Decentralised autonomous organisations (DAOs) are institutional technologies that enable democratic governance innovation. They inherit key democratic principles such as procedural transparency and immutable records from being based on blockchain technology. This paper conducts a systematic literature review to examine governance mechanisms and challenges of digital democracy in DAOs. While issues like power concentration and coordination failures exist in current implementations, we argue that the concept of DAOs offers new opportunities for transparent governance and participatory decision-making. As testbeds for governance experiments, we find that DAOs have the potential to reshape democratic processes and foster innovative governance models in the digital era. Calling for interdisciplinary collaboration, further research is needed around Sybil-resistant voting mechanisms, ideological path dependencies and deliberation mechanisms.