A DAO (decentralized autonomous organization) is a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain.
These rules can be anything — a DAO has no single structure, but can be configured and designed like any other institution. Depending on the rules set around governance, token distribution, and more, DAOs could look like anything from an investment firm to a worker coop to a social club. They can be non-profit or for-profit, three people or three thousand.
Essentially, a DAO uses smart contracts to enforce and/or replace social and legal contracts.
<aside> 💡 Read more: A beginner's guide to DAOs by Linda Xie.
</aside>
DAOs fractionalize themselves through tokens instead of shares.
Tokens may be held in the DAO's shared treasury to accrue value and get allocated toward DAO-wide projects; may be distributed to investors, builders, and community members; and may be bought and sold on token exchanges.
Membership in a DAO is usually based on holding its tokens.
Token-holders gain access to things such as:
Token-holder benefits — and "prices" — depend on the governance rules set in the DAO.
Because tokens can be traded, token-holders are like corporate shareholders — they have a financial stake in the DAO's success.
<aside> 💡 Centralized companies can transition to a DAO via "progressive decentralization."
</aside>