Decentralized autonomous organizations, or DAOs, are revolutionary, Web3-native, organizations, controlled by the community as opposed to a few selected figures. Underpinned by blockchain technology, DAOs are becoming a popular governance model for a growing number of projects. Because they carry specific peculiarities and characteristics, the creation of a decentralized autonomous organization differs from establishing a traditional organization. In this article, we’ll look into what such an organization requires and how to build a DAO.
What is a decentralized autonomous organization?
A decentralized autonomous organization is an Internet-based organization that offers an alternative to the traditional, centralized method of governance and control. By utilizing smart contracts, a DAO can operate with minimal human interference, as most of the operations are executed automatically by computer code.. With control in the hands of community members, DAOs are a more democratic and decentralized version of standard organizations.
If you’re interested to find out more about how DAOs work, we’ve explained everything about decentralized autonomous organizations in a separate post.
DAOs enable the creation of united digital communities around the world and encourage their active involvement in decision-making. They offer trust and transparency, as well as an affordable way to organize people and teams. All of these reasons, and more, have turned DAOs into a topic of interest today.
There are a number of successful DAOs that dominate the space today, like MakerDAO, Uniswap and Aave. Although they are mostly used for DApp projects and crypto-investment funds, the use cases of DAOs are growing. This naturally raises the question of how DAOs are created.
How to build a DAO: The steps
The creation of a DAO includes both technical and strategic aspects. If you and your team members aren’t experienced in designing blockchain-based solutions, it’s advisable to rely on a professional team of developers, who can build for you the DAO that you’ve planned out. Regardless of whether you work with in-house specialists or outsource the DAO creation process, designing a DAO requires the following steps.
Before you can start with the actual creation phase, it’s important to think about the structure of the decentralized autonomous organization that will work best for the community you’re planning to create. Think about the purpose of the DAO. Decentralization may offer a myriad of benefits in some cases, but it’s not applicable to every project or to every part of a project. When determining the appropriate structure of the DAO, it’s vital to consider things like decision-making, the value added for customers or the community, the ownership structure, and others.
Next, it’s important to choose a DAO type. Not all DAOs are created equal and there are plenty of options to choose from. Some of the most popular decentralized autonomous organization types include protocol DAOs, venture DAOs, collector DAOS, and grants DAOs. It’s worth investigating the different available versions in order to select the right type of DAO based on your needs.
Voting mechanisms are a central component of a DAO. Users interact with the organization and are able to contribute to its development via voting. The voting system can differ from DAO to DAO. However, in most cases, users can use their tokens to place votes for certain changes. Although decentralized autonomous organizations are still in their infancy, there are already a number of different voting mechanisms that have been proposed. Some of them include token-based quorum voting, permissioned relative majority, quadratic voting and more.
Choice of governance token or share system
Once you’ve selected the type of voting mechanism that will best fit your DAO, it’s time to consider the type of governance token or share system that will be put in place. This will determine how DAO members will be able to share their opinions in the organization. Governance tokens are a popular option, where in a lot of cases the token is also a utility token. Meanwhile, share systems can be a great choice for smaller DAO communities.
Next, in order to bring your DAO to life, you’ll need to create a community to ensure a substantial level of decentralization. The more people involved in the organization, the more decentralized it will become. With power shared across more members, there are fewer risks of centralized manipulation.
Finally, a DAO requires some form of fund management. In the majority of cases, such organizations operate with a smart contract-controlled treasury.
DAO creation software
As mentioned earlier, when it comes to the technical side of creating a DAO, there are several paths to take. For example, you could choose to create a DAO from scratch with a proven and qualified company for blockchain development projects. Alternatively, if you have in-house experts with a level of experience, you could use available software for DAO creation, such as Aragon or DAOstack Alchemy.
Aragon is a software that enables the creation of customized DAOs on Ethereum, Polygon, Harmony or Andromeda. The creation process only takes a few steps and is simple to complete.
DAOstack Alchemy is another DAO creation tool that enables you to build such organizations on Ethereum and Gnosis Chain. It’s a popular solution for the creation of basic DAOs, inviting DAO members and launching your organization.
Blockchain technology has introduced a range of new concepts and has already started to transform how we think about a number of practices, mechanisms and industries. Blockchain-powered smart contracts have given rise to a novel type of organization, the DAO, which can tackle some of the key challenges faced by traditional, centralized organizations. Although not yet fully exploited, DAOs have a lot to offer and are yet to be developed further.