As stated by Vitalik Buterin, when we say “Decentralization” we mean these different terms:
Architectural (de)centralization — how many physical computers is a system made up of? How many of those computers can it tolerate breaking down at any single time?
Political (de)centralization — how many individuals or organizations ultimately control the computers that the system is made up of?
Logical (de)centralization— does the interface and data structures that the system presents and maintains look more like a single monolithic object, or an amorphous swarm?
A Blockchain features 1 and 2, but not 3 because whole blockchain behaves like a single system. As long as DAO runs on top of blockchain, it features same set of properties.
Three reasons for Decentralization:
Fault tolerance— decentralized systems are less likely to fail accidentally because they rely on many separate components that are not likely;
Attack resistance— decentralized systems are more expensive to attack and destroy or manipulate because they lack sensitive central points that can be attacked at much lower cost than the economic size of the surrounding system;
Collusion resistance — it is much harder for participants in decentralized systems to collude to act in ways that benefit them at the expense of other participants, whereas the leaderships of corporations and governments collude in ways that benefit themselves but harm less well-coordinated citizens, customers, employees and the general public all the time.
Sovereignty is the full right and power of a governing body over itself, without any interference from outside sources or bodies.
When software combines the capabilities of self ownership, property rights, and predictable behavior, with a competitive system of commerce facilitating incentive mechanisms; it can achieve sovereignty.
When an autonomous system has the ability to make changes to itself while intentionally avoiding violations of its terminal goals or mission statement, it is sovereign. This governance system can be achieved by using artificial intelligence or by mechanisms that delegate this authority to humans without sacrificing autonomy.
So, perhaps the highest leverage thing protocol designers can do is think about how to engineer the evolutionary characteristics of their blockchains — specifically, the economic incentives for anyone to come along and improve them. The best engineered organisms can outpace others, even if they start smaller or later. Cryptoeconomic protocols create financial incentives that drive a network of rational economic agents to coordinate their behavior.
DAO should be architecturally and politically decentralized;
DAO should allow the autonomous logic to make decisions based on objective facts provided by other actors;
DAO should adapt to changes;
DAO should have a working business model/useful economic equilibria.