How does the DAO work?

The traditional organization is like a spider, its intelligence is concentrated in the brain, as long as you remove the head of the spider, the spider will die; while the decentralized organization is like the starfish, the starfish has no head at all, its intelligence is distributed all over the body, Once you knock off part of its body, that part may even grow into another starfish.

When the Spaniards invaded South America, they conquered the Aztec Empire and the Inca Empire very easily. This is because these two empires were spider-like organizational structures. Power was concentrated in the hands of the rulers. Once the central government fell, the country immediately collapsed. ;

But when the Spaniards hit North America and faced the more backward Apaches, they couldn’t go on. The Apache is a starfish-style organization with no unified leader. Politically, the tribes are a very loose alliance. The Apache heroes do not directly command and mobilize any army. They only serve as role models to inspire others spiritually. In this way, even if a few tribes were defeated, the remaining clansmen could still continue to fight, and there was no such thing as catching the thief first, and as a result, the Apaches fought against the white people for hundreds of years.

In today’s society, such a “starfish”-like blockchain organization has reappeared. A distributed organization without a single leader can theoretically exist as long as there is an Internet connection. It’s called “The DAO”, and it’s a new type of entity: a Distributed Autonomous Organization.


DAO organizational model diagram

DAO is not a traditional company with a designated management structure. It operates through collective voting, and holding the DAO organization token is its “shareholder”. A DAO is an organization dominated by rules written by computer programs, not people. On top of this structure, there is a group of “guardians” who are elected by DAO token holders and can of course be eliminated.

Operation mode

DAO is a decentralization established on the blockchain, an automatic operation organization that determines the incentive mechanism based on the program logic on the chain. Its operation method is as follows:

  • Writing smart contracts: Smart contracts are written on the blockchain and are a set of computer programs that execute various commands. Smart contracts are open and transparent, and anyone can see every line of code (rules).
  • Fundraising: An organization naturally needs funds. Unlike the traditional corporate system, investors will not get shares, but tokens. Tokens are representatives of rights and interests, and holders of tokens can have the following rights and interests: voting rights, proposal rights, income rights, and the right to use various services provided by DAO.
  • Proposal and voting: When the smart contract is released, the operation of the DAO is not controlled by the initiator, and all decisions will be implemented after consensus. Anyone who holds this DAO token can initiate a proposal and vote. After reaching a certain percentage of consensus (the percentage is written in the smart contract), DAO will automatically execute the corresponding instructions.
  • Circulation of tokens: In the traditional company system, equity transfer requires signing a contract, submitting various documents, and waiting for review before it can be successful. But the circulation of the token is as convenient as the transfer, which can be completed in minutes or even seconds.


Advantages and disadvantages


  • Elimination of personal fraud: DAO’s funds are obtained and used in an open and transparent manner. The source and destination of each fund are very clear, and there is no underground transaction.
  • Reduce communication costs: There is no room for negotiation to implement a certain decision, and it only needs to be run according to the contract and the proposal obtained by voting.
  • Reduce management costs: DAO has no hierarchical structure, no CEO, no managers, and no management costs.
  • Equality: DAOs have no hierarchy and all people are equal.
  • There is no dictatorship: everyone can come up with a plan for the organization and possibly use it.
  • Unity: All participants hold DAO tokens, and the better the DAO runs, the more valuable the tokens will be. All participants will have the same goal, which is to make the DAO work better. At the same time, proposals and voting require a certain amount of tokens. Therefore, voters will start from the DAO’s perspective and sincerely benefit from the DAO.




  • security concerns
  • The core of DAO is the smart contract. Although the smart contract can be modified, it needs to go through the process of proposal and voting, so the time period is long. If a hacker finds a loophole in the contract and acts evil, the DAO will have a long response time and cause greater losses than traditional organizations.
  • A decision that many people agree on is not necessarily a good decision
  • Equality is both an advantage and a disadvantage. Ordinary participants do not have enough ability to make the most correct decisions, and they generally follow opinion leaders. Once public opinion is swayed by opinion leaders with ulterior motives, the truly correct decision will be buried.
  • lack of law
  • At present, DAO has no legal status, and most of the tokens do not have the property of assets in the legal sense. There is still a long way to go to improve the relevant laws.
  • High staff mobility
  • It is very simple to join and withdraw from DAO, and the transfer of tokens is also very simple, which will lead to an increase in the mobility of personnel.

