DAO cryptocurrency, or Decentralized Autonomous Organization, is a self-governing system built on blockchain and controlled by code. A defining feature of a DAO is the absence of a central authority; the system operates without unilateral decisions. There is no hierarchy in a DAO—every user has equal rights and can vote on any changes to the project.
Let’s take a closer look at what a DAO is in cryptocurrency. But first, a bit of history.
When Did DAO Emerge?
The Decentralized Autonomous Organization concept emerged with the launch of Ethereum, the first blockchain platform to implement smart contracts. These contracts enabled the development of autonomous systems governed by code rather than people—reducing the risk of manipulation.
Smart contracts also allow users in decentralized systems to conduct transactions without intermediaries. These systems include DeFi protocols, DApps, DEXes, and DAOs.
In 2016, the project “The DAO” became the first platform to implement DAO principles. However, the same year it was hacked due to a vulnerability in the smart contract, resulting in the theft of over 3.5 million ETH worth more than $48 million.
This incident led to a hard fork of the Ethereum network and the creation of Ethereum Classic (ETC). ETH and ETC now function as separate networks with their own blockchains.
Features of Decentralized Autonomous Organizations
In a DAO, all decisions are made by the community. Any member can propose changes or improvements. If the majority votes in favor, the change is accepted. Creators cannot implement changes unilaterally—they can only add new code after voting.
In a DAO, the code acts as the administrator, but actual decisions are made by participants. The code simply executes them. All transaction data is recorded on the blockchain, providing transparency and traceability.
Another notable feature is its architecture. DAO cryptocurrencies are built on a peer-to-peer (P2P) structure, meaning there are no users with more or fewer rights than others.
A DAO Is Just a Governance Tool, Not the Entire Project
A common misconception is that a DAO represents an entire project governed through DAO principles. This leads people to label Dash, blockchain-based social network Steemit, virtual world Decentraland, and decentralized exchanges as DAOs. In reality, a DAO is a decentralized governance infrastructure.
For example, the Uniswap DEX itself is not a DAO, but its governance body https://gov.uniswap.org/ is considered a DAO. The same applies to Decentraland; the platform is not a DAO, but its governance structure https://dao.decentraland.org/en/ is.
Since a DAO lacks hierarchy, it relies on alternative models such as token-based membership. Governance tokens can be bought and sold on DEXes, earned by providing liquidity, or received through mining. Holders of such tokens have voting rights on organizational development.
DAO Cryptocurrency: Advantages and Disadvantages
| Pros | Cons |
| No hierarchical structure. All changes are made only after user voting. | Regulatory difficulties. The main downside is legal ambiguity, which prevents DAOs from being adopted by traditional organizations. Once implemented, the system becomes uncontrollable. |
| Decentralization and transparency. No intermediaries. All transaction history is accessible. | Risk of vulnerabilities. Despite blockchain’s strengths, flaws may exist in protocols or smart contracts. |
| Autonomy. After launch, the system operates independently of any overseeing body. Smart contracts ensure compliance. | Efficiency issues. DAOs are efficient for major changes but may hinder minor updates. A hybrid model may be more effective with well-distributed responsibilities. |
| High processing speed thanks to blockchain technology. | |
| The core idea of DAO in crypto is peer-to-peer collaboration toward a common goal, without the need for trust. |
Types of Decentralized Autonomous Organizations
- Protocol DAOs — use smart contracts to allow users to exchange crypto and help launch new tokens.
- Grant DAOs — the first DAOs where users contributed funds to vote and suggest platform improvements.
- Investment DAOs — aim to generate profits. Users can form investor groups to enter high-capital projects collectively.
There are also Service and Operating DAOs. Service DAOs distribute labor across DAO projects using blockchain. Operating DAOs act as systems built on blockchain for creating and managing new DAOs.
Popular DAO Projects in Crypto
- Ethereum — one of the first platforms to implement autonomous smart contracts.
- Uniswap — a leading automated market maker combining exchange and decentralized protocol features, allowing users to provide liquidity.
- MakerDAO — the first platform to launch DAI stablecoins (ETH-based, USD-pegged). DAI tokens can be created using ETH or other assets.
- Dash — introduced “masternodes” with expanded authority to control and upgrade the protocol.
- Compound — a major decentralized lending protocol. Holders of COMP tokens vote on protocol changes.
Conclusion
DAO-based cryptocurrencies allow organizations to build more efficient systems to solve various tasks.
Currently, DAO in crypto is still evolving, and in the near future, more capable and feature-rich platforms are expected to emerge.
Read more in the cryptocurrency section.