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What Is A Decentralized Organization Or DAO?

What Is A Decentralized Organization Or DAO?

Decentralized Self-Government Is One Of The Most Important Achievements Of China Bloc Innovation, Allows The Organization To Be Run Without A Centralized Management Team.

Decentralized Organization, Since its advent, China’s Blockchain technology has created many concepts, each of which can be considered the result of creative innovations available to people due to the beautiful nature of China’s Blockchain.

The blockchain philosophy and the main focus of this technology are to provide services without a central management core, which we briefly call “decentralization.”

One of the innovations that have been developed using the capabilities of the China Bloc is the Decentralized Autonomous Organization (DAO). What is meant by the decentralized organization? This article intends to answer this question and examine all its dimensions as much as possible.

What is a decentralized organization (DAO)?

A decentralized self-governing body (DAO) is an organization that lacks central management, and all members make the basic decisions of the company. Its management is the responsibility of organized communities based on specific rules that apply to the Chinese bloc.

What is a decentralized organization?

As we have said, one of the important features of digital currencies and China Blockchain technology is their decentralization; That is, digital currencies are not controlled and managed by a specific institution such as the government or the central bank, and instead are distributed among a large number of computers, networks, and nodes operating in the Chinese blockchain. In addition, in many cases, digital currencies take advantage of this decentralized position to achieve reasonable levels of security.

China Blockchain technology can consider as one of the main achievements of the postmodern era in which all central institutions dismantle. As a result, the preconditions for direct participation and action of individuals in decision-making were provided. Has become tangible.

Autonomous Decentralized Organization (DAO) is an organization that entrepreneurship as investment funds ( Venture Capital ) and based on open source code or the board to act without a traditional management structure. DAOs are native Internet organizations owned and managed by their members. These organizations have internal treasuries that can only access with the approval of members. Decisions on proposals are made possible by a general vote of the members and in specific terms.

A decentralized organization operates without a management hierarchy and may pursue comprehensive goals.

Consider, for example, telecommuting networks, in which individuals raise contracts to purchase software subscriptions or a charity whose members approve donations, or any other entrepreneurial investment firm whose members are a group. They manage. With the help of these types of organizations, they can be set up.

Before continuing with the definitions, it should note that the concept of decentralized self-governing organizations that are native to the Internet is different from that of the DAO, which was established and destroyed in 2016. Still, the DAO project was the beginning of achieving other decentralized organizations today.

History of Decentralized Self-Government

The first decentralized organization (DAO) launch dates back to 2016 (2016) when a group of developers implemented their idea inspired by the decentralization of digital currencies. The first goal of the DAO project was to create a decentralized business model that could form business and nonprofit organizations.

This project implements on the Atrium China block, and its codes were available in open source. In the project, users invested anonymously by purchasing tokens and voting through the capital to participate in the organization’s decisions and vote on whether to approve or reject them.

The DAO project

The DAO project was not affiliated with any institution or institution, which led to numerous questions about how the legislature approached the project; Because the amount of capital raised for this project was among the largest collective investment campaigns, and in its time, with a fundraising of $ 150 million, it held the most successful fundraising event in the world of the Chinese bloc.

In the summer of 2016, a group of users used vulnerabilities. It infected DAO codes to steal one-third of the project’s capital, which eventually led to a consensus on performing a hard fork in Block 1,920,000 Atrium so that they could Return lost capital. This hard fork caused two branches to form in the atrium china block. Finally, in the same year, the DAO project eliminates large exchanges such as Poloniex and Kraken. Still, the legacy of the developers and their fascinating ideas continued to grow.

How does the Decentralized Authority (DAO) work?

As we have mentioned, the function of a decentralized organization is such that decisions are made from the bottom up, and there are different ways to participate in decision-making. The usual method is provided by token ownership.

The decentralized self-government organization operates by using smart contracts, which specify a set of rules and obligations of the parties to the contract. After fulfilling the obligations of the parties, the smart contract will be implemented automatically. Although Atrium Blockchain was the first network to use smart contracts, this capability is available today in various blockchains.

A smart contract in a decentralized organization (DAO) sets the rules that govern the organization. Individuals who have a stake in DAO have the right to vote and influence how the organization operates by making decisions or making managerial proposals. In a decentralized organization, any activity is considered a transaction, and you are transacting when you participate in the polls; Because voting is done through tokens.

To avoid the crowds of bids and submitting bids at different times and so-called spam through bids, the majority of each bid is reviewed only once.

It is approved when the majority of the organization’s investors approve it. How to determine this majority varies from DAO to DAO, and to find out, you need to access the decentralized smart organization contract.

Decentralized self-governing organizations are completely independent and transparent; Because in the context of blockchain, open source folders have been set up, and anyone can check their code. In addition, everyone can check the organization’s internal treasury; Because the Chinese blockchain records all financial transactions.

Three stages of setting up a decentralized self-governing organization

Creating a smart contract DAO: First, the developer or a group of developers must create a smart contract related to the decentralized organization. After the launch of the DAO, the set of rules governing the organization can only change with the help of these smart contracts and through the management system. As a result, developers need to carefully design and review contracts to avoid overlooking important details.

