DRX Admin
The internet has entered a new era: Web3. With an emphasis on decentralization, data is not stored on a single central server. Similarly, decision-making processes are more democratic and transparent.
One important element of Web3 that promotes decentralized decision-making is DAO. What is a DAO and how does it work? Learn about the definition and structure of a DAO, how it works, the advantages and challenges of DAOs, as well as examples of popular DAOs in the following article.
A DAO, or decentralized autonomous organization, is a leaderless entity in blockchain technology. In a DAO, all decisions are based on community consensus.
DAOs were popularized by blockchain enthusiasts. The members share the same goal—to make the best decisions for the community.
DAOs differ from traditional organizations or companies, which are led by top-level executives (C-level). In a DAO, there is no hierarchy. Decisions and rules are not set by a CEO, but in the source code. They are then executed by nodes through an algorithm after consensus is reached.
A DAO’s structure is made up of several key components.
DAOs need smart contracts to function. Smart contracts are programs stored on the blockchain and can be considered the building blocks that enable automated transactions without intermediaries.
Smart contracts contain the conditions of an agreement. If these conditions are met, the decision will be executed automatically.
In the context of DAOs, smart contracts allow members to participate in decision-making. For example, members vote on a decision. The smart contract will count the number of votes and execute the decision if the number of votes is fulfilled.
Tokens are a means of exchange as well as a representation of voting rights in a DAO. Tokens in a DAO have several purposes.
DAOs are managed by automated mechanisms that contain rules and procedures for decision-making. There are several governance mechanisms commonly used in DAOs:
Membership in a DAO is represented by a cryptocurrency wallet address. A person can be a member if they hold the DAO project's governance tokens. Members are directly involved in the DAO ecosystem by voting on various decisions of the project's development.
One of the largest and most popular DAO projects to date. Uniswap operates as a cryptocurrency exchange on the Ethereum blockchain. Anyone can become a DAO member as long as they have UNI tokens.
A virtual world led by a DAO. Governance and administrative decisions in Decentraland are made by MANA token holders through a democratic system.
The first DAO recognized as a legal entity in the United States. American CryptoFed DAO positions itself as the crypto equivalent of the US Federal Reserve. Its goal is to create fee-free trading using its own token, Ducat.
BitDAO is a decentralized investment fund backed by PayPal founder Peter Thiel. This DAO is designed to enable anyone to buy shares in DeFi startups.
DAOs can also be used for social causes. UkraineDAO is a fundraising initiative that provides donations to war victims in Ukraine. One of the project's biggest successes was selling a Ukrainian flag NFT for 2,258 ETH, equivalent to $6.4 million at the time.
Why are DAOs so popular in the Web3 ecosystem? Here are the advantages.
Important decisions that affect the project’s future are determined by all members, not just a group of central decision-makers.
Members of a DAO feel more involved and valued because they can directly participate in decisions that affect the project. Although one person's voting power may seem small, DAOs encourage token holders to use their assets for the organization’s best interests.
In a DAO, votes are cast on a blockchain. Every vote is publicly viewable, ensuring all members make decisions that benefit the organization. This is different from traditional organizations, where a stakeholder can quietly make decisions that only benefit themselves.
The DAO concept connects people from all over the world through a shared vision.
There are many advantages to building an organization with a DAO system. However, DAOs still face various challenges.
In traditional companies, decisions can be made quickly if they are announced directly by the CEO. However, in a DAO, all members can cast their votes and opinions. The decision-making process takes longer, especially when members live in different time zones.
Token holders in DAOs have diverse educational backgrounds. In addition, they may have varying levels of understanding of the DAO ecosystem.
Indeed, DAOs unite many people with a shared vision. However, it may be difficult for everyone to communicate and strategize together.
DAO members must be educated so that they have the same understanding of a proposal. In addition, a DAO project must wait for members to vote to reach a sufficient number of votes. It is possible that the decision-making process will take longer than actually implenting a decision.
DAOs require advanced technology to run properly. Even with cold wallets, they can still be exploited. Furthermore, no government regulation has been established to supervise and protect DAOs.
The DAO is a real example of what happens when DAO weaknesses are exploited. The DAO was an organization on the Ethereum blockchain designed to raise venture capital. It was launched in April 2016 after a token sale that raised $150 million.
However, in June 2016, The DAO was attacked by hackers who exploited a weakness in the system and stole 3.6 million ETH, or about $50 million at the time.
DAO is different from a traditional organization with a CEO, managers, and staff. In a DAO, there is no central authority. Each member casts a vote to make decisions. Then, the decision is executed automatically through a smart contract.
| Aspect | DAO | Traditional organization |
| Hierarchy | None | Consists of C-level, directors, managers, etc. |
| Decision-making | Based on voting | Can be done unilaterally by a decision-maker. |
| Decision execution | Automated by a smart contract | Manual |
| Nature of organization | Decentralized | Centralized |
| Transparency | Very transparent, all votes are viewable | Not all activities and decisions are shown to the public |
Not always. Voting in DAO uses governance tokens, but this can be manipulated by individuals or groups that collect tokens to gain large voting power and cast votes for a decision that benefits one party.
DAOs can also be the target of a sybil attack. Read a full explanation in What is Sybil Attack: The Hidden Threat of Blockchain and Web3.
To put it simply, the process of launching a DAO is as follows:
In Indonesia, DAOs are not officially regulated. However, it can still operate as a blockchain-based organization.
DAO is a leaderless entity that utilizes blockchain and token to democratize governance. Members of a DAO have full control over the project’s development. This is a vital innovation in building a transparent and secure Web3 ecosystem, as well as reducing the power held by giant centralized companies.
What is Web3? Understand this type of internet in the article What is Web3 Crypto: The Future of Internet and A Decentralized Digital Economy. Stay updated with DRX Token’s blog for more in-depth knowledge of the Web3 ecosystem and blockchain!
Published Date:12 Feb 2026• Read Time:5 minutes
Published Date:23 Jan 2026• Read Time:7 minutes
Published Date:22 Jan 2026• Read Time:5 minutes
Published Date:21 Jan 2026• Read Time:7 minutes
Published Date:20 Jan 2026• Read Time:7 minutes
