DAOs: Internet Organizations

Decisions through proposals and votes

A DAO coordinates some decisions through a governance process, often using token voting and smart contracts. Its members may also rely on working groups, service providers, and legal entities.

The governance rules determine who can submit a proposal, how voting power is counted, and how a passed proposal is executed. Some actions are executed on-chain; others need a multisig or an off-chain team.

How a DAO vote works

1. Proposal: A token holder writes a proposal (e.g., "Spend $2M from treasury on a marketing campaign")
2. Discussion: The community discusses it on a forum (often Discourse or Snapshot)
3. Vote: Token holders vote with their tokens. More tokens = more voting power
4. Execution: If the vote passes (meets quorum and majority), the smart contract executes the action

Most DAOs require a quorum - a minimum percentage of tokens must participate for the vote to be valid. This prevents small groups from pushing proposals through when nobody is paying attention.

Real DAOs today

Governance system	Token	Example decisions
Uniswap	UNI	Protocol proposals and treasury spending
Aave	AAVE	Lending risk parameters
Lido	LDO	Staking-protocol proposals
ENS	ENS	Naming-protocol proposals and treasury spending

The challenges

Governance design involves several trade-offs:

Participation: Voting power may be concentrated among a small number of active holders or delegates. Check proposal-level turnout rather than assume a standard participation rate.

Speed: Governance votes take days or weeks. A traditional company CEO can make a decision in hours. This matters during emergencies.

Coordination: Reaching consensus among thousands of anonymous token holders is hard. DAOs often struggle to make unpopular but necessary decisions.

Plutocracy risk: More tokens = more votes. Wealthy holders have disproportionate influence, which is not so different from traditional shareholder governance.

Key takeaways

• DAOs are organizations governed by token holders through on-chain voting.
• Governance follows a cycle: propose → discuss → vote → execute.
• Major protocols (Uniswap, Aave, MakerDAO) are governed by DAOs managing billions.
• Low voter participation and whale dominance are ongoing challenges.