Fundraising for the DAO: After the approval of smart contracts, the DAO must decide on possible methods of raising capital and funding and management style. This step is often accompanied by the sale of the organization’s tokens to raise capital, in addition to raising capital, giving tokens holders the right to vote for decisions.

DAO Activation: After completing the initial steps, it is time to activate DAO on the Chinese block. From now on, with the activation and start-up of DAO, investors will decide on the organization’s future. Thus, the developers who created the smart contracts have more control over the project than any other investor, and all decisions are made by collective vote.

Advantages and disadvantages of decentralized government

Given that the decentralized self-governing organization is native to the Internet, it has many benefits for members. One of the important advantages of DAO is the process of building trust between the parties. In a traditional organization, much of the business and administrative trust depends on the people, especially investors. In a decentralized organization, the existing codes must validate.

Finally, it’s easier to trust code; Because they are available for inspection at any time and can be tested before commissioning. In addition, all movements within the decentralized organization need to be approved by the members’ community to operate, which leads to greater transparency and more secure validation.

DAO can use to grow and perform its tasks using indigenous tokens and well-invested capital.

Such an organization rejects the hierarchical administrative structure and does not endorse the traditional management style. In other words, China Blockchain technology and its consensus approach, with great security, are effectively penetrating the management foundation on a smaller scale, which can well feel in decentralized organizations.

Therefore, the DAO can be controlled, developed, and performed using indigenous tokens and well-invested funds. Eliminating the hierarchical administrative structure allows any investor to develop creative ideas and have the whole group comment on them and spread the idea. In addition, internal disputes are easily resolved through the voting system and following the rules prescribed in the smart contract.

The DAO Decentralized Organization allows members to invest in other startups and decentralized projects outside the organization by enabling them to raise funds to invest in them, and members can contribute to the profits or losses of new projects.

Another important advantage of a decentralized organization is that it provides a solution to the employer-employee problem.

This problem arises when there are conflicts between the priorities of employers and brokers, and it can be seen in different situations; Of course, it can be seen more in the relationship between investors and the CEO. For example, the CEO may work in a way that does not align with the priorities and goals that investors have decided on and pursue most of their personal goals. In another situation, the CEO takes big risks; Because he knows the main burden is on investors.

Decentralized self-government makes it possible to avoid the employer-employer problem by using collective management methods. Investors do not have to leave the management of the organization to the CEO and trust him and must study the rules governing the organization and become a member of it as a member of the activity group and participate in decisions; Because corporate profits increase their assets, the nature of the decentralized organization does not allow members to go against their profits.

Decentralized self-government, like everything else around us, has its advantages and disadvantages. 

Disadvantages of a decentralized organization include its legal, security, and structural problems. For example, studies by MIT  in 2016 show that relying on the majority of people in important financial decisions is not a good idea. Although the results of these studies were published in a 2016 article, MIT’s stance on decentralized organizations has not changed.

Also, in the same year, hacking and hacking into the DAO project raised concerns about the security of smart contracts, showing that despite discovering vulnerabilities in smart contracts, resolving them is not an easy task.

Furthermore, the nature of the decentralized organization is such that its legal issues are related to different parts of the judiciary, and there is no coherent structure for dealing with them legally. Therefore, if faced with any legal issue, it can lead to disaster; Because different local, national, and international legal departments have to work together or even get involved in litigation to resolve issues.

For example, in July 2017, the US Securities and Exchange Commission released a report showing that the DAO project sold its securities in the form of tokens on the Atrium China blockchain without a license and parts of the Securities Act. Has violated the stock market in the United States.

Comparison of Decentralized Organization (DAO) and traditional organization

Decentralized Authority (DAO) Centralized organization (traditional management)
It is often flat and completely based on democracy It is often hierarchical and has different levels of management
A vote requires any change of the members Implementing changes based on the organization’s structure can depend on an individual decision or be put to the vote.
After the consensus of the votes, the decision is implemented automatically and without mediation. In the case of relying on votes, the counting of votes will be done internally, and the final decision will execute manually.
The services provided are fully automated and managed with a decentralized approach (for example, charitable budget distribution). It requires human management or centrally controlled automation that is prone to manipulation.
All the movements and actions of the organization are transparent and traceable without confidential classification. Most movements are classified at the top management level and are not publicly accessible.

Security of the Decentralized Authority (DAO)

The story of the first decentralized organization, the DAO Project, shows the vulnerabilities and potential risks that the structure of such organizations may face. Two examples of the major dangers of decentralized organizations are:

Decentralized Security Security Vulnerability:

Although DAO codes are visible, they will be challenging to edit once the system runs. This allows hackers to easily inject malicious code and create holes in the code, as we saw in the attack on the DAO project in 2016. If these attacks occur or the developer team notices a security flaw and a bug in the part of the code after launching the code, there is only one solution.

The development team should try to persuade the majority to announce their affirmative vote for rewriting the smart contract codes and agreeing to organizationally migrate with all members and funding to the new network by raising issues and requesting votes from members. Thus, security vulnerabilities in decentralized autonomous organization codes are more vulnerable than in centralized systems.

