A DAO is a decentralised organisation run by code and governed by its community of token holders, not a central authority.
Decisions in a DAO are made via proposals and votes, with smart contracts executing rules automatically.
DAOs can manage everything from crypto protocols to investment funds, but they also face risks around security, governance, and legal status.
DAOs represent a unique opportunity for normal people to collectively effect big changes in anything from business and politics to art and technology – as demonstrated by the recent attempted resurrection of Blockbuster.
Over $2 trillion of the total cryptocurrency market cap is currently managed by DAOs and adoption is growing rapidly. DAOs may one day even replace traditional centralised business models and change the future of investing.
Read on to discover exactly what a DAO is, how their tokens work, how to invest in them in Australia.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
What is a DAO?
As its name suggests, a decentralised autonomous organisation is an organisation with no fixed leadership.
It is collectively owned and managed by its members. All decisions are made from the bottom up via membership votes on proposals, while all rules are enforced and encoded through the blockchain.
DAOs are built on open-source blockchains where anyone can view their code and all financial records can be audited.
The open-source code was created by Ethereum protocol engineer Christoph Jentzsch to eliminate the risk of human error or malicious intent among fund managers by placing decision-making power into an automated system.
Did you know?
The first DAO, launched in 2016 as a decentralised venture fund, raised over US$150 million in ETH, but was hacked soon after with US$50 million stolen. To recover the funds, Ethereum controversially hard forked, creating two networks: Ethereum (ETH) and Ethereum Classic (ETC). The incident raised major questions about blockchain immutability and decentralisation.
Finder survey: What crypto industries do Australians invest in?
Response
Bitcoin
61.96%
Layer-1s
28.62%
I don't know
16.3%
Gaming and metaverse
11.23%
Artificial Intelligence (AI)
10.51%
Memecoins
10.51%
Stablecoins
10.51%
DeFi
9.06%
Layer-2s
7.97%
Exchange tokens
6.88%
DAO or governance tokens
1.45%
Source: Finder survey by Pure Profile of 1009 Australians, December 2023
Examples of DAOs
DAOs are predominantly used in the DeFi space to ensure applications are fully decentralised, with no single owner.
The Dash cryptocurrency is seen as the first true example of a DAO, as there is a governance mechanism that allows all token holders to vote on the use of its treasury.
MakerDAO is another, with its software, its stablecoin and its prediction market platform Augur.
Other examples include virtual worlds such as Decentraland, where users are incentivised to operate a shared virtual world and earn LAND tokens in exchange. With the growth and expansion of Web 3.0, the role of DAOs is likely to increase.
The asset class is not just limited to the metaverse and cryptocurrency space. ConstitutionDAO was formed in November 2021 to raise funds to purchase an original copy of the United States Constitution. The group managed to raise over $40 million in ETH from nearly 8,000 members but ultimately lost to a bid of $43.2 million. Despite the failure, the DAO garnered mainstream attention and showcased the power of DAOs as a source of crowdfunding.
DAOs can also exist as charities, accepting donations from around the world and collectively deciding how they are spent. Venture capital funds form another use case, with profits distributed among members, while grant funds can also take advantage of the new digital structure.
How do DAOs work?
As all decisions are made from the bottom up, all DAO members have voting rights for governance proposals. When certain criteria are met, smart contracts that encode the DAO's rules execute a chunk of code automatically.
There are numerous ways to participate in a DAO, the most common being owning the governance token. However, it's important to understand the ins and outs of a given community. One way is to check if a DAO has a Discord chat server, which serves as the go-to communication platform for DAOs and also now allows you to connect your Web 3.0 wallet.
DAO tokens explained
By owning the token associated with a particular DAO, members have voting rights on how its treasury is spent. Because the tokens can be traded on exchanges, they have monetary value. Members are incentivised to improve governance to entice investment and increase value. It's key to remember tokens do not represent stocks or shares in the manner of the traditional finance world.
3 popular types of DAOs
Protocol DAOs
Protocol DAOs are built by a community that establishes governance rules for a service or blockchain protocol. Members can join and put forth proposals that are put to a vote. Each vote is based on the number of tokens held. Examples of protocol DAOs include Uniswap, Compound and Aave.
Investment DAOs
Investment DAOs work like a community fund. Every member of the DAO contributes a certain amount of cryptocurrency to purchase the native token, which is backed by the respective cryptocurrency. If a DAO is built on the Ethereum blockchain, the cryptocurrency needed to purchase the DAO token would be ETH.
Like protocol DAOs, these tokens give the holder voting rights. Different kinds of investment items can be incorporated, such as NFTs. Examples of investment DAOs include PleasrDAO, MetaCartel Ventures, Flamingo and Komorebi.
