What is a DAO in practical terms and how does it operate?

A DAO (Decentralized Autonomous Organization) is a unique organizational structure that aims to harness the power of technology to bring people together and achieve a common goal. Unlike traditional organizations, a DAO operates on a decentralized platform, using smart contracts and blockchain technology to automate decision-making processes.

The idea behind a DAO is to create a fair and representative system that enables geographically dispersed communities to make decisions collectively. This is done by giving each member an equal say in the decision-making process through a voting system. The challenge in practice, however, is to balance the voting rights among the members while considering factors such as skin in the game, participation, and competency.

In a typical DAO, the managing project team holds the majority of the voting rights and treasury token funds, which gives them the final say in decision-making. This setup is usually necessary to ensure the success of the organization, but it is important to clearly communicate the level of centralization to the community from the start. The goal of such a setup is to engage the community in ideation and promotion of the project. By doing so, the community feels valued and becomes more loyal and supportive of the project.

A common setup for decision-making in a DAO is to first have a preliminary forum discussion on an issue, followed by an official vote. This allows for enough interest to be generated in the topic and for ideas to be generated through the discussion process.

While implementing a DAO in practice can be challenging, it holds great potential to bring people together and achieve common goals in a fair and representative way.