DAO – Decentralized Autonomous Organization
DAOs are internet-native organizations where decisions are made by member votes on proposals typically over a pre-defined time period. Membership is usually obtained via a contribution to the DAO’s treasury. Often, but not always, a members influence is proportionate to the size of their treasury contribution as reflected by the amount of tokens allocated to them from their contribution
The decentralized governance model implemented by DAOs is possible through the use of smart contracts. Members establish the principles of governance for the DAO. Smart contracts execute these principles autonomously when proposals are successful.
The smart contracts DAOs implement are built using open source code to ensure operations are transparent to members. Allowing any member to audit disbursement of treasury funds by reviewing the historical record of smart contract executions.
DAOs entered popular crypto consciousness when the DAO blew up in May 2016 after raising $150 million of investor funds. An event triggering the infamous Ethereum split. Designed as a decentralized venture capital fund. 14% of ETH in circulation at the time was invested into it.
When launched an attacker exploited a bug in the smart contract code to siphon off $60 million of member funds from the DAOs wallet. After contentious debate the decision was made to hard fork the Ethereum network to a pre-DAO hack state and return member funds to their personal wallets.
The original Ethereum chain with the record of the DAO hack incorporated into its transaction history continued operating after the hard fork using the name Ethereum classic.
Further Reading on DAOs
What Are DAOs And Why You Should Pay Attention