# How does DAO work?

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## &#x20;Here’s a detailed explanation of how it works:

### &#x20;Core Components of a DAO:

* Smart Contracts:\
  These are self-executing code written on a blockchain that defines the rules and logic of the DAO. They handle tasks such as managing funds, executing votes and enforcing decisions automatically without requiring intermediaries.
* Governance Tokens:\
  Members often hold governance tokens that represent their voting power. These tokens allow them to participate in decision-making processes, such as voting on proposals or electing leaders.
* Blockchain Technology:\
  All activities, including voting and transactions, are recorded on a public blockchain. This ensures transparency and immutability, meaning that the records cannot be altered or tampered with.

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## &#x20;How a DAO Functions:

1. Formation of the DAO:

* A DAO is created when developers deploy smart contracts on a blockchain. These contracts encode the rules of the organization.
* Initial funding is often raised through token sales, where participants buy governance tokens.

2. Proposal Submission:

* Any member of the DAO can submit proposals. These could be about funding a project, implementing a new feature or making changes to the DAO's governance structure.

3. Voting Process:

* Members use their governance tokens to vote on proposals.
* Voting systems vary; some DAOs use "one token, one vote," while others may have weighted voting or quadratic voting to ensure fairness.

4. Decision Execution:

* If a proposal receives enough votes to meet the approval threshold, the smart contract automatically executes the decision.
* For example, if a proposal is to fund a project, the smart contract might release the funds directly to the project's wallet.

5. Decentralized Treasury Management:

* A DAO’s funds are stored in a shared wallet, typically managed by smart contracts.
* These funds are only used when proposals are approved by the community, ensuring transparency and accountability.

6. &#x20;Advantages of How DAOs Work:

#### Decentralization:

* No single person or entity controls the organization. Decisions are made collectively by the community.

Transparency:

* All decisions and transactions are publicly recorded on the blockchain, ensuring trust among members.

Global Accessibility:

* Anyone with an internet connection and tokens can participate, regardless of location.

Autonomy:

* Once deployed, the smart contracts operate automatically without human intervention, reducing the risk of bias or corruption.

***

## Examples of DAO Functionality:

* Investment DAOs: Members pool funds and vote on investment opportunities.
* Community DAOs: Groups make collective decisions about shared goals or projects.
* Protocol DAOs: Governance of decentralized applications, like Uniswap or Aave, where token holders vote on protocol updates.
