How it works?

DAO is an organization where decisions get made from the bottom-up; a collective of members owns the organization. There are various ways to participate in a DAO, usually through the ownership of a token.

When a smart contract (DAO) is created and deployed, the only way to alter its “regulations” is through a community vote. Because the smart contract has to be defined using code-based logic, any attempts at changing the rules will fail unless the changes are decided upon through a vote.

A consensus mechanism refers to any number of methodologies used to achieve agreement, trust, and security across a decentralized computer network.

These smart contracts establish the DAO’s rules. Those with a stake in a DAO then get voting rights and may influence how the organization operates by deciding on or creating new governance proposals.

This model prevents DAOs from being spammed with proposals: A proposal will only pass once the majority of stakeholders approve it. How that majority is determined varies from DAO to DAO and is specified in the smart contracts. DAOs are fully autonomous and transparent. As they are built on open-source blockchains, anyone can view their code. Anyone can also audit their built-in treasuries, as the blockchain records all financial transactions.