Written by Peter Habermacher, CEO, Aaro Capital
Decentralised autonomous organisations (DAOs) are entities which are not controlled by a central governing body but by its members, who hold governance tokens. Instead of appointing a CEO and a Board of Directors, the members of a DAO make proposals that are then voted on by anyone who holds the tokens. The process of nominating and voting is transparent as it is written in code, using smart contracts. Governance tokens are usually issued and sold at the start of the project or airdropped. They are used not only to govern the organisation but also to bootstrap the creation of a network and fund the development of the project. DAOs are one of most successful use cases of distributed ledger technology (DLT). They control DeFi projects, such as Uniswap and MakerDAO, virtual worlds such as Decentraland, social clubs and NFT creators such as Bored Ape Yacht Club, and they provide grants, such as Gitcoin. In terms of assets under management and number, DeFi DAOs are by far the biggest, as shown in Figure 1.
Figure 1: Total assets held and number of DAOs by Web
Source: “Dissecting the DAO: Web3 Ownership is Surprisingly Concentrated”, Chainalysis, 2022.
Centralisation of voting power
