A DAO stands for “decentralized autonomous organization.” It refers to a completely decentralized internet community owned by its members. This means that there is no leader or central governing body. In other words, the company is fully community-owned.
DAOs (pronounced “dow”) differ from traditional corporate structures in that there is no hierarchy. Therefore, decentralized autonomous organizations have a set of rules encoded in smart contracts that track and secure digital interactions.
Members of decentralized autonomous organizations buy their way in by buying a governance token. This gives them the power to vote on decisions that affect the future of the decentralized autonomous organization.
Decentralized autonomous organizations typically have a goal that all members want to achieve. For example, the now-defunct ConstitutionDAO had the goal of buying an original copy of the United States Constitution.
The first decentralized autonomous organization was called The DAO. Created by Slock.it in 2016, The DAO’s goal was to serve as a form of investor-oriented venture capital fund. It was very successful, as it managed to raise and hold $150 million worth of Ether from more than 11,000 members.
Unfortunately, The DAO was attacked by hackers in June of the same year, resulting in a loss of $50 million. As a result, The DAO lost its credibility. However, it triggered a paradigm shift that led to the emergence of decentralized autonomous organisations.
The exact legal status of decentralized autonomous organisations is still very unclear. At the time of writing, Malta, Wyoming (U.S.), Switzerland, Estonia, Gibraltar and the Marshall Islands are the only states that recognise decentralized autonomous organizations as legal entities.
However, as decentralized autonomous organizations become more and more popular, it will undoubtedly lead to more states officially recognizing decentralized autonomous organizations and their ventures.