How to create a DAO

What are DAOs good for, and why do so many people turn to them when they have a good idea?
It seems like there’s a DAO for everything these days. DAOs buy constitutions, DAOs buy sports teams, DAOs run for president (kidding). But there’s no getting around the fact that DAOs are popping up in almost every industry as a new Web3 way to run projects.
What are DAOs good for, and why do so many people turn to them when they have a good idea?
Decentralized Autonomous Organizations, or DAOs, can provide a better way to coordinate groups of people who want to bring about change. DAOs allow people living in different parts of the world to work together trustlessly without intermediaries. DAOs enable businesses, charities, and other organizations to find investments around the world immediately after launching.
Perhaps most importantly, DAOs are inherently democratic; their members receive a fair share of any profits and have a say in how their organization is run.
This guide explores what DAOs are, how they work, and the costs and benefits associated with launching a DAO to kickstart your big idea rather than setting up a traditional organization.
By the end of this guide, we will have explained how to build your own DAO on two platforms: Aragon and DAOhaus.
What is a DAO?The fact that DAOs are decentralized autonomous organizations means that they can actually take many different forms.
But at their foundation, the high-level definition of a DAO is an internet-native business that runs autonomously with the help of smart contracts, which define its architecture and rules.
The DAO’s smart contracts allowed its members to send and receive funds without intermediaries: this was the whole key to the DAO structure.
Once a DAO’s smart contract goes live on the blockchain, no one can change its contents — including its members. This code-based security maintains the underlying structure of each DAO under all circumstances, allowing it to operate in a trustless and autonomous manner.
The DAO establishes a treasury that is jointly owned and managed by its members, who collectively decide how to use their funds and run their organization. Members choose how to use their funds through a voting mechanism encoded into the DAO smart contract - this is one of the most important parts of how the DAO operates.
Voting mechanisms come in different shapes and sizes, and each DAO can tailor its voting mechanism to the needs of its members. Some mechanisms allow members to share a new proposal every minute, while others only allow one new proposal per day. Some voting mechanisms require a minimum number of members to vote before a proposal goes into effect, while others have no minimum voter turnout.
As we said before, DAOs will inherently differ based on the reason they exist - no two DAOs need to be exactly the same.
Most DAOs use token-based quorum voting, relying on a mechanism that requires a minimum threshold of voters, called a quorum, to be reached before a proposal can take effect.
In simple terms, if you vote in a quorum-based vote, a proposal can only pass if enough voters from across the DAO actually participate. This prevents measures from being passed by a minority of users - if a question gets 100% of the votes in favor, but only three people out of 100 vote… you can see the problems that could arise.
Once a quorum is reached in this type of vote, the proposal is either passed or rejected, depending on how the members voted.
Another option for DAOs is permissioned relative majority voting, which works similarly to token-based quorum voting — just without the quorum requirement. The final voting mechanism native to Moloch DAO is called “anger exit.” As the name suggests, anger exit allows DAO members to exit the DAO and cash out their share of the treasury if they disagree with a proposal.
How does a DAO manage its membership?There are three key membership models that determine how a DAO operates: token-based, share-based, and reputation-based membership.
DAOs with token-based membership are usually permissionless, meaning that if you hold the DAO's tokens, you can participate in its operations. It's that simple. DAOs with this kind of membership usually manage decentralized protocols, such as DeFi DApps.
Share-based DAOs typically require associate members to submit proposals or token contributions before joining the DAO, and therefore require more permission (higher barriers to entry) than the token-based DAOs described above. Share-based membership models are primarily used for small DAOs, such as charities or micro-investment groups.
DAOs that use reputation-based membership require potential members to submit a proposal to join the DAO. If they are accepted, they receive reputation or tokens in exchange for their contribution. You generally cannot buy your way into a reputation-based DAO — you have to earn membership. This membership model works best for organizations like worker collectives, especially those focused on decentralized development.
How are DAOs different or better than typical business structures?Typical businesses employ executives such as CEOs, CFOs, and board members to manage the business and decision-making process on behalf of the wider membership or employees. But DAOs do not operate in a top-down hierarchy, which gives them a collaborative advantage over traditional businesses.
The members of a DAO collectively decide how it should operate, rather than a few executives making decisions on behalf of the many. This prevents any one person or minority group from using the DAO's funds or making decisions without the approval of the other members. It is this inherent fairness and equality that makes DAOs more democratic than typical organizational structures.