In line with the concept of inheriting the advantages and abandoning the shortcomings, Yilianyun combines its own development situation. Before each major decision, we will actively invite relevant community members to join the discussion, introduce the background of the decision in detail, and clarify the value of the decision. On the premise, through the collision of ideas to empower the major decision-making of the organization.

Value and Prospect

The emergence of DAO means that people can choose organizational collaboration more freely and autonomously, and it can maximize the efficiency and value transfer of the organization, which may promote human creativity and creativity to achieve higher efficiency, thus forming a new business revolution . At the same time, DAO is also expected to become a new type of effective organization to deal with uncertain, diverse and complex environments.

In the eyes of the founders of DAO, this is a technical means to fight against capitalists, or to subvert capitalism. If we look back in history, we may be able to better understand the crux of the problem.

In the past few centuries, the mass production of machines brought about by the Industrial Revolution has made people’s quality of life improve by leaps and bounds, while also allowing the capitalists who master the means of production to control the vast majority of wealth. Later, as machines replaced most of the coolies, people began to create value by mastering machines, and gradually realized that mastering the information of the work was more valuable than the work itself.

In the beginning, you knew how to generate electricity and how to make machines, then you were a capitalist, or the “father” of the capitalist.

Then came the computer, so information about work and production began to be controlled by the very few capitalists who had computers.

Later, the emergence of personal computers and the Internet broke the pattern of this information monopoly, allowing everyone to “roam freely” in the ocean of the Internet.

But is this really freedom?

In essence, the Internet is still in the hands of a very small number of capitalists, who have central control over computers. They want to shut down the central server, human beings will no longer be able to access the Internet, and the constant redistribution and circulation of wealth is only to maintain their central company mechanism.

We work hard, and the capitalists only need to pay a little bit as a reward. Judgment of contribution is too subjective in traditional company mechanisms, and the fruits of your labor do not belong to you. And you work day after day on things that you may not like, and the individual value of human beings is infinitely reduced in the increasingly perfect company mechanism.

The emergence of DAO allows us to freely combine and establish a DAO organization. This organization is only based on interest, and the smart contract automatically distributes your income according to your contribution to the DAO. The greater the contribution, the more income .

This DAO organization does not belong to any one person, even the founders of this DAO organization, they cannot provide outstanding contributions to DAO nor gain wealth, and they are anonymous in DAO, the other party does not know who you are, your Education, experience, and resume will become irrelevant. The only thing that matters is your contribution to the DAO.

And if this DAO organization loses its original ideal, you can also leave this DAO at any time, with all the wealth, to find the next ideal DAO.

In an era when material things are not so prosperous, the existence of entrepreneurial leaders must be indispensable. This is the reason why our hierarchical corporate system has existed for four hundred years. But with the massive replacement of humans by machines, the transition from corporate organizations to DAOs to allow people to do things they really want to do is also a wonderful future trend :

1. Intelligent management

From the perspective of the development of artificial intelligence, distributed artificial intelligence not only represents the future development direction, but also further provides the basis for the intelligent management of DAO. This not only improves the flexibility of the system and reduces the cost of solving the problem, but also provides a means to realize intelligent management. Facing the future, DAO must be combined with artificial intelligence to move from automation to intelligence .

2. The inherent incentive mechanism of DAO may trigger the rapid development of the token economy.

With the rapid increase in the number of organizations of this type, DAOs with tokens may become a new target for the capital market. The transaction of token-based Crypto assets may usher in a new development opportunity.

3. The collaborative governance needs of on-chain and off-chain may bring about the rapid development of blockchain applications.

In the development process of DAO, in order to solve the problem of decision-making efficiency, some forms of DAO may also evolve. It may only be a matter of time before the collaborative efficiency problem that needs to be solved in the collaborative process triggers the explosion of blockchain commercial applications.

4. Through the application of blockchain technology, DAO realizes the separation of “three rights” ( ownership, governance rights, and dividend rights ) and unlimited division of “three rights” through the use of tokens, thus making all employees a kind of possible. This may lead to a large-scale evolution of organizational systems from private ownership to public ownership.

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