Creating a decentralized autonomous organization (DAO) can be an exciting and rewarding endeavor. A DAO is a self-governing entity that runs on the blockchain, making it resistant to censorship and manipulation by third parties. It allows individuals to pool their resources together in order to create a powerful force for change. By joining forces, a DAO can achieve much more than any single individual can achieve alone.
Before going through the steps to building a DAO, it is important to first learn how a DAO works.
DAO vs traditional organizations
The main difference between a DAO and a traditional organization is the autonomy they provide their members. In a traditional organization, decision-making power is concentrated in an individual or group of people, whereas in a DAO decisions are made by the collective that contributes to it. This means that each member plays an active role in voting on proposals, creating a system of true democracy where everyone has an equal say.
Another distinction between these two types of organizations is transparency. While traditional organizations may have hidden agendas or other forms of corruption that can be difficult to detect, all transactions within DAOs are stored on the blockchain and open for anyone to audit. This helps ensure fairness and trust among participants while preventing any manipulation from taking place.
Challenges of running a DAO
Running a DAO can be a challenging endeavor. As it is decentralized, there needs to be an efficient way for members to come together and make decisions. This means that the organization needs to have clear rules, protocols, and tools in place for governance.
- With no centralized authority running the show, it can often be difficult to enforce any sort of decision or agreement made by the collective.
- Raising funds. While traditional companies may find investors willing to provide capital for their endeavors, decentralized organizations must rely on donations from users or fundraising mechanisms built into the protocol itself (e.g., Initial Coin Offerings).
- Due to its relative infancy status compared to other forms of business entities, it can be difficult to attract people to join or invest in DAOs.
How do DAOs work?
DAOs are internet-native businesses that are completely independent and run with the help of code-based smart contracts. Smart contracts are programs that execute on the blockchain, automatically executing functions without the need for any intermediaries. The code acts as a set of rules to govern how the organization operates and distributes power amongst its members.
This means that the DAO’s structure, rules, and other operations remain in place all the time without any risk or intervention from their members, who can interact with each other trustlessly as a result. As these settings have been stored within an immutable, programmable smart contract on a blockchain, they cannot be modified or altered in any way. The decentralized nature of DAOs provides individuals and groups with a powerful way to coordinate and work together autonomously, facilitating open coordination and collaboration within communities.
Voting mechanisms
Decentralized Autonomous Organizations (DAOs) have a variety of voting mechanisms they can use to gain consensus in decision-making. Token-based quorum voting is one of the most popular methods, where a minimum number of voter tokens – known as a quorum – must be reached before a proposal is considered valid.
Permissioned relative majority voting works similarly but does not require a quorum. For those seeking an even more unique option, Moloch DAOs feature ‘rage quitting’ which allows members to cash out their share of the treasury if they disagree with another member’s decision. Each DAO can tailor its voting mechanism according to the unique needs of its members and can choose from systems that offer votes every minute or just once per day.
DAO membership
Token-based membership
DAOs with token-based memberships are a fascinating type of organization, as anyone who holds their token can take part in its operations. This is known as ‘permissionless’, emphasizing the open nature of these decentralized services.
DAOs with this kind of setup manage protocols that contribute to the development and strength of the decentralized infrastructure and open finance, such as various DeFi applications.
This structure has a great potential to effectively remove intermediaries from the equation and unlock new ways for communities to engage in virtual governance, coordination, and investments.
Share-based membership
Share-based DAOs typically require prospective members to put forward a proposal or token tribute before they can become a member. Compared to token-based DAOs, which have an open, permissionless structure, this creates a higher barrier to entry.
Share-based membership models are mainly used by smaller DAOs like charities or micro-investment collectives.
Many of these share-based organizations are decentralized and borderless, allowing anyone from around the world to join in and participate.
Reputation-based membership
These kinds of DAOs require members to submit proposals in order to join the DAO. If accepted, prospective members receive tokens and a reputation for the work they put into the proposal. Membership in these organizations is typically not able to be bought, it needs to be earned through contributions to the collective.
This kind of structure is particularly suited for worker collectives and decentralized development projects that demand hard work from members who have a shared interest in working together on this type of project.
Steps to building a DAO
Step 1: Initial Preparation
Before launching your own DAO, it’s important to plan some essential elements. This planning should start with an investigation into whether a similar DAO already exists – if so, it may be advantageous to join that established community instead of creating a new one. It’s important to remember that DAOs are highly customizable, so you can always shape whatever existing DAO meets most of your needs to fit your requirements.
