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What Are DAOs? A Powerful Guide for 2025

If you are even slightly interested in crypto, you must have heard words like DAO, DeFi and DEX.

One thing is common in all of these there is a D in all of them.

This D means decentralization.

DAO means Decentralized Autonomous Organization.

It means a team that runs without any boss and everyone takes decisions together.

What is DAO?

DAO means Decentralised Autonomous Organisation.

This is a community where people come together to take important decisions about a service or platform.

All these people are connected on the blockchain. Blockchain is a system which is the center and public record of the crypto network.

Now let us understand this word in three parts:

Decentralised: There is no leader or boss in DAO. Every member can give his opinion, everyone’s voice is equal.

Autonomous: This system is run in such a way that the community itself decides which way the project should go. There is no need for any outsider or third party.

Organization: DAO is also an organization, but in it everyone takes decisions together. The community has a share in every decision.

In normal companies, only the bosses take major decisions and the employees have to obey.

DAO ends this system and gives everyone equal rights to take part in governance.

History of DAO

Some people mistakenly say that Bitcoin (BTC) was the first DAO, but this is not true at all.

Actually the idea of ​​DAO came into the crypto world when Ethereum (ETH) and smart contracts were introduced in 2015.

Smart contracts are codes that you operate on your own, like digital contracts.

These smart contracts form the main system of DAO, due to which DAO works.

The name of the first DAO was The DAO.

It was a venture capital fund where members decided where to invest the money by voting.

This DAO raised a total of more than $150 million.

But unfortunately there was a bug in the smart contract due to which it got hacked.

Still it has been proved that a system like DAO can work in real life too.

How do DAOs Work?

Technically, DAO runs on blockchain. This means that every transaction and vote is recorded on the blockchain, so that everything is clear and everyone can see it.

Smart contracts set the rules and systems of DAO, so that everything runs in a proper way. In real life, DAO has a voting system which depends on governance tokens. When a new DAO is formed, new tokens are created. Whoever has this token becomes a member of that group and gets the right to vote.

How is the decision taken?

  • Members get together and post proposals on their forum or in chat.
  • Proposals that are worthy of being passed are put to a vote.
  • Token holders vote YES or NO for a few days.
  • Some DAOs also have an objection stage where people express their objection.
  • If more than 50% of people vote YES, the smart contract is activated and the proposal is implemented.

DAO Voting Mechanisms

The aim of every DAO is to make every member’s voice heard, but every DAO uses its own different voting system. Every system has its own advantages and disadvantages.

Quorum Voting

This is the most basic and most used system. It requires full participation of the community.

A proposal is passed only when a certain number of people vote on it. This number can be different everywhere, but is often more. Therefore, getting the proposal passed becomes a bit difficult.

The good point is that the value of the token does not matter much in this system. Even if someone has more tokens, his vote is not very important.

But the bad point is that some people can secretly influence others by using their tokens. Due to this, this system can sometimes fall into the hands of wrong people.

Quadratic Voting

This system totally depends on the token. The more tokens someone has, the more times he can vote.

Usually, votes are equal to the square of the token. Like if 1 token means 1 vote, then 4 tokens will mean only 2 votes. And 3 tokens can mean 9 votes.

The advantage is that if a member likes an idea very much, he can show support by contributing more tokens. And if someone does not like the idea, he will use less tokens.

But the disadvantage is that rich people can control the system by purchasing more tokens. And sometimes it is difficult to understand whether they are serious or not.

Holographic Consensus

Because every member can make a proposal, there is a line of ideas in DAOs.

This system solves this problem. The first proposal goes into a ‘prediction market’. Where members guess whether it will work or not, and stake their tokens.

If their guess is correct, they get an extra token. And if the guess is wrong, the token is lost.

This is why people do not make predictions just for fun. Every guess has to be made thoughtfully, which shows the true view of the community.

Multi-Sig Voting

This system creates a balance between decentralization and centralization. It is often used only during emergencies or important times.

In this model, members suggest proposals, but the final vote is taken by a small committee.

This method is fast but it also carries risk. The committee can take wrong decisions if there is no trust

Different Types of DAOs

Now that we understand how DAOs work, let’s see what types of projects they are used for.

There are 4 main types of DAOs.

Protocol DAOs As the name suggests, these DAOs give control of a protocol to the community in a decentralized way.

Protocols are actually DeFi apps that provide financial services to people, such as taking a loan or trading.

DAO token holders meet and decide how to upgrade the protocol or make it more secure.

Famous examples:

  • MakerDAO
  • Uniswap DAO
  • Aave

Collector DAOs

These can also be called NFT fan clubs. These communities pool money to buy a specific NFT collection.

Members vote on which NFTs to collect, and then become partial owners of that NFT. Not every NFT is unique like PleasrDAO, which owns a rare music album.

Famous examples: Flamingo DAO PleasrDAO Jenny DAO Unicorn DAO

Investment DAOs

These DAOs work like investment funds where many people come together to invest. The difference is that there is no central boss.

The community votes where the money should be invested so that a profit can be made. OrangeDAO invests up to $100,000 in Web3 startups, which helps in making new apps.

Famous examples: OrangeDAO Alliance DAO VitaDAO

Grant DAOs

This is the opposite of investment DAOs. In Grant DAOs, token holders vote on who should be supported like developers or new projects.

Sometimes these grants are within the platform, and sometimes they are given to outsiders. For example, UniSwap DAO gave out a $46 million grant to improve their system.

Popular examples:

  • UniSwap DAO
  • Aave Grants DAO
  • Gitcoin DAO

Pros and Cons of DAOs

DAOs have proven that an organization can run without an intermediary. But because DAOs are new, they sometimes fail to reach their goals.

Advantages of DAOs

Democratic foundation: To join a DAO, only a governance token and the internet are required. Every decision is taken by the community together, there is no boss.

Personal participation: When you have a voice in the decision of a project, you take more interest. This way people are more active in Web3.

Transparency: Every vote is cast on the blockchain, which is visible to everyone. This ensures that nothing is hidden.

Operates 24/7: DAO is online, and people from every corner of the world are always active. This makes work faster.

Low fees: DAO runs on smart contracts, so there is no team of people behind who take money. So it is cheap.

Disadvantages of DAOs

Security problems: Smart contracts sometimes contain bugs which can be exploited by hackers. So it is important for developers to write secure code.

Law issue: The rules for DAOs are not clear. The government does not understand how to handle DAOs. That is why anything can happen in the future.

Voting takes time: When everyone votes together, it takes a lot of time, and this delays new updates.

Technical things: DAO is a bit difficult. You should have some knowledge of Blockchain and Dapps so that you can understand and improve it.

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