Explainers

What is a DAO? How decentralised autonomous organisations work

CryptoSurge HQ · Updated 18 October 2026 · How we write

A DAO, or decentralised autonomous organisation, is a group that runs its shared funds and decisions through smart contracts on a blockchain. Members vote on proposals, and the results can be carried out by code rather than by a board of directors. That is the idea, at least. In practice DAOs vary a great deal.

How a DAO works

Treasury. The DAO's money is held in a smart contract or a shared wallet that needs several people to sign.
Proposals. Members put forward ideas, such as funding a project, changing a fee or electing contributors.
Voting. Members vote, often with governance tokens. Some votes happen on the blockchain; many happen on separate voting sites, with the result carried out afterwards by trusted signers.
Execution. If a proposal passes, the agreed action happens, either automatically or by the signers.

Governance tokens

In many DAOs, one token means one vote. That makes voting power proportional to how many tokens you hold, so large holders, including founders and early investors, can dominate. Some DAOs try other designs, such as one vote per verified member, delegating votes to representatives, or weighting votes to reduce the power of large holders.

Holding a governance token does not usually give you a legal share of anything. Rights depend on the DAO's rules and, where it has one, its legal structure.

What DAOs are used for

Running DeFi protocols, where members vote on fees, risk settings and upgrades.
Pooling money to fund grants, open-source software or public goods.
Clubs and communities managing a shared treasury.

What has gone wrong

The best-known early example, called simply "The DAO", was drained in 2016 through a flaw in its code. The response split the Ethereum community: most of the network adopted a change that returned the funds, and those who refused carried on as a separate chain, Ethereum Classic. Since then other problems have recurred:

Low turnout, so a small group decides most votes.
Governance attacks, where someone borrows or buys enough tokens to pass a proposal that benefits them.
Unclear legal status, which can leave members exposed if things go wrong, depending on the country and how the DAO is set up.

Questions to ask about any DAO

Who holds most of the voting power?
Who can move the treasury, and how many signatures does it take?
Are votes binding, or can a core team overrule them?
Is there a legal entity, and what rights, if any, do token holders have?

Sources and further reading

Not financial advice. This article is for general information and education only. It is not financial advice or a recommendation to buy, sell or hold any cryptoasset. Cryptoassets are high risk and largely unregulated in the UK: you could lose all the money you put in, and you are unlikely to be protected by the Financial Ombudsman Service or the FSCS.