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ELI5: What is a DAO (Decentralized Autonomous Organization)?

DAO stands for Decentralized Autonomous Organization. It is a concept that stems from organizations being able to run based on self-enforcing smart contracts.

Note: although there are tokens and projects called “DAO”, this page refers to the general concept of autonomous organizations.

Autonomous Business Model

If an organization is able to encode all of its business operations, business rules and workflows in a smart contract, then this organization can function in a completely decentralized manner, with the smart contract enforcing the business rules, paying the collaborators’ wages, settling obligations with providers and partners and so on.

Smart Contract Complexity

As you can imagine, this kind of smart contract, if fully implemented, would become absurdly complex. Even traditional enterprise grade software still haven’t been able to fully automate large organizations, so smart contracts are still a long way from being able to fully automate the enterprise.

The complexity of such smart contracts has led to problems in the first few attempts at implementing a DAO via Ethereum smart contracts.

The DAO Hack

For instance, “The DAO” project, which received over U$ 150 million funding, attempted to implement one such autonomous organization from scratch. Later, a serious flaw was discovered in its smart contract, which allowed attackers to  steal one third of all the available funds. This hack was so huge, it led to an Ethereum hard fork in an attempt to recover the large stolen sums.

The decision to save The DAO’s resources via a hard fork was not unanimously accepted, leading to the creation of Ethereum Classic which carried forth the original Ethereum blockchain with the stolen funds in it.

DAO Improvements

Since The DAO heist, there have been great improvements in smart contract development practices, especially concerning security.

Nowadays, DAO’s are run in a hybrid configuration where there’s a centralized component and other decentralized ones.

For example, crypto projects are often launched via DAO-like services which pay out bounties for promoting the project, finding bugs and so forth. These are still far from a fully autonomous organization, though. They often have a physical company running things, with a decentralized team delivering the work.


DAO’s are a very interesting concept, which could shape future work relations and allow fully distributed teams to work around the world while getting paid in cryptocurrency. With the advances in smart contract development we should see more and more DAO’s being implemented, most likely in modules which can be more easily debugged.


DAO entry on Investopedia

Decentralized autonomous organization

Ethereum : What are DAO’s?

About the Author
Published by Crypto Bill - Bill is a writer, geek, crypto-curious polyheurist, a dog's best friend and coffee addict. Information security expert, encryption software with interests in P2P networking, decentralized applications (dApps), smart contracts and crypto based payment solutions. Learn More About Us