Community DAOs
Sometimes, groups are started with like-minded people who have no specific goal at the outset other than an intention to form a collective. With these types of DAOs, membership is the key factor, which is purchased via the associated token. The most well-known example of a community DAO is Friends With Benefits.
Investing in DAOs
If you want to invest in a DAO, it's important to bear in mind it's not a get-rich-quick scheme and there are risks involved. Practise due diligence by doing research and assessing potential pitfalls to become an informed investor.
If you want to invest in a DAO from Australia, here are the steps:
Get a crypto wallet. You’ll need a Web3-compatible wallet like MetaMask or Trust Wallet. These let you connect directly to a DAO platform and interact with smart contracts.
Buy the DAO’s governance token. Find out which token the DAO uses (e.g. UNI for Uniswap DAO, MKR for MakerDAO) and purchase it from a crypto exchange that supports it. Look for one that is AUSTRAC-registered to ensure regulatory compliance.
Transfer the tokens to your wallet. Move your DAO tokens from the exchange to your wallet to interact with the DAO directly. Never leave long-term holdings on an exchange.
Connect to the DAO platform. Visit the DAO’s official website, connect your wallet, and view active proposals. If you hold enough tokens, you’ll often be able to vote or submit proposals yourself.
Top crypto DAOs
Here is a list of the 10 most popular DAOs and their associated tokens at the time of writing (July 2025) according to CoinMarketCap:
Trust and transparency. Since DAOs are virtual, they have advantages over traditional organisations in that zero trust between parties, a core tenet of cryptocurrency technology, is required. Only the code, which is transparent and extensively tested before launch, needs to be trusted. Changes related to the code have to be approved by the majority of members, while internal disputes are solved by putting forward a vote.
Shared risk. Because investors can pool funds through a DAO, they are able to invest in early-stage startups and share any risk that may come from these business ventures.
A solution to the principal-agent dilemma. The principal-agent dilemma in finance refers to an instance when an agent takes excessive risk because the principal bears the burden. Members don't need to trust any agent acting on their behalf; instead, group incentives are aligned by shared stakes.
Cons
Doubts over security and legality. DAO technology is still in its infancy, and concerns linger over its legality, security and structure.
Smart contract flaws. The DAO hack brought to light issues of security and reliability in smart contracts, as coding flaws can be difficult to fix.
No legal framework governs DAOs: DAOs can be distributed across numerous jurisdictions, so they don't fall under any overarching legal framework. Any legal issues that arise will straddle various legal systems.
Our expert says
"DAOs are reshaping how organisations work by replacing traditional hierarchies with transparent, code-based governance. But like any innovation, they come with risks. If you’re investing in a DAO, it’s important to understand both the tech and the community driving it. "
The world of finance is constantly evolving. Over the past 2 years, technologies like DeFi, NFTs and DAOs have risen in popularity and adoption.
If the rapid ascent of Web 3.0 is anything to go by, the adoption of decentralised management innovations like DAOs is set to revolutionise business and investment models. However, like with any other financial matter, it's essential to perform due diligence before getting involved. While DAOs are important, the ultimate value is still held in the communities and projects they control.
FAQs
[faq_question title="How does a DAO work?"]
DAOs are built on code that automates rules and transactions. Members submit proposals, and token holders vote on them. If a proposal meets the required vote threshold, it's automatically executed by smart contracts.
[/faq_question]
[faq_question title="Are DAOs legal in Australia?"]
DAOs exist in a legal grey area in most countries, including Australia. While not banned, they’re not officially recognised as legal entities, which can create complications for liability, taxation, and enforcement.
[/faq_question]
[faq_question title="What are the risks of joining a DAO?"]
Key risks include smart contract bugs, poor governance, and a lack of legal protection. Since DAOs are decentralised, there’s often no central authority to step in if something goes wrong.
[/faq_question]
[faq_question title="Can anyone join a DAO?"]
Yes, most DAOs are open to anyone who holds the required governance token. Some DAOs are permissionless, while others may require an application or minimum holdings to participate in decision-making.
[/faq_question]
[/faq_section]
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Werner Vermaak is a technical writer and blockchain consultant with an extensive 20-year marketing resume across Taiwan, the UK and South Africa. He came across Bitcoin and cryptocurrency in Taiwan during mid-2017 and has worked with several companies and projects in the areas of crypto security, regulations, custody and new fields such as DeFi, NFTs and Web 3.0 since. Werner has a business degree from Stellenbosch University and postgraduate qualifications in strategic marketing from the AAA School of Advertising. Werner enjoys geeking out on new technology and pondering the mass adoption of digital assets. See full bio
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