6.5[Advanced Topics & DeFi](https://wealtii.com/learn) # What Is a DAO? Crypto Governance and DAOs Explained By [Zayd Ahmed](https://wealtii.com/editorial-policy#zayd-ahmed), Founder & CEO, Wealtii · Published 12 February 2026 · Last reviewed 21 October 2026 **A DAO (decentralised autonomous organisation)** is a group that manages a shared treasury or protocol through rules written in smart contracts, with members voting using governance tokens instead of following a board or CEO. Blockchain governance is the wider process for deciding how a network changes, from token votes to Bitcoin's improvement proposals. ## How does a DAO work? A DAO has three parts: a treasury held in a smart contract or multi-signature wallet, a governance token that measures voting power, and a set of [smart contracts](https://wealtii.com/learn/smart-contracts-explained) that define what a successful vote can change. A typical proposal moves through these steps: 1. **Discussion:** an idea is posted on the DAO's forum for feedback. 2. **Temperature check:** an off-chain poll, often on Snapshot, tests support without gas fees. 3. **Formal proposal:** a holder with enough tokens or delegated votes submits executable code on-chain. 4. **Vote:** holders vote during a fixed window and the proposal must reach a quorum. 5. **Timelock and execution:** a passed proposal waits for a set delay, giving users time to exit if they disagree, then executes automatically. ## What types of blockchain governance exist? | Model | How decisions are made | Examples | Trade-offs | | --- | --- | --- | --- | | On-chain token voting | Token holders vote through a governance smart contract; passed proposals execute automatically, often after a timelock | Compound, Uniswap, Aave | Transparent and binding, but large holders dominate and voting costs gas | | Off-chain voting with multisig execution | Signed, gas-free votes (e.g. on Snapshot); a multi-signature wallet carries out the result | Many smaller DAOs | Cheap and flexible, but signers must be trusted to follow the vote | | Delegated voting | Holders delegate their votes to active participants who vote on their behalf | Most large token-voting DAOs | Raises participation, but concentrates power in a few delegates | | Off-chain rough consensus | Developers propose changes as Bitcoin Improvement Proposals; node operators and miners adopt or signal for them | Bitcoin | Conservative and slow by design; no token vote | Bitcoin shows that governance does not need a token vote. Changes such as the Taproot upgrade in 2021 were written up as Bitcoin Improvement Proposals, debated publicly and activated only after broad adoption by miners and node operators. That makes Bitcoin slow to change, which many holders see as a feature. ## Which DAOs are well known? - **Uniswap DAO:** UNI holders govern the Uniswap protocol's parameters and treasury. - **Aave DAO:** votes on which assets can be borrowed, risk limits and treasury spending. - **Sky (formerly MakerDAO):** governs the collateral rules behind the DAI and USDS stablecoins. - **Arbitrum DAO:** governs the Arbitrum layer 2 network and its treasury. - **ENS DAO:** governs the Ethereum Name Service. Treasury sizes for these DAOs change daily with token prices, so check each DAO's own dashboard or forum for current figures. Our guide to [how DeFi protocols work](https://wealtii.com/learn/defi-basics) explains what several of them do. ## What are the main risks of DAO governance? - **Concentrated voting power:** one token equals one vote, so early investors, teams and large delegates can decide outcomes. - **Low turnout:** many holders never vote, which lowers the cost of capturing a vote. - **Governance attacks:** in April 2022 an attacker used flash-loaned tokens to gain enough votes to pass a malicious proposal and drain the Beanstalk protocol. Timelocks and vote-snapshot rules now make this harder. - **Weak accountability:** no one may be clearly responsible when something goes wrong. - **Legal uncertainty:** courts may treat members as partners, as the next section explains. ## Are DAOs legal, and can members be liable? Taking part in a DAO is legal in most countries, but the legal status of DAOs is unsettled. In June 2023 a US federal court held that Ooki DAO was a "person" under the Commodity Exchange Act, ordered a $643,542 civil penalty and required its website to be shut down, according to the CFTC. In November 2024 a federal court in California allowed claims that Lido DAO operated as a general partnership to proceed, which could expose active participants to the DAO's debts. Some jurisdictions now offer legal wrappers. Wyoming has allowed DAO limited liability companies since July 2021 and added the decentralised unincorporated nonprofit association (DUNA) in 2024; the Marshall Islands and some foundation structures are also used. Our guide to [KYC, AML and legal basics for crypto investors](https://wealtii.com/learn/crypto-legal-considerations) covers other legal risks. ## How do governance tokens compare with company shares? A share gives legal ownership in a company and rights set by company law, such as dividends and shareholder votes. A governance token gives only what the protocol's code and governance decide, with no statutory protections. That also differs from tokenized stocks: the tokenized stocks in Wealtii's Growth and Balanced funds give economic exposure to the underlying shares, and holders do not get shareholder voting rights. Our explainer on [how Ondo tokenized stocks work](https://wealtii.com/learn/ondo-tokenized-stocks-explained) covers the details. Wealtii is not regulated. ## Frequently Asked Questions ### What is a DAO in crypto? A DAO (decentralised autonomous organisation) is a group that manages a shared treasury or protocol through smart contracts, with members voting on proposals using governance tokens instead of answering to a board or CEO. Votes and treasury movements are recorded on a public blockchain. ### How does voting in a DAO work? Most DAOs discuss ideas on a forum, hold an off-chain poll on a tool such as Snapshot, then run a binding on-chain vote. Voting power usually equals the number of governance tokens a wallet holds or has been delegated. Approved proposals often wait in a timelock before the smart contract executes them. ### Can DAO members be personally liable? Possibly. In the US, a federal court held in June 2023 that Ooki DAO was a "person" that could be sued by the CFTC, and in November 2024 a California federal court let claims that Lido DAO was a general partnership proceed. Some DAOs use legal wrappers such as a Wyoming DAO LLC to limit member liability. ### Is a governance token the same as a share? No. A governance token gives voting power over a protocol’s rules or treasury, but by default it carries no legal ownership of a company, no dividend rights and no shareholder protections. What it entitles you to depends entirely on the protocol’s code and governance decisions. ## Sources & References 1. [ethereum.org — What are DAOs?](https://ethereum.org/en/dao/) (accessed 21 Oct 2026) 2. [OpenZeppelin documentation — On-chain governance (Governor and timelock contracts)](https://docs.openzeppelin.com/contracts/5.x/governance) (accessed 21 Oct 2026) 3. [Snapshot documentation — Off-chain voting](https://docs.snapshot.box/) (accessed 21 Oct 2026) 4. [CFTC — Court rules Ooki DAO is a "person" and liable for violations (9 Jun 2023)](https://www.cftc.gov/PressRoom/PressReleases/8715-23) (accessed 21 Oct 2026) 5. [Bitcoin Improvement Proposals (BIPs) repository](https://github.com/bitcoin/bips) (accessed 21 Oct 2026) Disclaimer: Educational content only, not financial or legal advice. The legal treatment of DAOs differs by country and is changing; consult a qualified lawyer before relying on any structure. Wealtii is early-stage and is not regulated by any financial regulator. ## Further reading from official sources - [NIST: Blockchain Technology Overview](https://csrc.nist.gov/pubs/ir/8202/final) - [Bitcoin white paper](https://bitcoin.org/bitcoin.pdf) [Zayd Ahmed](https://wealtii.com/editorial-policy#zayd-ahmed) Founder & CEO, Wealtii Computer Science Engineer | 5+ Years in DeFi & Digital Assets