DAO Glossary: Fundamental Terms To Understand


What Are DAOs and How Do They Work?

A DAO is an association made up of like-minded people, a management method, a multi-signature cryptocurrency wallet and smart contracts. A DAO means trust without the need to gain trust. A DAO is a vast concept.

DAOs enable co-investment, form private communities, do charity work and manage cryptocurrency protocols. Learn more about these decentralized organizations and their operative specifics here >>>

Practical Lessons Around Creating DAOs: Famous Use Cases
How Much Does a DAO Cost to Create?
What Do I Get From Participating in a DAO?
The price depends on the chosen blockchain, the value of the network token and the current gas price. The specific price can range from $1 to $1,500.
You get to vote in key decisions, protection for your investment, absolute transparency of business processes and more. It all depends on the type of organization.
The risks for investors are the same as in other cryptocurrency projects: vulnerabilities of smart contracts and scams. You can offset them with standard methods such as a comprehensive analysis of the project and a technical audit.
Technically speaking, you just need to do a simple sequence of actions. XDAO has taken care of that. But making a DAO run, attract capital and like-minded people is a matter of conception, strategy and tactics.
What Are The Risks in DAOs?
What Do I Need to Create a DAO?
DAO is a vast concept. In order to start understanding decentralized autonomous organizations, there are some terms you need to grasp first. We joined up with the XDAO team to prepare a small glossary that will help beginners understand how DAOs work.
Decentralized Autonomous Organization (DAO) — a form of organization where participants' activities are based on rules set in smart contracts, and any decisions are executed only when consensus has been reached.
Governance Token (GT) — a governance or native token that allows its members to create and participate in votes. GT has no economic value, cannot be sent to another wallet like a regular token, and can only be created or sent as a result of voting in a DAO.
Assets Under Management (AUM) — all funds managed by a DAO.
Liquidity Provider Token (LP) — an investment token or liquidity provider token. An ERC-20 standard token, backed by DAO assets and varying in price depending on the total issue of the LP and AUM of a DAO. When an LP token is burned, a holder receives a proportional share of the AUM of a DAO. The total supply of an LP token depends on its economic value.

For example, if 10 LPs were issued and the project's AUM is $1,000, then the value of 1 LP is $100.
Consensus — a principle according to which any transaction, change of the DAO management rules or other actions allowed by the conditions of a particular DAO, is carried out only after creating a vote and reaching a quorum.
Quorum — the number of votes required for a decision to be executed.
On-chain voting — every participant's vote is "recorded" on a blockchain, and the result of the vote is executed automatically after a quorum is reached. This type of voting is characterized by high gas costs.
Off-chain voting — all participants' actions, including the voting result, do not interact with the blockchain. This type of voting is usually used for project community voting, as it does not entail the binding execution of a decision.
Hybrid voting — participants vote off-chain using a unique signature, while the execution of the voting results is done on-chain. This type of voting allows you to significantly reduce gas costs without compromising security.
Absolute majority voting — 50+1% of the votes must be reached to achieve a quorum.
Module — a special smart contract providing some additional function for a DAO.