Home-Blog-What is a DAO and Why Should I Care?

What is a DAO and Why Should I Care?

What is a DAO anyway?

TLDR; A DAO is a remote, global community of empowered individuals working together with shared mission, ownership and governance. 
The longer version: A Decentralised Autonomous Organisation (DAO) is an emerging term for blockchain powered organisations. Much like traditional organisations, they seek the creation of value, but have removed the centralisation of power in this process. They possess revolutionary advantages for the next wave of innovation. The blockchain is making it possible for individuals to build digital wealth, reputation and trustless relationships. DAOs are already stewarding significant assets and operating effectively with thousands of participants. According to DeepDAO, there are over 10k organisations, out of which 2.2k are tracked and have +$9bn in their treasuries.

Breaking it DAO-n

  • Decentralised = Remote-first, global, community owned
  • Autonomous = Self-governing, reputation driven decision making
  • Organization = Working collaboratively, shared mission and purpose 

As the number of DAOs grows exponentially, there are many pushing the bondaries of what constitutes a DAO. They operate at various ends of the scales of Decentralisation and Automation. Some DAOs will start off with a couple of founders in a centralised way, and then give up more ownership (and thus decentralising) over time. There are shades of grey about the DAO definition, but the hallmarks are the same, here is a brief summary: 

  • DAOs are a way of organising individuals at scale 
  • The purpose and shared vision of a DAO is vital 
  • It’s typical for a DAO to manage a treasury of crypto assets
  • Community ownership and governance is imperative within a DAO
  • Ownership is recorded on a blockchain ledger in the form of tokens 
  • There are many types of DAO, from social communities to investment cooperatives. 

We recommend reading the Generalist’s article for a detailed dive into DAOs. 

The Power of DAOs

We have witnessed the rise of blockchain technologies providing a digital monetary system through Bitcoin. We’ve seen Ethereum shake-up the financial sector through the DeFi boom. NFTs are shaping how we store and trade digital assets. We’re just scratching the surface with the innovation made possible by the Blockchain. Many are comparing the current situation with that of the internet in the late nineties (article). As the Web3 landscape develops, we believe the biggest opportunity is within the future of work across global organisations. 

The Web3 DAO movement is driven by legitimate people seeking to create value (not just a quick buck). The blockchain technology advancement is mirrored by humans shifting their work and life patterns, taking ownership of their success and becoming startup founders and freelancers – working in or for a DAO can benefit your career, we’re sure of it. We’re at a confluence of technological capabilities and a shift in human consciousness, creating the next wave of innovation and organisational design. The age of DAOs is upon us. 

Decentralisation of ownership 

Our current organisational structures have been built from the top, to incentivise centralisation, control and ownership. Entrepreneurs and investors hoard the shares of the best organisations, creating funds to strengthen their power. Having run many startups in developed economies, such as the UK, US and Europe, it’s remarkable how difficult it is to issue shares (ownership) to employees (info here). The typical model is broken, with the law and taxation system deliberately set up to disincentivise employee ownership. Many organisations only issue options for these shares. This is not real ownership. 

DAOs on the other hand are community owned, with every individual having a tangible stake in the organisation. This is issued and tracked on the Blockchain using tokens. Comparing this to today’s situation, essentially organisations are ‘going public’ with their ownership, issuing shares to employees. Rather than waiting years for this to happen, during which time investors and founders keep shares, DAOs do this from Day 1 and share ownership with the core team. Flipping this organisational structure and approach will empower the individuals building value in the organisation. 

The decentralisation of ownership also creates many knock on benefits for organisational management and governance. No longer will individuals have to take top down directives, they can start their own initiatives in line with the overall mission. Aligning incentives in this way opens up endless possibilities for organisational growth and directions. As long as the majority of token holders agree that someone has a good idea, then budget will be allocated and teams formed. This fluid approach to organisational design opens the door to long-term thinking and big picture opportunities. Organisation members will want to keep building, not flip the shares and retire. 

