Decentralized autonomous organizations (DAOs): what are they?

Decentralized Autonomous Organizations (DAOs) are a type of community-driven governance system. They are very different from typical companies in terms of their organizational structure and ability to operate independently of both third parties and government businesses.

In light of the aforementioned, the following characteristics of a DAO are listed:

Non-hierarchical system: Unlike hierarchical systems, which are owned and managed by presidents, managers, and executives, DAOs are decentralized systems owned and managed by token holders.

Multiple use cases: DAOs can be anything thanks to their mechanisms, which enable the development of NFTs (Non-Fungible Tokens), digital tokens, or decentralized applications (dApps).

Self-sustaining: By staking their tokens in liquidity pools, DAO participants add liquidity to the system. To draw investors and venture capital firms, they might also advertise a crowdfunding campaign.

On-chain governance: To submit suggestions for protocol changes or other sorts, DAO members must stake a particular number of tokens. Other DAO members then vote on the proposals.

Open source: DAO’s rules are stored as written code in its public, viewable smart contract. Each DAO member has access to historical information on transactions and protocol changes.

How Do DAOs Function?

The foundation of a DAO is a set of smart contracts, which are digital contracts created to execute when specific criteria are met.

To create an autonomous system that conducts activities autonomously and without the assistance of a third party, developers construct the necessary code for the smart contract. Following a suggestion made by a qualified member and approval by a vote — the standards for which can vary from one DAO to another — this code can then be changed.

DAOs can be used for a variety of purposes, including lending and borrowing, crowdfunding, decentralized trading, and even NFTs. DAOs are very appealing to the crypto community because of the potential uses they could have outside of the DeFi area as well.

Despite the significant advances, the technology and legal framework of the existing DAO paradigm are both constrained. Security weaknesses are still tough to prevent, and breaches can have severe effects on shareholders. Here are a few restrictions:

Technical flaws include manipulation, voting process flaws, and security issues in the smart contract code.

The group’s lowest common denominator could suffer from majority voting.

If a DAO is created as a for-profit business, regulatory restrictions prevent it from efficiently allocating resources and advancing the ecosystem.

With the rise of the decentralized space came several potent projects, and The DAO had the potential to upend traditional finance’s hierarchical structure by replacing it with a democratic, community-governed one. To fully expand the potential of decentralized autonomous groups, there is still much work to be done.

About us:

NFT Labs is a web3 company exploring big ideas in community, utility and engagement to push the crypto, NFT and metaverse space forward. To learn how your organization can participate in the web3 revolution, write to us at

We’re backed by leading blockchain institutions including Longhash Ventures, Antler, Oracles Investment Group, and Shima Capital among others. NFT Labs is also the issuer of the MYNE token ($MYNE), a BEP-20 utility token for Itsmyne and partner applications. MYNE serves as the gateway between traditional social media and blockchain-based social economies.



Fun NFT products for the world

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store