How DAOs Make Money

If you’re looking to start your own DAO or invest in DAO tokens, you are probably asking yourself how DAOs make money. Here are the answers to your questions.

Josiah Makori
By Josiah Makori
Kirsty Mac Dougall
Edited by Kirsty Macdougall

Published May 30, 2022.

What Is a DAO?

A DAO, or decentralized autonomous organization, is a community-based organization with no hierarchical structures. A DAO is completely autonomous and transparent, and it uses smart contracts to outline the operating rules and execute mutual agreements. Since DAOs are built on blockchain networks, proposals, voting, and transactions can be publicly audited.

DAOs are governed entirely by their communities, which jointly decide the future of their projects, like network upgrades and financial allocations. DAO community members suggest proposals affecting the future functioning of the project and then vote on these proposals. Submissions that attain the set terms and conditions are accepted and executed automatically by the protocol.

The non-hierarchical structure of a DAO is the basis of incentives. In other words, it’s in members’ best interests to be sincere in their voting. This leads to the approval of plans that will only serve to benefit the project—and as the DAO succeeds, so do the community members.

An active DAO community and a robust protocol will gain more usage, consequently boosting the value of the underlying governance tokens held by the members to the advantage of both the organization and its members.

How Is a DAO Profitable?

Typically, DAOs make profits through dividends from their various investments. An entrepreneur starting a DAO can also make money by persuading interested investors to back them based on their project ideas.

With the current DeFi trends like non-fungible tokens (NFTs), DAOs are reclaiming their former success after the 2016 death of the Genesis DAO. Billionaire investor, Mark Cuban, labeled DAOs the ideal blend of capitalism and liberalism.

Cuban strongly feels that investors can reap big profits with DAOs if their communities perform well in governance. Crypto investor and influencer, Cooper Turley strongly agrees with Cuban. He suggests that DAOs will determine how future businesses invest and make money. He further claims that companies won’t offer equity in five years. Instead, they will issue tokens and operate as DAOs.

MakerDAO is one of the oldest and most successful DAOs in the DeFi space. It issues and manages the DAI stablecoin. MakerDAO splits its proposals into Governance Polls for non-technical resolutions and Executive Votes for protocol changes. You can participate in MakerDAO Governance Polls by holding the DAO token.