# DAOs explained

By [Vaibhav Basantani](https://paragraph.com/@basantani) · 2022-04-02

---

A DAO, in simple terms, is a community that’s owned and managed by its members.

**D** - **Decentralized** (free from a centralized authority, one which is online & global)

**A** - **Autonomous** (independent of governments or private sector entities)

**O** - **Organisation** (coordination & collaboration around shared objectives)

![Source: Pet3rpan](https://storage.googleapis.com/papyrus_images/79d243c505a505f9874b768b33c3a2f2465ef4527e51b3c32acb6894c49aff1d.png)

Source: Pet3rpan

More than just being a community, it

*   is a commitment to share value to be able to achieve an objective that it intends to.
    
*   gives an equal opportunity to their members to voice out their opinions through governance.
    
*   flattens the hierarchy and streamlines the work processes.
    
*   allocates resources to achieve a core mission.
    

![Source: Aragon](https://storage.googleapis.com/papyrus_images/1c98d8ce523fc0d713c4991817cb817ebd9c1ccc94e15a3e87024a07d69b6332.png)

Source: Aragon

What differentiates a DAO from a traditional company?

*   There is no CEO/VP/Director etc. Instead, there are Guild Leaders/Captains and Core Contributors and no one reports to anyone specifically.
    
*   Unlike a company, it’s accessible globally with minimum to no entry barriers.
    
*   Since all the actions and funding are visible and can be verified by anyone, a DAO is more transparent and every member has an equal amount of information.
    
*   A DAO has a treasury and issues tokens to the contributing members.
    
*   To be a member of a DAO, one needs to own a 'token' which is issued on a blockchain as Ethereum which acts as a digital membership card, enabling access to gated content, voting rights, and other benefits.
    
*   Members can join a DAO and choose to contribute in a way they find most compelling. The members choose the work on their own that they wish to do depending on their capacity and availability and they self-organize.
    
*   As the system is permissionless, the members can start contributing right away to gain the trust of core contributors.
    
*   Contributors may work part-time or full-time depending on how serious their role is and are compensated through DAO tokens or other cryptocurrencies.
    
*   While decision-making, the members submit proposals and vote on them using DAO tokens in public.
    

One thing to note here is that DAOs are unregulated but there are still rules which are formed by the community, for the community. Initially, one will see some regulations which the contributors set while establishing the DAO but soon when the community grows, its members can vote/send proposals for the decision making if and when needed.

Possible issues with a DAO
--------------------------

*   No legal protections exist outside the rules outlined by a DAO.
    
*   In some cases, the decision-making might slow down since every time the proposals have to be passed and then only a decision can be made. Progressive decentralization can be followed where a DAO can become decentralized over time.
    
*   Each and every member might not cast their vote while proposing a change. Also, there’s an option of delegating the votes where other people may vote on their behalf but they might not be best suited since their beliefs might be different from the other individual.
    
*   Since most of the DAOs can be joined by anyone, there may be high noise and low signal. In this case, the DAO can make it a gated community by introducing some sort of screening or minimum token holding.
    

Note: There might be some DAOs that already have solved these issues. The aforementioned issues cover the scenario of most of the DAOs currently, hence they’ve been shared here.

---

*Originally published on [Vaibhav Basantani](https://paragraph.com/@basantani/daos-explained)*