# Basic Concepts about DeFi DAOs

To understand DeFi DAOs, one would need to have a basic understanding of the following concepts:

<table data-card-size="large" data-column-title-hidden data-view="cards"><thead><tr><th>Term</th><th>Description</th><th>Examples</th></tr></thead><tbody><tr><td><strong>DeFi (Decentralized Finance)</strong></td><td>DeFi refers to a financial system built on blockchain technology that is decentralized, transparent, and accessible to anyone with an internet connection.</td><td></td></tr><tr><td><strong>DAOs</strong></td><td>DAOs (Decentralized Autonomous Organizations) are organizations that are governed by their members, who vote on proposals and make decisions collectively, through smart contracts on public and secure blockchains. </td><td></td></tr><tr><td><strong>Governance Tokens</strong></td><td>Governance tokens are tokens that give holders the right to vote on proposals and decisions within a DAO.</td><td></td></tr><tr><td><strong>Voting</strong></td><td>Members of a DAO vote on proposals using their governance tokens. The outcome of the vote determines whether the proposal is accepted or rejected.</td><td></td></tr><tr><td><strong>Quorum</strong></td><td>A quorum is the minimum number of votes required for a proposal to be considered valid. This is set by the DAO's governance rules.</td><td></td></tr><tr><td><strong>Tokenomics</strong></td><td>Tokenomics refers to the economic system of a token. This includes factors such as the supply, demand, distribution, and usage of the token within the ecosystem. Understanding tokenomics is important for understanding how governance tokens work within a DAO.</td><td></td></tr><tr><td><strong>Smart Contracts</strong></td><td>Smart contracts are self-executing contracts, with the terms of the agreement between transaction partners directly written into lines of code. They automate and execute the rules of a DAO.</td><td></td></tr><tr><td><strong>Risk Management</strong></td><td>Members need to assess the risks associated with proposals and make informed decisions to minimize the risk of loss. </td><td><ul><li><a href="https://twitter.com/MakerDAO">@MakerDAO</a> – <a href="https://twitter.com/MakerDAO/status/1634251563760754700">How does MakerDAO's risk team evaluate and mitigate the economic risks of Maker Protocol's operations?</a></li></ul></td></tr></tbody></table>

**Some additional key terms to consider**:&#x20;

* Stablecoins
* Money markets
* AMM
* Liquidity pools
* Real-world assets
* Yield farming
* …

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© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


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