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What's a DAO?

Decentralized autonomous organizations (DAOs) are collectively owned governance systems whose governing software is cryptographically bound to obey the democratic wishes of members.

Proposals

At its simplest, a DAO is an organization where you can vote on proposals. Proposals are written to an immutable, public ledger (blockchain) - their text, whether they passed or failed, and who voted on them. Proposals can be natural language rules or laws (for example, you could run a legislature with them), or they can be software.

When a proposal passes the DAO's voting period, that proposal becomes canonical. It will be as "passed" in the ledger, and any proposal messages (effectively, bits of code) will be executed on the chain, modifying the DAO's state.

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For example, this proposal in RAW DAO (which governs the Junoswap DEX) has proposal messages associated with it. These messages will only be executed if the proposal passes and they will change the unbonding period for LPs on Junoswap automatically.

The DAO's governance can itself be modified by governance proposals. For example, the voting rules of the DAO themselves (e.g., how long voting periods last, what proportion of people need to vote on something for it to pass, etc.) can be modified by governance proposals.

Changing the rules by which rules are made

You can think of DAOs as a big game of Nomic. For example, this proposal in Dog Dao updates the DAOs voting rules to make the voting duration shorter and, thus, make proposals complete more quickly.

Governance tokens

Some (not all!) DAOs manage voting through governance tokens. Like shares in a corporation, governance token determines your voting power. A person with 80% of a DAO's tokens will be able to pass things autocratically. Distributing tokens evenly will give everyone an even vote, assuming no one trades their tokens.

Tokens are programmable.

You can prevent transfer, vest (i.e. slowly unlock) tokens over time, and more.

Non-token based DAOs

Most DAOs do not need a token. Those DAOs may use fixed voting weights to determine voting power. For example, the DAO DAO Development Fund assigns fixed weights to members. These types of DAOs are often referred to a "multisigs".

Tokens can be useful when you want very fluid governance with many members. They also introduce complexity because if your governance token becomes liquid your DAO will loosen control of what members it has. Non-token based DAOs add and remove members via vote, so they don't have this problem.

Additionally, launching a token with a DAO may invite speculators who will "invest" in your DAO. This may bring expectations and scrutiny as others could expect your team to spend time increasing the value of your governance token. For some DAOs, this is desirable, but many DAOs may want to focus on building out their product and revenue streams.

The current state of DAOs and the blockchain ecosystem is very token governance heavy. We encourage you to think deeply about if that is the system that actually works best for you when creating a DAO for your community. In many cases, a member based DAO may be a better option. You can always migrate to a token based DAO later.