The way DAOs operate is somewhat similar to how cooperatives operate. For those who don’t know, cooperatives are businesses that are fully owned, controlled, and run by their members — but they are not decentralized, autonomous, or digitally native. Despite these differences, by comparing the performance of cooperatives to top-down businesses, we may gain insight into how DAOs will perform in the coming years.
Many academic studies have found that people who work for cooperatives are generally happier than those who work for traditional businesses. They have also found that people who work for cooperatives quit less often, have higher job satisfaction, and have more confidence in their management teams. Finally, cooperatives, overall, are at least as successful as their top-down counterparts.
Take Sunkist, for example, a cooperative of more than 6,000 fruit growers in California and Arizona. Since its founding in 1893, its members have grown the company into one of the largest landowners in California. An equally successful cooperative called Mondragon now consists of 95 independent autonomous cooperatives that collectively employ more than 80,000 people in Spain. The first American cooperative—an insurance company in the Philadelphia area—was founded in 1752 by Benjamin Franklin and is still in operation today.
Although it is still early days for DAOs, there are good reasons to think that DAOs can grow into competitive global enterprises. However, keep in mind that launching a DAO will not automatically build a community overnight or launch a poorly thought-out business. You still need a reason to create an organization as a DAO rather than a traditional business at first; which leads to an important question: should you create a DAO?
Should you create a DAO?Whether you should create a DAO really depends on the type of project you intend to launch. A DAO is superior to a traditional business only if its unique characteristics will benefit you or your project.
Let’s say, for example, that you want to start a charity to help fund medical research for a specific disease. In this case, launching a DAO could be a successful path because from day one, you can win funding and donations from all over the world and hire fundraisers. People all over the world share a common goal, and it’s possible to create a community based around that goal.
On the other hand, if your charity is funding flood control equipment for a particular river, you probably can’t attract funding from foreign citizens, and you don’t need to hire people from other countries. In this case, starting a DAO is not appropriate — it’s like trying to fit a round peg into a square hole.
Of course, it’s obvious that many other brick-and-mortar businesses, such as cafes and restaurants, aren’t entirely suitable for a DAO structure either, as they require specific business licenses to operate, which require a traditional business structure.
However, if you’re wondering whether to start a DAO because you haven’t settled on an idea yet, rest assured that DAOs have a ton of interesting use cases. For example, Uniswap is a decentralized exchange governed by a DAO. Other crypto projects, like MakerDAO, which manages the DAI stablecoin, are also governed by a DAO. There are also investment DAOs, such as BitDAO, which manages crypto investments, and hundreds of grant DAOs that support the development of new businesses.
Preparing to launch your DAODAOs are inherently flexible because you can design them however you want - within reason. Therefore, it is prudent to first plan some of the basic elements before launching a DAO, otherwise you run the risk of needing to start a new DAO from scratch later. This section assumes that you already know the purpose of your DAO.
Before you start planning your DAO, you must first answer one question: Does a DAO with a similar purpose already exist? If so, you might consider joining that DAO rather than creating your own, especially given that you’ll have to compete with an already established community.
To start creating a DAO, you need to find or create a community of people who share your vision and goals, preferably online. It is this community that will help you grow your project and achieve your vision. If you don’t know where to start, there is probably a subreddit full of people fascinated by your area of ​​interest. Once you start meeting people, set up a Discord channel to keep all your communication in one place.
Working with your community, your next job is to figure out how much money your DAO needs to achieve your goals, including whether any ongoing funding is required, and where you will get this money from. Your community will also need to decide how much future income to give up in exchange for any investment or venture capital. Depending on the size of your DAO community at this point, you may be able to assign these responsibilities to one or two people who will serve as a single point of contact for external funders and investors.
Once your DAO community has determined its direction and funding sources, you’ll need to consider how to reward your DAO members for their contributions. Your reward structure will naturally vary depending on the goals of your DAO — whether it’s profit, networking, fun, community, or charity.
You should also consider how your DAO membership will onboard new members: Will one member make decisions on behalf of everyone? Can anyone join at any time? Or will members collectively vote to admit all new members to the DAO?
Finally, we need to create the DAO itself.
How to create a DAO?There is more than one way to create a DAO, and there is more than one platform. We explain how some of these platforms work below, but we still recommend that you research each option yourself. After all, there’s a reason why DYOR is one of the crypto community’s favorite acronyms!
How to create a DAO using AragonAragon is a platform where you can build your own DAO or join the many established DAOs on Ethereum. Aragon is a no-code platform, so there is no need to learn Solidity or any other programming language to build your DAO here.
