In this article:

  • Definition of a DAO
  • What does DAO stand for?
  • How are DAOs different from regular companies?
  • Four Mental Models for DAOs: whale vs. school of fish, machine vs. forest, swimming pool vs. lake, planet vs. galaxy.
  • Examples of DAOs
  • How to learn more about DAOs

Definition of a DAO

DAOs, or Decentralized Autonomous Organizations, are organization "types" that lack a single leader, hold votes on the blockchain, and defy national and corporate borders.

In short, DAOs are crypto-native organizations that allow individuals to collaborate around the world. A DAO is an organization type, similar to how S-corps and an LLCs are organization types.  (Also, "DAO" is pronounced "Dow," like "The Dow Jones")

DAOs are crypto-enabled because they use cryptocurrencies called governance tokens to cast votes and make decisions. In the purest form of DAOs, they hold their votes on the blockchain with the use of smart contracts. Many DAOs today still hold votes using governance-token-voting software instead of smart contracts.

In DAOs, there's no top or bottom. Everyone is working together in an interconnected ecosystem.

DAOs are typically multinational, asynchronous, voluntary, and often welcoming of anonymous or pseudo-anonymous contributors working under a new or invented identity. Some DAOs have entirely permissionless onboarding processes, meaning anyone can join at any time. Other DAOs use a more traditional hiring process.

DAOs typically pay contributors in cryptocurrencies. This allows the DAO to pay contributors all over the world without issues of exchanging fiat currency or regulatory problems.

Traditional organization: hierarchy, decision-making centered at the top, no voting from the "bottom," employee locked into a job, managers give tasks and command those "under" them. Decentralized autonomous organization: non-hierarchical, decision-making distributed to the edges, contributors vote on big decisions with their governance tokens, contributors building fluid roles that serve the organization's purpose, contributors self-direct and work in teams
DAOs are fundamentally different from traditional organizations at every level.

The regulatory future is still uncertain for DAOs. Some DAOs have a "legal body" such as an LLC, but some operate entirely autonomously and separate from traditional regulation.

A helpful analogy for DAOs are Evolutionary-Teal Organizations. Not all DAOs use the principles of Evolutionary-Teal, but many strive to do so.

Teal Organizations are flat and non-hierarchical. They're typically purpose-driven with contributors operating within an ever-changing "living" organism rather than a rigid, command and control system. Teal organizations don't have managers or CEOs—they have teams, roles, and emergent purpose.

Traditional organization: salary set by superiors, mission derived from the CEO or someone at the top, constrained by nations and borders, closed information few can access, employees only part of one organization at a time. Decentralized autonomous organization: salary set by you, your team, and your peers, mission "emerges" from the group and guides everyone, multinational and multi-lingual, open-source information, contributors involved in multiple DAOs at once
Traditional organizations are far more closed and rigid than DAOs, but DAOs are open, fluid, and ever-evolving. 

For more on the definition of a DAO, watch this video:

What does DAO stand for?

D = Decentralized. Meaning, no centralized group or single person can steer the direction of the DAO unchecked.

A = Autonomous. Meaning, self-governing and not subject to traditional legal bounds and jurisdictions.

O = Organization.

How are DAOs different from regular companies?

DAOs contain loosely-coupled, interconnected teams that operate autonomously within the larger organization.

Regular companies typically have hierarchies, with an executive suite making decisions, middle managers passing decisions down and assigning work, and workers doing the actual work at the bottom. But in DAOs, individual teams and people have the power to make decisions that affect their work, operating like mini-DAOs or mini-companies within the larger DAO.

DAOs are fluid, dynamic, and ever-changing, like a school of fish. Traditional companies are rigid, static, and resistant to change.

In a DAO, you can build your work out of many different roles, whereas in traditional companies you typically have one job and have to stick to it. DAOs are also driven by a mission and clear set of values, because they don't have a single CEO at the helm. The mission keeps the fabric of the DAO together and informs the type of output the organization creates.

In a traditional organization, the CEO or executive board informs the organization's output. But in a DAO, the community-defined mission and values inform the output.
Founder or CEO-led organizations vs. community and team-led organizations.

DAOs do away with old systems of managers and employees. Instead, everyone is a contributor and works on similar or equal footing. Contributors may accrue more "power" by working in more roles, but that power is defined by their output and skill, not by their position within a hierarchy.

"Management" doesn't exist as a role in DAOs. Instead, DAO contributors give each other feedback regularly. They also trust that their co-contributors will get the work done, but if it doesn't get done, they hold each other accountable. These are considered self-management practices that were developed long before DAOs existed.

Traditional organizations have a manager-to-employee relationship, where the manager sends down fear, direction, and force, whereas DAOs have a contributor-to-contributor relationship, where co-contributors share trust, feedback, and accountability.
DAOs throw the idea of "managers" out the window. 

For more on differences between regular companies and DAOs, I recommend these definitions from The Ethereum Foundation and Aragon.

Four mental models to help visualize DAOs:

DAOs are a revolutionary concept, but without proper mental models they can be hard to grasp. Here are four mental models to better understand DAOs.

DAO Mental Model 1: Whale vs. School of Fish

Traditional organizations as a whale: difficult to move, one entity, and slow. Decentralized autonomous organizations as a school of fish: fluid and changing, many entities within one, fast.
If an organization is a whale, a DAO is a school of fish. 

Whales:

  • Are large and difficult to move.
  • Are a single entity—you don't see whale fins or eyeballs operating on their own out there in the sea.
  • Move slowly.

