What is a DAO?

Short answer:

DAO stands for ‘Decentralized Autonomous Organization’ and is essentially just an automated GoFundMe, that runs using crypto instead of cash.

Long answer:

How about we put it into a real world context? Let’s say your neighborhood is throwing a big ol’ block party for New Years.

One neighbor starts a GoFundMe in order to buy food & drinks, and hire a sound system for the night. 

The rest of the neighborhood donates to the fund, and each person gets to vote on what kinds of snacks and beers are purchased, based on how much they donated.

(The more they donate, the more voting power they have).

Once the funding target is reached, the neighbor that started the fund goes and places orders for a range of different snacks, places a keg order and contacts a local party hire company.

This is how a DAO works, but the friendly neighbor that manages and disperses the funds is a piece of computer code, known as a smart contract. 

And it runs autonomously, without any human interaction.

The rules of where this smart contract will send the money are voted on by investors, just like with the GoFundMe - the only difference is, there’s no central human authority figure managing the funds once the decision is made.

This makes it a decentralized and autonomous organization (DAO) of people, raising and dispersing funds.

In a DAO, voting rights are tallied by how many DAO tokens each investor holds (the more you invest, the more tokens you get in return).

Same goes for profit.

If a profit is made by the DAO, it’s dispersed to token holders according to their total investment.