When there is no similar DAO available, then the process of designing and deploying yours can begin.
Step 2: Establish a community
Building a DAO is an ambitious step to take, so you’ll want to start out by finding or creating community members who share your goals and vision. Setting up a Discord channel is an effective way of doing this; it provides a central hub for communication that keeps all those involved in the same loop.
Once you have your team in place, do your calculations on the necessary funding needed to achieve your goals and make sure any ongoing prospects are factored in.
If you’re just getting started, having one or two people as initial contact points for investors would help keep control over the project’s finances. Working with like-minded people is key to success when it comes to building a DAO.
Step 3: Finances and membership
Once you’ve established the direction and financial means of your decentralized autonomous organization, it is essential to think about rewarding members for their efforts. What best fits depends on the goals of your DAO – this could range from creating a profit to getting more connected, having more fun together, building a strong community, or helping people in need.
Another important point is deciding how new members will be added: one member may be nominated for this task, and there can be an open invitation for everybody to join, or the existing members decide on each new addition through voting. All options bring respective advantages and disadvantages that should be carefully weighed up before any decision is made.
Step 4: Develop a Smart Contract
Once you have your plan in place, the next step is to create a smart contract for your DAO. Smart contracts are computer programs that run on the blockchain and enforce the terms of an agreement between two or more parties. They can be used to automate many common tasks like payments, transfers, voting, and more. You’ll want to make sure you hire a qualified developer who understands how to write secure and reliable code when it comes to developing smart contracts for your DAO.
Platforms that provide a simplified process for creating a DAO include Aragon and DAO HAUS.
How to create a DAO on Aragon
Aragon is an all-in-one platform for creating and managing decentralized, autonomous organizations (DAOs). With Aragon, users can quickly create a DAO without needing to know any programming languages such as Solidity. This means anyone who wants to launch their own DAO can learn how to do it quickly and efficiently with Aragon. To get started on a new or existing DAO with Aragon there is a fee of 0.2 ETH which will be impacted by the price of Ethereum when setting up the DAO. If you’d like to experiment with Aragon before committing your funds, you can use its test environment, helping you make sure everything works out as expected before launching your own DAO on the Ethereum blockchain.
Setting up a DAO on Aragon is easy and requires only a few simple steps.
- Obtain at least 0.2 ETH, which will then need to be sent to a Web3 wallet such as MetaMask.
- Click “Create your DAO” on the Aragon website and select the desired template for your project before adding a name and vote duration threshold.
- Name your DAO’s native token and review all of the settings before finishing with signing an official transaction that launches your new DAO.
Step 5: Launching Your DAO
Once you’ve developed and tested your smart contract, the final step is to launch your DAO. This involves connecting it to the blockchain network and ensuring that everything is running smoothly. It’s important to remember that once a DAO is launched, it cannot be shut down or reversed without consensus from its members.
Launching a DAO can also involve marketing efforts such as promoting the project on social media, creating attractive marketing materials, and hosting meetups or other events in order to attract new members. Issuing tokens and incentivizing people with rewards for participating in the project can help boost adoption.
Step 6: Governance & Maintenance
Once your DAO is launched and running, it’s important to ensure that the organization continues to function as it should. This involves regularly assessing the performance of the project and making necessary changes or adjustments when needed.
DAOs are highly decentralized organizations, so it’s essential to have a governance model in place that allows for effective decision-making without having one person take all of the control. Good governance allows for collective wisdom while also preventing corruption, which is especially important considering the number of funds at stake.
To maintain a healthy DAO, you’ll need to put measures in place that ensure transparency and accountability among its members. This includes setting up processes for voting on decisions, distributing rewards fairly, and managing funds responsibly.
There are also tools available that can help make the process easier, such as Aragon’s Governance Platform which allows for collective decision-making and transparent budgeting.
By having a clear governance model in place, you can ensure the long-term success of your DAO.
Conclusion
The launch of your DAO marks the beginning of an exciting journey where you’ll be able to harness the power of distributed systems and blockchain technology to create something entirely new. With careful planning and preparation, you’ll have everything in place to make sure that your project gets off on the right foot. With an effective governance system in place and regular maintenance, you can ensure that your DAO remains a success for the long term.
