When an entire organization is formed and run using a combination of smart contracts and decentralized applications, with very minimal human intervention, it can be referred to as a DAO.
Buterin has posited that a DAO can be run without human managerial interference so long as it is built on a Turing-complete platform like the Ethereum Virtual Machine (EVM). After it has been developed, its coin can be launched, and investors can buy this coin with Ether. They can then use this coin to vote and can eventually earn a percentage of the profit commensurate with their coin holding.
DAOs have been proposed to run for various purposes, including as charity organizations, venture capital organizations and medical insurance firms.
The most famous DAO was The DAO, an Ethereum based Venture Capital fund that was crowdfunded to the tune of $150 million and designed to receive proposals, evaluate them, fund them and run them for profit.
The DAO was immediately hacked to the tune of $50 million, exploiting flaws in the DAO code — this led to a fallout about how to recover the funds. Eventually, the Ethereum blockchain created a hard fork to recover virtually all of the stolen funds.
Community members who did not want to compromise the ground rules of blockchain technology, essentially the immutability of transactions, remained in the old blockchain, and Ethereum Classic was born.
The majority of the network followed the original Ethereum team to the forked chain, arguing that common human decency must prevail over strict adherence to blockchain rules in some cases, like when someone deliberately exploited weaknesses in the DAO code to harm other users by draining their earnings.
If the DAO were still operational, it probably would still be setting the pace in this revolutionary technology. But other efforts are being established now to make similar organizations have the benefit of learnings from the DAO’s mistakes.