How to create a DAO?

Summary

The DAO governance method is commonly used in decentralized applications (DApps), various projects, and cryptocurrency investment funds. DAO is open and decentralized. In addition, it also has the function of automatically executing smart contracts. Therefore, it is extremely popular among users. Creating a DAO requires technical solutions in order to manage your proposals and votes. Whatever your needs, there's an open source option for you.

Introduction

Decentralization is the core essence of cryptocurrencies, and as such, DAOs are a highly regarded governance model in the blockchain space. You can use technical knowledge and various tools to quickly create and run a DAO. But first, you need to develop a good strategy and make sure you have community support. Next, let’s learn the basics together, understanding what’s required and how to create a DAO.

What is a DAO?

DAO is short for Decentralized Autonomous Organization. As the name implies, a DAO is an organization automatically represented by computer code and open to all users who participate in activities, but the premise is that the users must meet some basic requirements. "Autonomous" means that smart contracts can handle most of the process without human intervention. DAOs are created and managed by the community, and their funds and projects are jointly managed by all members of the community.

DAO is best known for the venture capital fund project “The DAO” launched by Ethereum in 2016. Unfortunately, three weeks after the token sale, it was hacked due to low code security. However, after a series of remedial measures, the funds were eventually recovered. Although DAO faced many challenges in its early days, after years of testing, its concept has been continuously optimized and has now become the most popular governance model for many decentralized finance (DeFi) projects.

DAOs may be very different, but most follow the same set of basic principles. For example, all holders of DAO governance tokens have voting rights, and their power is proportional to the number of tokens they hold. In addition, holders can also propose changes to how the DAO operates.

Why create a DAO?

For cryptocurrency projects, DAOs have significant advantages. The most noteworthy thing is the model’s reliance on smart contracts. It is precisely because of the existence of these on-chain code snippets that DAO reduces its dependence on manual input. For example, the proposal results are self-published on-chain and automatically trigger proposed changes. New proposals cannot be reviewed, and votes cannot be tampered with through technical means.

DAOs are an effective way to organize communities, especially since they can be anonymous in most cases. Accountability usually does not involve the real identity of the users, so you have to trust strangers in the community. DAOs allow users to effectively organize internally with technology that ensures integrity. This is easier than creating a traditional organization or entity, as many projects have international teams. Lastly, DAOs are an economically friendly option because they have the ability to organize users. You can create a DAO for free or for a small fee.

Please be aware that a DAO forces you to be accountable for its decisions. Decentralization means that you will lose full control over your project. If you ignore governance decisions on your own, negative consequences may result.

What does it take to create a DAO?

Among other things, a successful DAO should include at least the following 5 things:

1. DAOs need to have a purpose. DAOs can be used to easily organize projects or plan funding. If the right underlying projects are not identified and the reason for opening is not clear, then the DAO will not work.

2. The DAO needs to have a voting mechanism in place. This is the primary way users interact and make changes in the DAO. There are a number of ways to accomplish this. You can create your own voting mechanism or use a third-party provider, which we’ll discuss later. Your DAO can even vote on changes to the mechanism later, but you have to have the mechanism in place first.

3. DAOs need to provide governance tokens or a shareholding system. How do users prove that they have the right to express their opinions in the DAO? In fact, using governance tokens is a common method, which can also be used as utility tokens. Shareholding systems are more common in the process of operating funds, through which users can deposit cryptocurrency into the DAO for investment.

4. DAO needs to create a community. As users continue to join and participate in the governance of DAO, the degree of decentralization will deepen. Therefore, power will be dispersed to more stakeholders.

5. DAOs need to establish how they manage their funds. Most DAOs have a treasury or have access to some crowdfunded funds. But funds are usually kept in multi-signature wallets and can only be spent with the unanimous consent of all key participants.

How do I create my DAO?

From a technical perspective, you need to build a voting and proposal mechanism. Today, there are many open source solutions for you to choose from. Among them, Aragon is one of the most popular choices in the Ethereum blockchain, and there is also Snapshot, which can be applied to multiple blockchains. The structure of these solutions is similar, but there are differences in functionality. For example, the polling method of the DAO system has both on-chain and off-chain options. Which method you actually choose depends on the direction of your DAO.

When you deploy your DAO to the blockchain, remember to provide enough cryptocurrency to cover transaction fees.

Aragon

Aragon allows you to create DAOs on Ethereum, Polygon, Andromeda, or Harmony. The project provides open source software through the Aragon client, allowing users to create custom DAOs. In addition, the project is run through a DAO and has its own non-profit organization, so it can manage Aragon's raised funds.

Creating an Aragon-based DAO is very simple. All you need is:

1. Own an Ethereum Name Service (ENS) domain.

2. Make sure you have enough cryptocurrency to pay for the DAO creation fee (0.2 ETH plus mining fees).

3. Create an organization linked to your ENS domain through your Aragon dapp. You can choose from a number of pre-set organizational structures.

4. Configure settings such as voting duration and required percentage support, and then launch the DAO.

You can find more information on Aragon’s FAQ page.

Snapshot

Snapshot is a customizable off-chain voting mechanism. It looks at a snapshot of token holders, who can then vote with a digital signature in their wallet. All token holders and/or stakers are alerted to their holdings when a block is chosen. This prevents users from buying large amounts of tokens in order to influence the outcome of a public vote. Off-chain voting works well for multi-chain projects if users own governance tokens on many blockchains.

To create a voting system in Snapshot, you will need:

1. Own an ENS domain. Regardless of which blockchain your project runs on, the ENS domain must be on the Ethereum mainnet.

2. Link the Snapshot to your ENS domain.

3. Customize your space settings, such as administrators, voting rights policies, terminology, and more.

4. Verify your space. This will include having at least 1,000 members and proof of ownership of the associated project.

You can find full instructions in the Snapshot documentation.

DAOstack Alchemy

DAOstack Alchemy is a tool for creating DAOs on Ethereum and Gnosis Chain (formerly known as xDAI). Through their user interface (UI), you can create a minimal DAO, add DAO members, and open your organization. As of the time of writing, creating a DAO on Ethereum costs about 0.2 Ether (ETH) in fees, but in this case, you don't need to provide ENS.

To create a DAOstack DAO, connect your wallet to its decentralized application, complete the four steps shown, and pay the fee. It costs approximately 0.2 ETH to successfully deploy a DAO.

Examples of successful DAOs

If you need some inspiration on the best rules and setup, here are some examples of mature DAOs in the crypto space. Some users run organizations with extremely detailed and public information, running like large enterprises. Here are some examples:

MakerDAO

MakerDAO is the earliest and most successful DAO to enter the market. The organization manages the cryptocurrency-collateralized DAI stablecoin. They classify proposals into two categories: governance surveys (for non-technical decisions) and executive votes (for smart contract changes). Every holder of MKR (the project's governance DAO token) can participate.

Ghost

Aave is a DeFi lending platform running on Ethereum. Holders or stakers of the ERC-20 token AVVE can join its DAO. In addition to project changes, Aave management will vote on new projects with complete protocols and Aave grants to fund the realization of ideas.

Uniswap

Uniswap is a multi-chain automated market maker (AMM) that facilitates the implementation of DeFi projects. It is one of the largest decentralized exchanges, and every UNI holder has the right to vote and create proposals. To submit a new proposal, you need to hold at least 0.25% of the total UNI supply. To encourage a healthy discussion environment, community members can go to the governance forum to discuss changes.

in conclusion

Creating your own DAO is easy from a technical perspective, but actually running it is not. As you can see, there are a lot of simple tools you can use to help you run a DAO quickly. However, the project and community are the key to creating your DAO.