**2. Definition and characteristics of DAOs**

DAOs are blockchain-based organizations, owned and governed by members. DAOs follow a set of self-executing governance rules that are embedded into a blockchain that run without the interference of a central authority (see **Table 1** for a summary) [1–3].

DAOs are blockchain-based organizations. Blockchain is a distributed ledger technology (DLT), which translates into a public database, where information is written in "blocks" cryptographically linked to the previous blocks, forming a chain of blocks [4]. Blockchain technical features, as distributed data storage, timestamp, consensus algorithm and asymmetric encryption, allow for decentralization, immutability and auditability [5]. The blockchain is, thus, the infrastructure that enables DAOs to be decentralized and autonomous, also ensuring the security requirements and ownership authentication that DAOs require to function [2, 3]. It is important to mention that not all blockchain-based organizations (e.g., DApps and platforms) are DAOs. Indeed, there are several blockchain-based organizations that display a centralized governance system, being owned and governed by private investors, founders, developers' teams or even by a restricted permissioned group. Nevertheless, all DAOs are blockchain-based organizations as blockchain technology is the foundation of their decentralized and autonomous governance form.

DAOs embed a set of self-executing governance rules that are turned into computer code that is embedded on the blockchain [2, 3]. Such governance rules define participation terms, voting and proposing systems as well as rewards and penalties terms. All these rules are open and transparent to all participants. By interacting with this self-executing code, participants can submit proposals that may comprise changes to the functioning of the organization, amends to the governance system or suggestions for future projects. In some DAOs, such proposals go directly for community voting (e.g., community proposal); however, in others, there are a couple of additional steps before a proposal reaches the wider community for voting (e.g., stage proposals and


**Table 1.** *Characteristics of DAOs.*

#### *DAOs: Governance in the Blockchain Era DOI: http://dx.doi.org/10.5772/intechopen.109040*

represented team proposals). Once the proposals are up to vote, community members can use their governance tokens to vote on the proposals. There is also a variety of voting systems, such as one person one vote, quadratic voting, weighted votes, holographic consensus, futarchy and liquid democracy, among others. After the voting process finishes, the proposals are implemented according to the parameters defined by the community. In some cases, the execution is automatic or direct (e.g., when the proposal is a code alteration that includes the code) or it might require that developers build the code to implement, leading to a delayed implementation.

DAOs are owned and governed by people without the interference of a central authority. Community members own the organization through token holding and govern the organization through proposals and voting systems that are embedded into the blockchain. Blockchain and smart contracts technologies allow DAOs to operate autonomously without centralized control or third-party intervention [2, 3]. Instead, DAOs run under the regulation rules and collaboration patterns defined by all the stakeholders. The DAO's goal is achieved through bottom-up interaction, coordination and cooperation among members, following the principles of equality, voluntariness, reciprocity and mutual benefit [2, 3].