Schools of fish:

  • Are fluid and changing: their shape might change many times during a single swim.
  • Are many entities (fish) within one entity (school).
  • Move quickly.

Source of the "school of fish" concept: DAOs and the Future of Decentralized Branding

Example: If a traditional organization wants to change its focus, everything in the system must change and go full-steam-ahead toward the new direction. Experimentation in traditional organizations is difficult because everything needs to move as one. Like a whale, it moves slowly and as a whole. But if the school of fish wants to change direction, a small group may start moving that way and others can choose to follow. The group changes shapes as it moves, exploring new paths, and eventually finds the best way forward. Experimentation in DAOs doesn't have to be taught, it's a way of life.

DAO Mental Model 2: Machine vs. Forest

Machine: parts can be replaced easily, if one thing breaks so does the whole machine, parts can't operate alone: they need the whole system. Forest: stands during or regrows after wind, rain, and fire, network of connected entities, each stands alone but they're all united as one.
If traditional organizations are rigid, breakable machines, DAOs are forests in which trees can stand alone yet are united as one entity. 

Machines:

  • Have easily replaceable parts, meaning if one breaks you can get another one just like it.
  • Are reliant on every single part to work—if one breaks, so does the entire machine.
  • Have parts that can't operate alone or do their "job" unless the whole machine is working.

Forests:

  • Can withstand wind and rain for centuries and grow back after devastating events, like fires and earthquakes.
  • Are a network of connected entities rather than a single "thing" that needs to all be working at the same time.
  • Each tree stands alone and operates autonomously, but they're united as a single forest.

Source: Teal Paradigm and Organizations

Example: If the sales team suddenly stops working in a traditional organization, the organization might slow to a hault. Like a machine, one faulty part in a traditional organization can throw the entire system out of balance. But in a DAO, a single "broken" team or individual doesn't break the entire system, because each team is self-reliant and autonomous. Like a forest, a single fallen tree doesn't mean every other tree falls. It means there's more light on the forest floor, so new, young trees can grow up in the fallen tree's place.

DAO Mental Model 3: Swimming Pool vs. Lake

Traditional organization as a swimming pool: tightly regulated water and chlorine levels, closed system—nothing goes in or out, no entities within it that have their own identity. DAOs as lakes: not regulated—natural processes occur. Open system—many things flowing in and out. Entities like fish, weeds, islands, and rocks are separate but connected to the lake as a whole.
A swimming pool is closed and regulated, while a lake is open and free-flowing. 

Swimming Pools:

  • Are tightly regulated: water levels, chlorine levels, temperature, and number of items inside (leaves, sticks, toys) are regulated and monitored.
  • Are a closed system, meaning nothing is flowing in or out of the pool.
  • Don't have entities within it that have their own, separate identity.

Lakes:

  • Are not regulated—natural processes occur that change the lake without direction or careful planning.
  • Are an open system, meaning that rivers and streams flow in and out, and processes such as rain affect the water levels and temperature.
  • Have entities within it that have separate identities, such as fish, weeds, islands, and rocks.

Example: If a traditional organization has a problem of money drying up, they will have to make a lot of top-down decisions to keep the organization intact. Like a swimming pool, if the chlorine gets out of balance, someone needs to fix it in order for the whole thing to work. But a DAO, like a lake, is more fluid. If too much rain falls, water can be distributed to other lakes via river flow. Or, fish can easily move from one lake to another if one is no longer the optimal habitation for them. So if a DAO starts running out of money and needs to make hard choices, contributors can move fluidly toward the ends of the DAO that do have resources or join a new DAO.

DAO Mental Model 4: Planet vs. Galaxy

Traditional organization as a planet: doesn't deviate far from its rotation, can be pinpointed on a map easily, there's a clear "center." DAOs as galaxies: constantly changing parts within a larger system, edges and borders ebb and flow, there's no "center" directing the entire galaxy
A planet is a single object in space, while a galaxy may have edges that can't be pinpointed. 

Planets:

  • Don't deviate very far from their rotation path, and that path can be easily mapped and predicted.
  • Can be pinpointed on a map easily, and predicted when they'll be in certain locations.
  • Have a clear "center" that can be defined.

Galaxies:

  • Have constantly changing parts within a larger ecosystem.
  • Edges and borders ebb and flow—how do you know what the very edge of the galaxy is?
  • Lack a clear center that directs the motion or path of the whole thing.

Example: A traditional organization that sells an aging technology might have a hard time adapting to the new market. Like a planet, a traditional organization has a set rotational path that's difficult to deviate from. A DAO, however, can more easily evolve into serving the market's needs. Like a galaxy, a DAO has no single center that directs it, but many changing systems operating under similar assumptions (in this case, laws of physics) within one whole. Energy can then flow to another corner of the universe.

What are some examples of DAOs?

  • MolochDAO: Public goods funding on Ethereum and open-source DAO frameworks.
  • HAUSParty: The DAO of DAOHaus. DAO-tooling and governance frameworks to start more efficient DAOs.
  • MakerDAO: The DAO behind the decentralized stablecoin DAI.
  • UniswapDAO: Building and maintaining the Uniswap exchange.
  • IndexCoop: Building crypto investment index funds.
  • YearnDAO: Maintaining and improving the Yearn DeFi Protocol.
  • Gitcoin DAO: Public goods funding on Ethereum.
  • Friends With Benefits: Social DAO with in-real-life events.
  • BanklessDAO: Social and media DAO with early-stage DAO tooling and consulting.
  • OlympusDAO: The DAO behind the unique, game-theory-enabled currency OHM.

How to learn more about DAOs:

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