A DAO, or Decentralized Autonomous Organization, operates based on rules encoded as transparent computer programs, known as smart contracts, on a blockchain like Ethereum. It is essentially an organization governed by its members, with decisions made via proposals and votes. Every action and transaction is recorded on the blockchain, ensuring complete transparency and immutability. Members hold tokens which grant them voting rights proportional to their stake. This structure eliminates centralized authority and potential biases, making operations fully democratic and community-driven.