Lack of Judicial Oversight:

Due to the evolving technology of these decentralized organizations, no legal rules have yet been put in place for law firms to address possible breaches of DAO performance. Therefore, the ambiguity in the future of decentralized self-government and how governments approach it can be considered important to these organizations.

Membership in the Decentralized Authority (DAO)

There are two ways to join a decentralized organization (DAO), and the types of membership determine how members’ votes affect and how other parts of the decentralized organization work:

Token-based membership:

Most memberships are open to the public and only require the purchase of tokens. Tokens can find in decentralized exchanges. There may also be other ways to access the tokens of a decentralized organization. By keeping the organization’s tokens, the user can participate in decisions and announce their vote. This membership method is used to control protocols and tokens. MakerDAO, for example, is one of the things you can become a member of by offering MKR tokens to decentralized exchanges.

Membership based on shares:

A decentralized self-governing organization whose members are identified based on shares often operates privately and on a private Chinese bloc; Of course, access to its codes is still free. To join, those individuals must apply for membership. In exchange for confirmation of membership in the DAO, they must be prepared to purchase specific tokens or provide evidence of work for the network.

In this way, they become shareholders and receive voting rights and property rights. Members can leave the organization at any time and convert their shares into money.

This method is commonly used in membership in human-centered organizations such as charities, labor groups, and investment clubs; Of course, this method can also use to control protocols or tokens. Moloch DAO, for example, focuses on fundraising for Atrium projects.

To change in this decentralized organization, the user application must register. The experts will determine who has the necessary knowledge and capital to make a comprehensive judgment about the projects by evaluating the candidates’ records. Therefore, membership tokens for such organizations cannot purchase in the market.

How to invest in a decentralized organization?

If you have ever bought and sold digital currencies such as Bitcoin and Atrium and are familiar with the process, investing in a decentralized organization is not as complicated as buying and selling cryptocurrencies. Each decentralized organization offers unique tokens, and you can buy and sell them freely in large exchanges such as cryptocurrencies. First, create an account at an exchange and buy DAO tokens and save them to your account. In this way, you will become a shareholder in that DAO organization.

Atrium and DAO

Ethereum and decentralized organization / Ethereum and DAO

Atrium is considered the best platform for setting up a decentralized organization; Because in this blockchain network, all the necessary tools for this purpose are available to people, and development teams can easily implement their ideas.

 Among the reasons that can mention are:

  • The consensus process used in Ethereum is distributed and stable, and organizations are more confident about it.
  • Smart contract codes are no longer editable once enforced, and even the owner cannot change them. Therefore, it can set up and manage a decentralized organization with the rules that are programmed.
  • The smart contract allows you to send and receive funds. Without this feature, it is necessary to use trusted intermediaries to manage group funds.
  • The Atrium community tends to collaborate rather than compete, and it is this collaborative atmosphere gives rise to best practices and support systems.

Some examples of decentralized self-government

In the following, we will introduce some examples of decentralized self-governing organizations that are currently active. Individuals can participate in them depending on the type of membership they have. It is worth mentioning that we see the most use of decentralized organizations in the decentralized financial space (Defi).

Dash project

The decentralized Dash organization, dubbed “Digital Cash,” is a text blockchain that provides fast and cheap money transfer services. The Dash project was originally developed as a fork from LightCoin to improve the basic technology behind Bitcoin by increasing security and reducing network fees. Dash can be considered the first decentralized organization.

Digix Global Project

This project starts with the aim of tokenizing physical assets. In other words, the project provided the infrastructure to create tokens backed by physical assets on the Chinese block. The protocol used in this network is called Proof-of-Provenance validation, which uses the Atrium network and the Intercontinental File System ( IPFS ). The two tokens presented in this project are Digix Gold and DigixDAO, indicated by the letters DGX and DGD, respectively. The DGX token is based on real gold and is used in the network’s decentralized PA ecosystem.


Bateshares is a decentralized exchange that also provides decentralized development services. In other words, BitShares is the first decentralized exchange office.

The future of decentralized government

It is difficult to predict the future of decentralized organizations, But one of the important areas that future investors will pay special attention to is the use of DAO technology in the world of decentralized finance (Defi). Decentralized exchanges such as Compound yearn. Finance and Uniswap rely on DAO technology to manage their networks. In the future, we will definitely see more development of this technology in finance; Because DAO organizations still have a long way to go to reach maturity and take a reliable form.


Decentralized self-government can be considered a step forward for decentralized and integrated management of organizations due to its capabilities. DAO can transform the way companies are managed in general; Of course, realizing this dream requires eliminating ambiguities and gray spots in the performance of these organizations from a legal perspective, which is being done gradually.

In addition, the failure to address smart contract breaches in the Ethereum China block should cover for use in decentralized organizations. If possible, another way should devise for such organizations.

What do you think about the possibility of voting for members to manage a decentralized organization? Is the mere criterion of being an investor sufficient to participate in voting at the macro-management level, or should people be experts in this field?