Decentralization Fundamentals

Module 3: What is a DAO?

From this module, you will understand the concept of decentralized autonomous organizations (DAOs) and how they operate based on the principles of decentralization and utilizing smart contracts.


A DAO (Decentralized Autonomous Organization) is an entity that operates based on predefined rules programmed into smart contracts. Similar to traditional companies and societies, DAOs perform tasks, gather people around common goals, but they lack a hierarchical structure. Voting among participants, who are holders of the native tokens of the DAO, is conducted for decision-making.

A DAO can be either open or closed to new participants. In the former case, native tokens are freely distributed and can be acquired by any user, while in the latter, membership is granted only to candidates who have passed verification.

The key advantage of a DAO is addressing the principal-agent problem, where an agent may act in their own interest rather than the best interest of the principal. In a DAO, this problem is non-existent as decisions regarding the organization's operations are directly made by the participants, eliminating intermediary agents.

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