it also suffered from significant failures.

In 2016, this DAO suffered a security breach, resulting in significant funds being stolen.

This incident exposed vulnerabilities in the smart contract smart code used by DAOs and sparked a debate about responsibility and regulation in the context of DAOs.


ETCDAO, which is also known as Ethereum Classic DAO, is a DAO that runs on top of the Ethereum Classic network.

This project aims to finance the development of the Ethereum Classic ecosystem.

However, this project did not achieve the expected level of participation and support and ultimately experienced decreased activity and failed to achieve the desired objectives.

LaoMao DAO

LaoMao DAO is a DAO that aims to raise funds for blockchain and cryptocurrency projects.

Despite initially attracting the attention of many investors, LaoMao DAO has faced security issues and implementation failure issues, resulting in decreased interest and trust from the community.

As a result, the project failed and stopped operations.

The HumanDAO

The HumanDAO is a DAO that aims to provide decentralized financial solutions for financially disadvantaged individuals.

However, the project needed help in raising sufficient funds and experienced challenges in building a sustainable community.

This led to the failure and shutdown of the project.


Slock.it is a company that attempted to build a DAO in 2016 to connect Internet of Things (IoT) devices with Ethereum smart contracts.

However, the project faced significant technical and financial problems and ultimately failed to achieve the expected success.

Slock.it ceased operations, and the proposed DAO project was never implemented.

It should also be noted that the potential for future use of DAOs is vast.

Some possible opportunities for using DAOs in the future include decentralized finance (DeFi), decentralized organizations and communities, decentralized government, and digital art and collection markets.

The future use of DAOs depends on technological innovation, wider adoption, and overcoming existing challenges.

While some hurdles still need to be overcome, the opportunities and potential future use of DAOs point to an attractive direction toward a more decentralized, inclusive, and participatory economy and organization.


DAO stands for Decentralized Autonomous Organization or Decentralized Autonomous Organization.

DAOs are software-driven entities that operate on top of blockchain technology.

DAOs are designed to function in an automated and decentralized manner, with key decisions being taken by token holders or participants in the network.

Meanwhile, the potential use of DAOs in the future is vast. Several opportunities might occur in the use of DAO in the future, namely (1) decentralized finance (DeFi), (2) decentralized organizations and communities, (3) decentralized government, and (4) art market and digital collections.

On the other hand, the use of DAOs in economics and business can have significant implications.

Some implications that might occur are:

  1. Decentralized and reduced intermediaries.
  2. Transparency and accountability.
  3. Member participation and empowerment.
  4. Decentralized financing and funding.
  5. Efficient collaboration and coordination.
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