I’m far from a crypto enthusiast, so what little I know about “Digital Autonomous Organizations,” or DAOs, is pretty much attributable to my efforts to keep tabs on The Wu-Tang Clan’s entrepreneurial activities. I suspect that some of you may be in the same boat. Fortunately, this Fried Frank “DAO Primer” offers all of us a chance to get more up-to-speed on DAOs, starting with very basic topics like “How DAOs Work”:
A DAO is an unincorporated business organization that operates on blockchain software and is run directly by those who have invested in it (the “contributors” or “members”). It is essentially an internet community with a shared purpose and the equivalent of a shared online bank account. Through a DAO, people can raise money (potentially large amounts) and organize energy aimed at a joint project, without a formalistic corporate overlay. DAOs have no physical headquarters, offices, or bank accounts; there are no directors, hired managers, other leaders, or employees.
A DAO’s governance rules and the parameters for its decision-making are encoded into the blockchain software on which it runs, making management essentially self-executing (through so-called “smart contracts” created by the coding); and all of the DAO’s transactions are immutably recorded on the blockchain, providing transparency to its members. Once a DAO’s purpose and rules are established and the code reflecting them is created, there is no need for human involvement unless a member wishes to propose for a vote of the members any change to the DAO’s purpose or the encoded rules (such as those governing how the DAO’s funds are to be spent).
The primer goes on to discuss a variety of other topics, including the purposes for which DAOs are used, how they raise funds, how investors make a profit, their advantages and disadvantages, and the various legal issues associated with DAOs.
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– John Jenkins