One of the fundamental ideas behind cryptocurrency is decentralisation, which we discussed at length during the first few episodes.

In this episode, I’ll explain how decentralisation can also be applied to decision making, and how crypto companies implement this today.

DAO’s

A decentralised autonomous organisation (DAO) is an entity which enables governance on the blockchain.

In a DAO, proposals and decisions are proposed and decided by token holders, rather than a board of CEOs and directors.

A typical DAO has:

• Its own crypto token (governance token).
• A community of token holders.
• The ability to discuss, create and vote on proposals freely.

In layman’s terms, DAO’s enable stakeholders to put forward and vote on proposals, in seconds, from anywhere around the world.

The Typical DAO Process

Each DAO is different from the next, but roughly speaking this is the process.

1. A proposal is put forward by a token holder.
2. The proposal is discussed, reworked and finalised by the community.
3. It is put to a vote, where each token represents one vote.
4. The vote concludes, the majority was in favour, and so the proposal passes.
5. The proposal is implemented.

An example proposal could be: “to raise protocol fees by 10%”.

Governance Tokens

Imagine you own a share in a company, like Apple.

Shares let you vote on decisions (like picking the CEO) and sometimes get a share of the profits (dividends).

Governance tokens in the crypto world are a bit like shares, but they work differently because they’re for decentralised apps and not companies.

These apps, called protocols, enable many things like swapping tokens on Jupiter. The tokens let you vote on how the app runs, but they don’t give you ownership like shares do.

Shares equal equity, which means you own part of a company and its stuff (like factories or money). But most crypto protocols aren’t companies, they’re code.

Code can’t “own” things like a company does, so tokens don’t give you ownership or profits. Instead, they let you help decide the protocol’s rules, like:

• Changing how much the protocol charges users.
• Upgrading the protocol’s features.

You may wonder why governance tokens can be valued at up to $2B if all they grant is voting power—and you’d be right.

That’s why the more established DAOs have begun “token buybacks”, where a share of protocol revenue buys back its tokens from the open market.

Over time this should reduce the token’s circulating supply, thus increasing token price

Case Study: Jupiter DAO