[1] Although some argue that Bitcoin was the first DAO, the term is only understood today as organizations deployed as smart contracts on top of an existing blockchain network.
[2][3][11] This approach eliminates the need to involve a mutually acceptable trusted third party in any decentralized digital interaction or cryptocurrency transaction.
[2]: 42 [3] In theory, a blockchain approach allows multiple cloud computing users to enter a loosely coupled peer-to-peer smart contract collaboration.
[2]: 42 [12] Vitalik Buterin proposed that after a DAO is launched, it might be organized to run without human managerial interactivity, provided the smart contracts are supported by a Turing-complete platform.
Admission to a DAO is limited to people who have a confirmed ownership of these governance tokens in a cryptocurrency wallet, and membership may be exchanged.
In a study of decentralized finance DAOs, the distribution of tokens was shown to be highly concentrated among a small population of holders.
[20] Known participants, or those at the interface between a DAO and regulated financial systems, may be targets of regulatory enforcement or civil actions if they are out of compliance with the law.
Although the code is visible to all, it is hard to repair, thus leaving known security holes open to exploitation unless a moratorium is called to enable bug fixing.
The DAO's operational procedure allowed investors to withdraw at will any money that had not yet been committed to a project; the funds could thus deplete quickly.