# What is DAO? *DAO is an acronym that stands for “Decentralized Autonomous Organization”. This concept was encountered in my previous article about Web3, so I decided to talk today not only about the interpretation of the term, but also about the principles, disadvantages and advantages of DAO.* By [do.sasha.es](https://paragraph.com/@do.sasha.esgmail.com) · 2022-11-04 --- _DAO is an acronym that stands for “Decentralized Autonomous Organization”. This concept was encountered in my previous article about Web3, so I decided to talk today not only about the interpretation of the term, but also about the principles, disadvantages and advantages of DAO. _ **How DAO works** DAO is an acronym that stands for “Decentralized Autonomous Organization”. This concept was encountered in my previous article about Web3, so I decided to talk today about the interpretation of the term and the principles, disadvantages, and advantages of DAO. Formally, DAO is a system in the blockchain that works autonomously, is controlled by program code, and does not depend on the human factor. In fact, this organization is an alternative to the board of directors in large companies, which, in the course of voting, make strategic decisions on specific issues (set the rules of the game). From these decisions, the work plan of the whole company is obtained, for the implementation of which the CEO is responsible. DAO works on the basis of smart contracts, so all decisions are made automatically — no CEO is needed. So the main distinguishing feature of DAO is that it does not have a “center” that independently manages the system without the knowledge of other participants. Due to the lack of a hierarchical structure, all participants in the ecosystem have equal rights and can vote for changes in the protocol. It is worth paying attention to the fact that DAO can be of _two types_. The first type of such an organization allows users to independently determine the criteria based on which this community will function. The second type of DAO implies already existing rules (they are most often created by a team of core developers), and the community adapts to them in exchange for certain opportunities. In matters of management, the current DAOs have features that make it possible to distinguish _two types of management:_ \- Direct democracy: each member of the community can propose an idea, which will be put forward for a general vote by all users of the ecosystem. \- Representative democracy: the community elects representatives who take responsibility for making operational decisions, while any member of the community can veto and remove the representative in case of unsatisfactory performance. _How to become a member of the ecosystem?_ Voting takes place with the help of tokens, which you can receive at the time of the creation of the DAO or buy on the market after the launch of the platform. It is important to note that the more tokens you have, the more your vote counts. I propose to briefly highlight the _main principles_ of the DAO: Collective decision making. Smart contract developers do not have the right to make changes without agreeing on them with all community members. This principle is easier to understand by the example of the election of members of the government: you vote for candidates (with the illusory belief that this person will promote interests as closely as possible to yours), but you do not vote for every law that is passed. In the DAO, we see a radically opposite situation, where you will vote for the “law” — changes that need to be made to the protocol. 2\. The manager is the program. The role of the person responsible for the correct execution of the assigned tasks is assumed by the program and does everything autonomously based on the code without human intervention. Each participant in the ecosystem can check how the network works at any time because information about all changes is stored in the blockchain. This also guarantees us the transparency of the ecosystem. 3\. Single layer architecture. Traditional companies usually have a multi-level structure: at the top level is the management, which has the maximum authority, and then we go down the steps — the lower, the less management opportunities. **Advantages of DAO** * Automation of management eliminates the need to recruit a whole staff of managers, lawyers and others, so we get a factor of corruption and abuse of power that is minimized. * Transparency through open source so you don’t have to decide if you can trust the CEO, manager or other people, but you can try to look at the code for vulnerabilities. * Decentralization gives everyone the right to be a full-fledged participant in the ecosystem without a control center, and therefore such an organization cannot close due to the desire of one particular person. * The time for making a decision is determined by the protocol, so it does not stretch for months due to the lack of a coordinated schedule for representatives of senior positions. **Disadvantages of DAO** * Legal uncertainty hinders the use of DAO, because there is no understanding of how to properly implement such a management system in companies that have been operating for many years. * Open source comes with risks due to lack of business secrets and exposure to hacker attacks. * The effectiveness of the DAO is somewhat debatable, since the weight of a vote is determined by the number of tokens a user has, thus the votes of the “whales” with the most funds have more weight. In this case, the whole idea is rather controversial. **Conclusions** The idea of ​​governance in the form of a DAO looks fresh and inspiring, but very utopian in our world, since these are big security risks and rather controversial issues regarding equality in decision-making. It will take time to see if such a model can fully exist outside of the digital space. In my opinion, this can be implemented in the form of a hybrid management system: there is a board of directors that puts forward options for changing the principles of the company’s work, and employees with an equal weight of votes make their choice using a smart contract. --- *Originally published on [do.sasha.es](https://paragraph.com/@do.sasha.esgmail.com/what-is-dao)*