How Does a DAO Work?
Sounds great, but how is it supposed to work? How does the system guarantee trust? When a DAO is first created, its rules are written into its code in the form of smart contracts programmed to run when certain actions take place. Everyone agrees to abide by the rules when they buy into the group, and if those rules are violated, its funds are locked and nobody can use the DAO. This, in theory, is how a DAO guarantees that everyone will follow the rules. Every DAO has a built-in treasury to store its cache of digital currency that members can only access with approval by the group, and decisions affecting the group are made collectively during a set period. There are three steps to creating and launching a DAO: Creating the smart contract: The developers of the DAO code the smart contract(s) that will dictate the rules of the group and decide on the group’s purpose. This stage involves extensive testing of the code, because it can only be changed through group voting once the DAO i...