The DAO token 

At the core of a DAO is its native token. Typically these are a form of utility token or Non-Fungible Token (NFT), which gains access to the organisation and participation in governance. Rules are set out in a smart contract and are immutable, except with sufficient votes via a governance protocol. There is some discussion about the need for a token within a DAO, our view is that it’s essential to have some form in place in order to benefit from the power of the Blockchain. The token is the innovative new tool to align incentives, distribute ownership and enable democratic governance. 

The remarkable effect of the Blockchain tokenisation innovation is the impact on trust between unknown individuals. The DAO token ownership is indisputable and publicly visible. This means individuals who haven’t met can trust each to work together with aligned incentives. Investors can commit significant capital to interesting projects and know their upside is aligned. The capital committed from a treasury, which can be distributed by majority vote to initiatives aligned with the shared mission. 

DAO Types and Examples  

Service DAOs 

A service DAO is much like a traditional agency or consultancy. The organisation aims to provide services to internet companies, but in a decentralised way. DAO members can work independently or collectively to trade their skills for payment (typically in Crypto). Typical services include technology development, marketing, accounting, HR, finance and legal. Growth DAO is a good example of a service DAO focused on marketing services. 

Social DAOs 

Are a social organisation to gather individuals interested in a particular cause or idea. Social DAOs can spin up rapidly, going viral and generating thousands of members. NFTs are often used to reflect the community behind a social DAO, one of the most well known is the BoredApeYachtClub – an exclusive club of crypto natives who own a variation of the NFT. 

One of our favourite social DAOs is KrauseHouse, a community of basketball enthusiasts who collaborate across IRL events with the aim to buy a professional team and bring them to the NBA. A big mission, shared by many, perhaps the collective can make it possible.  

Investment and Venture DAOs 

In the Ethereum.org blog on DAOs, the writer alludes to the obvious potential of DAOs for investment collaboration. The blockchain technology empowers individuals to pool funds together, consolidating capital and sharing ownership of assets. These crypto assets can be moved around and exchanged in order to create profit. One of the prominent venture DAOs in the space is Metacartel Ventures, a ‘classic’ Web3 organisation with notable investments like Rarible and Zapper Finance. 

Media DAOs 

Web3 communities and DAOs kick off a lot of content, from memes, to podcasts and Mirror articles. It’s no surprise that many media DAOs have popped up to create content and build audiences of their own. These organisations empower content creators by aligning their upsides with the relevancy of their content. The more engagement/readership the more rewards creators receive. 

BanklessDAO is one of our favourites. We’re avid listeners to their podcasts, it’s clearly not just us, as they’re aiming to onboard 1 billion to crypto. Initial members and premium subscribers received 35k BANK tokens as part of their airdrop in 2021. Members can now earn more BANK by writing content, editing, translating and contributing to governance. 

Charity DAOs

We all love giving to charity and supporting important causes around the world. However, the centralisation of organisational structures has led to countless inefficiencies and disingenuous activity. Wouldn’t it be better if we could collectively support charitable causes, but the funds go directly to the individuals in need and this can be publicly tracked. Well that’s now possible. Organisations such as Giveth.io make it easy for individuals to contribute to important causes, vote on funding and track donations. 

Gaming DAOs

Gamers are often the early adopters of new technology, nothing has changed with DAOs. New games are springing up, built from the ground up by their users, using open source software. Players are incentivised by ownership to play and reflect a deeper affliction with the games they contribute to and therefore own. This new Play to Earn (P2E) or GameFi model is becoming more and more popular and bringing in gamers to the metaverse.

What do DAOs Mean for Crypto? 

After the rise of crypto currencies and the decentralisation of finance, will come the age of DAOs. Entrepreneurs are coming up with ideas for new DAOs every day, using the power of the technology to transform our digital landscape. At the time of writing, the Crypto space is experiencing a deep bear market, yet many DAOs are being formed. This shows that the people behind DAOs see the long-term potential of the movement and recognise that this is the time to test many of their underlying assumptions. Once the next bull market comes, we’ll see the majority of Crypto assets controlled by DAOs and more people and investment flooding into the leading organisations.

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