What are DAOs?
Characteristics of DAOs:
- Decentralization – DAOs distribute all decision-making power among their members, reducing reliance on centralized entities and fostering collective ownership and control.
- Autonomy – DAOs are self-executing and self-regulating entities. The rules and governance mechanisms embedded in smart contracts enable them to function autonomously, conducting predefined actions without human intervention.
- Transparency – As DAOs operate on a public blockchain, their transactions and decisions are transparent and auditable by anyone. This transparency fosters trust among participants and ensures accountability.
- Governance by Consensus – DAOs typically employ voting mechanisms to make decisions collectively. Token holders, who have a stake in the DAO, can participate in governance by voting on proposals, determining the direction of the organization.
Token-based voting and governance rights
One of the key components of DAOs is token-based voting. DAOs typically issue governance tokens to the participants, granting them voting rights and influence over decision-making. The voting power of an individual is determined by the number of tokens held by them. Token holders can participate in several types of voting, such as proposing and approving changes to the DAO’s rules, selecting representatives, or even deciding on resource allocation.
Token-based voting ensures that decisions are made by those with a stake in the organization and aligns incentives among participants.