What is a DAO? A non-technical definition

By Johannes Ernst


Definitions of “DAO” (short for Decentralized Autonomous Organization) usually start with technology, specifically blockchain. But I think that actually misses much of what’s exciting about DAOs, a bit like if you were to explain why your smartphone is great by talking about semiconductor circuits. Let’s try to define DAO without starting with blockchain.

For me:

A DAO is…

  • a distributed group
  • with a common cause of consequence
  • that governs itself,
  • does not have a single point of failure,
  • and that is digital-native.

Let’s unpack this:

  • A group: a DAO is a form of organization. It is usually a group of people, but it could also be a group of organizations, a group of other DAOs (yes!) or any combination.

  • This group is distributed: the group members are not all sitting around the same conference table, and may never. The members of many DAOs have not met in person, and often never will. From the get-go, DAO members may come from around the globe. A common jurisdiction cannot be assumed, and as DAO membership changes, over time it may be that most members eventually come from a very different geography than where the DAO started.

  • With a common cause: DAOs are organized around a common cause, or mission, like “save the whales” or “invest in real-estate together”. Lots of different causes are possible, covering most areas of human interest, including “doing good”, “not for profit” or “for profit”.

  • This cause is of consequence to the members, and members are invested in the group. Because of that, members will not easily abandon the group. So we are not talking about informal pop-in-and-out-groups where maybe people have a good time but don’t really care whether the group is successful, but something where success of the group is important to the members and they will work on making the group successful.

  • That governs itself: it’s not a group that is subservient to somebody or some other organization or some other ruleset. Instead, the members of the DAO together make the rules, including how to change the rules. They do not depend on anybody outside of the DAO for that (unless, of course, they decide to do that). While some DAOs might identify specific members with specific roles, a DAO is much closer to direct democracy than representative democracy (e.g. as in traditional organization where shareholders elect directors who then appoint officers who then run things).

  • That does not have a single point of failure and are generally resilient. No single point of failure should occur in terms of people who are “essential” and cannot be replaced, or tools (like specific websites). This often is described in a DAO context as “sufficient decentralization”.

  • And that is digital-native: a DAO usually starts on-line as a discussion group, and over time, as its cause, membership and governance become more defined, gradually turns into a DAO. At all stages members prefer digital tools and digital interactions over traditional tools and interactions. For example, instead of having an annual membership meeting at a certain place and time, they will meet online. Instead of filling out paper ballots, they will vote electronically, e.g. on a blockchain. (This is where having a blockchain is convenient, but there are certainly other technical ways voting could be performed.)

Sounds … very broad? It is! For me, that’s one of the exciting things about DAOs. They come with very little up-front structure, so the members can decide what and how they want to do things. And if they change their minds, they change their minds and can do that any time, collectively, democratically!

Of course, all this freedom means more work because a lot of defaults fall away and need to be defined. Governance can fail in new and unexpected ways because we don’t have hundreds of years of precedent in how, say, Delaware corporations work.

As an inventor and innovator, I’m perfectly fine with that. The things I tend to invent – in technology – are also new and fail in unexpected ways. Of course, there is many situations where that would be unacceptable: when operating a nuclear power plant, for example. So DAOs definitely aren’t for everyone and everything. But where existing structure of governance are found to be lacking, here is a new canvas for you!