This is a brief study on Decentralized Autonomous Organization (DAO) & how DAO works.

1. What is Decentralized Autonomous
Organization (DAO) & How DAO works?

2. INTRODUCTION
• DAO is the organizations running in the software in a fully democratic way.
• Before we jump into how exactly they work, we need to go through the tradition
organization structure quickly.
• An organization is the group of people working on a common interest.
• This is most of the time is to make money for the shareholders.
• The organization follows certain rules which are governed by the Government of the
place where the organization has been incorporated.
• An organization has the group of shareholders who represent the ownership of the
organization in the percentage format.
• Let’s say a person X own 3000 shares of the organization which has in total 30,000
issued shares then Mr. X will become 10% owner of that organization.
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3. • These shares can be transferred to anyone which will, in turn, transfer the ownership
of the organization.
• Share holders appoint a Board of Directors who control the major key decision of the
organization.
• This group of people also known as Board of Directors appoints the CEO who
execute the day-to-day operation by hiring more staff under him.
• The rules & regulation of running the organization are written in Bylaws or
Memorandum of Article, Article of Association.
• DAO is just the digital version of the above arrangement where all rules & regulation
are written in the source code rather than the piece of paper.
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4. • They are executed by thousands of people/computers together through some
consensus-based algorithm.
• The platform where the DAO runs is called Blockchain.
• The most common case where the DAO can be written is Ethereum Blockchain.
• In Ethereum, they are written in Solidity Language
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5. How does DAO work?
• In the DAO, each action or vote is represented by some form of transaction in the
Blockchain.
• Here the members are represented by the address (in Ethereum, It’s Ethereum
address).
• These addresses can be owned by a human, a robot, an IOT device, or even another
DAO.
• This makes it ideal for a fully automated system to run the full-fledged organization.
• Each member is given a token which represents the shares of the DAO; these tokens
can also be used to vote in the DAO to take a certain decision.
• The token is nothing but another kind of contract sunning on top of Blockchain.
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6. • The more token an address has, the more control he will have on the DAO.
• Each member will have the rights to submit the proposal to take certain decisions.
These decisions can be:
o Fire the CEO or just Change the CEO
o Hire a vendor to get his/her service
o Hire a lawyer
o Pay certain ethers/USD to someone as a salary or bonus
o Issue the share to someone because that person/address is adding more value.
• In the DAO, since this is nothing but a democracy which is running in the Blockchain
the voting power can be optionally delegated to someone to whom a member trust
more. This is in fact just like voting by proxy in the real organization.
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7. • The DAO can also raise fund through some crowd sourced funding by issuing the
tokens/shares to anyone who is paying the money to the DAO.
• This payment and issuing the shares/token can be done in real time unlike the more
than 60 days process in the real organization.
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