At the time of writing, setting up a DAO with Aragon requires a minimum of 0.2ETH. Therefore, the price of Ethereum at the time you set up your DAO will affect your startup costs.
However, if you want to try before you buy, you can try Aragon for free using a testing environment instead of launching your DAO on the Ethereum blockchain. We explain how to do that below; but first, here’s a quick step-by-step guide to setting up a fully functional DAO using Aragon.
1. Buy some ETH — You’ll need at least 0.2 ETH.
2. Send your ETH to a Web3 wallet - If you are not familiar with Web3 wallets, MetaMask is easy to use.
3. Go to the Aragon website and click the blue “Create Your DAO” button.
4. On the new page, click Create Organization.
5. Choose the DAO template that best suits your project.
6. Enter your DAO name.
7. Select a voting duration threshold and click Next.
8. Enter a name for your DAO’s native token
9. You can now review the settings for all of your DAOs. Once you are finished, click Launch Your Organization.
10. Finally, you will be prompted to sign the transaction on whatever Web3 wallet you are using. Once signed, your DAO will be live.
If you want to try launching a test DAO on Aragon, follow the steps below. Currently, you can use the Rinkeby or Goerli testnets. Given that Rinkeby is about to shut down due to the upcoming Ethereum merge, it is recommended that you use Goerli. We have been using Goerli in the instructions below.
1. Go to the Goerli testnet website.
2. Follow the instructions to get some free ETH for testing (will not work on Ethereum mainnet).
3. Go to the Aragon testnet website.
4. Select the testnet you want to launch from the drop-down menu (again, we are using Goerli.)
5. Connect your Web3 wallet with test ETH to Aragon. Make sure your wallet is connected to the correct network (Goerli in this case).
(From here on, the instructions are the same as above)
6. Click Create Organization.
7. Choose a template for your DAO that best suits your project.
8. Choose a name for your DAO
9. Select a voting duration threshold and click Next.
10. Choose a name for your DAO’s native token.
11. You can now review the settings for all of your DAOs. Once you are finished, click Launch Your Organization.
12. Finally, you will be prompted to sign the transaction on whatever Web3 wallet you are using. Once signed, your Testnet DAO will be live.
How to create a DAO using DAO HausDAOhaus, as the name suggests, is a DAO house that lets you create DAOs. Through DAOhaus, you can create your own DAO or join some established DAOs. Remember, if you create your DAO through DAOhaus, it will be a Moloch DAO.
For those unfamiliar, Moloch is an open-source and easy-to-use DAO framework known for its “ragequit” feature (discussed above) which allows members to exit the DAO and receive their share of the treasury assets when they want. Moloch DAOs don’t have a lot of code, so they are considered secure and can be easily modified to suit your specific needs.
All Moloch DAOs share four key features; permissioned membership, which means DAO members vote on all new members; weighted voting, which gives each member different voting rights; non-transferable governance rights, which prevent voting and economic rights from being sold or liquidated; and ragequit, which allows each member to exit the DAO in exchange for a percentage of the DAO assets.
Many popular DAOs use the Moloch framework. MetaCartel, an investment DAO that aims to build a creator cartel for the Metaverse and Web3 ecosystem, has used the Moloch framework to great success.
To reiterate, the reason you need to understand Moloch is that all DAOhaus DAOs are Moloch DAOs; if you feel that the Moloch framework is not suitable for creating your DAO, then you are better off building your DAO through a different framework or platform, such as Aragon.
However, if Moloch DAO is suitable for your purposes, follow the steps below to create your DAO.
1. Open your Web3 wallet and select the network you want to launch your DAO on. Most DAOs are built on Ethereum, but other networks like Polygon and Arbitrum can also host DAOs.
2. Read through the available options and select the type of DAO you want to build. As you click through the various options, you'll see how the framework of your DAO changes. For example, the Club DAO allows one new proposal every minute, while the Venture DAO only grants one new proposal per day. If you want to choose a completely unique setup, click the orange "Hard Mode" button. Remember: these settings cannot be changed after your DAO is live.
3. Double-check your settings and click “Summon”. If you want to launch your DAO with multiple members right away, click “Add Multiple Summoners”, which will save you voting for all founding members once your DAO goes live.
4. DAOhaus will prompt you to sign the transaction through your Web3 wallet, which will require you to pay a fee of varying amounts depending on the network you are launching on.
5. Once the transaction is complete, go to DAOhaus Hub to register the metadata and officially launch your DAO.
C3 Tip: The views, thoughts and opinions expressed here are the author's own and do not constitute investment advice or recommendations. Every investment and transaction involves risk.