A DAO is essentially an automated ‘GoFundMe’, that uses crypto instead of traditional fiat, let elaborate on this….
You and your neighbours are throwing a street party for New Year’s. You decide to start a GoFundMe to raise money to buy food & drinks, supplies, entertainment and so forth. The rest of the neighbours donate to the fund, each person who donates gets a vote on how the money should be spent. The larger the donation the greater the voting power.
Once the funding target is achieved, you go and place orders for the different types of drinks, snacks and choose which DJ to get based on the voting recommendations.
This is how a DAO works, you being the friendly organiser manage and distribute the funds accordingly, in a DAO this is done by a piece of computer code also known as a smart contract.
And this runs autonomously, without any need for human interaction. The rules of where this money will be dispersed is determined by the smart contract which is voted on by the neighbour investors.
There is no central authority figure managing the funds once the smart contract decision is made.
This makes a ‘decentralized autonomous organization (DAO) in this case of people raising and allocating funds.
In a DAO, voting rights are tallied by how many DAO tokens each investor holds (this usually depends on how much they have donated)
This same principle can be applied to DAO’s that generate a profit, profits will be dispersed to token holders according to their total investment or how many tokens they hold.
That is a quick quide to DAO’s