How to Create a DAO In 2023

What are the benefits of DAOs, and why do so many people turn to them when they have a big idea?

It seems like right now, there’s a DAO for everything. DAO to buy a constitution, DAO to buy a sports team, DAO to run for president (kidding). But there’s no escaping the fact that DAOs have emerged as a new, Web3 way to run a project in almost every industry.

What are the benefits of DAOs, and why do so many people turn to them when they have a big idea?

Decentralized Autonomous Organizations, or DAOs, can provide a better way to coordinate groups of people who want to make change. DAOs allow people living in different parts of the world to work together in trust without intermediaries. DAOs enable businesses, charities and other organizations to raise capital globally as they start up.

Perhaps most importantly, DAOs are inherently democratic. Their members get 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 starting a DAO, rather than creating a traditional organization, to get your big idea off the ground.

At the end of this guide, we explain how to build your own DAO on two platforms: Aragon and DAOhaus,

What is DAO?

The fact that DAOs are decentralized, autonomous organizations means that they can actually come in many different forms.

But based on them, a high-level definition of a DAO is an Internet-local business that operates autonomously with the help of smart contracts, which define its architecture and rules.

The DAO’s smart contract allows its members to send and receive funds without an intermediary: this is the key to the DAO’s structure.

Once a DAO’s smart contract is live on the blockchain, no one can change its contents — including its members. This code-based security keeps the infrastructure of each DAO intact under all conditions, allowing it to operate trustlessly and autonomously.

DAOs have created treasuries that are collectively owned and managed by their members, who together decide how to spend their funds and how to run their organization. Members choose to spend their funds through a voting mechanism that is coded into the DAO’s smart contract – one of the most important parts of how DAOs work.

Voting mechanisms come in many shapes and sizes, and each DAO can tailor its voting mechanism to the needs of its members. Some mechanisms allow members to share new suggestions every minute, while others only allow one new suggestion per day. Some voting mechanisms require a minimum proportion of members to vote before a proposal becomes valid, while others do not have a minimum turnout.

As we said earlier, by nature DAOs will differ based on why they exist – no two DAOs need be exactly the same.

Most DAOs use token-based quorum voting, relying on a mechanism that requires reaching a minimum threshold of voters before a proposal is valid, called a quorum.

Simply put, if you’re voting based on a quorum, a proposal can only be approved if enough voters across the DAO actually participate. This can prevent initiatives from being approved by a minority of users — if an issue gets a 100% approval vote, but only three people out of 100 voted… you can see the problems that can arise. are
Once a quorum is reached in this type of voting, the proposal is either passed or rejected depending on how the members voted.

Another option for DAOs is to allow relative majority voting, which works like token-based quorum voting – only without the need for a quorum. A final voting mechanism that Moloch DAOs have is called “angry exit”. As the name suggests, a temper tantrum allows a DAO member to leave the DAO and cash out their share of the treasury if they don’t agree with a proposal.

How do DAOs manage their membership?

There are three main membership models that determine how the DAO works: token-based, share-based and reputation-based membership.

DAOs with token-based membership are generally permissionless, which means that if you own the DAO’s token, you can participate in its operations. It’s as simple as that. DAOs with this type of membership typically manage decentralized protocols like DeFi DApps.

Share-based DAOs typically require potential members to submit a proposal or token tribute before joining the DAO, and are therefore relatively more permissive than the token-based DAOs described above ( a high barrier to entry). Share-based membership models are mostly used by smaller DAOs such as charities or micro-investment groups.

DAOs that use reputation-based membership ask potential members to submit proposals to join the DAO. If they are accepted, they receive fame or tokens for their contribution. You typically own in a reputation-based DAO Can’t buy a pass — you have to get your own subscription. This membership model is best suited for organizations such as worker collectives, especially those focused on decentralized development.

How are DAOs different from or better than normal business structures?

A typical business employs executives such as CEOs, CFOs, and board members to manage business and decision-making processes on behalf of the broader membership or workforce. But DAOs don’t operate with a top-down hierarchy, which gives them a collaborative advantage over traditional businesses.

Instead of a few executives making decisions on behalf of the many, the DAO’s membership collectively decides how it should operate. It prevents any person or minority group from spending the DAOs’ funds or making decisions without the approval of other members. It is this inherent fairness and equity that makes DAOs relatively more democratic than typical organizational structures.

The way DAOs operate is somewhat similar to how cooperatives operate businesses. For those unfamiliar, cooperatives are businesses wholly owned, controlled and operated by their members – but they are not decentralized, autonomous or digital natives. Despite these differences, it is possible that by comparing top-down businesses versus the performance of cooperatives, we can gain some insight into how DAOs will perform in the coming years.

A number of academic studies have found that people who work for cooperatives are generally happier than those who work for traditional businesses. People working for cooperatives have also been found to quit less often, and have higher job satisfaction, and more trust in their management team. And finally, cooperative businesses are, on the whole, at least as successful as their top-down counterparts.

Take Suncist, for example, a cooperative of more than 6,000 fruit growers spread across California and Arizona. Since its founding in 1893, its members have made the company one of California’s largest landowners. A similar successful cooperative called Mondragon now consists of 95 separate, self-governing cooperatives that collectively employ more than 80,000 people in Spain. The first cooperative in the United States – an insurance company for the Philadelphia area – was founded in 1752 by none other than Benjamin Franklin, and is still in operation today.

Although these are early days for DAOs, there is good reason to think that DAOs can develop into competitive, global entities. However, keep in mind that starting a DAO won’t automatically build a community overnight or launch a poorly thought-out business. You still need a reason to start an organization as a DAO rather than a traditional business. Which leads us to an important question: Should you build a DAO?

Should you create a DAO?

Whether or not you should create a DAO depends on the type of project you plan to start. A DAO is superior to a traditional business only if the DAO’s unique features benefit you or your project.

Say, for example, you want to start a charity to fund medical research into a specific disease. In this case, starting a DAO can be a successful path, as you can get funding and donations from around the world from day one, as well as hire fundraising staff. There is a goal shared by people globally, and it may be possible to build a community based on that goal.

On the other hand, if your charity was funding flood protection equipment for a particular river, you might not be able to get funding from foreign nationals, and you would have to hire people from other countries. There will be no need to. In that case, starting a DAO wouldn’t be worth it – it would be like putting a round peg in a square hole.

Of course, to be clear, many other brick-and-mortar businesses such as cafes and restaurants are also not well-suited to a DAO structure, as they require specific business licenses to operate that a traditional business structure would require. Is.

But if you don’t know whether to start a DAO or not because you haven’t decided on an idea yet, rest assured there are plenty of interesting use cases for DAOs. For example, Uniswap is a decentralized exchange managed by The DAO. Other crypto projects such as MakerDAO, which manages the DAI stablecoin, are also managed by DAOs. There are also investment DAOs, such as BitDAO, which manage crypto investments, and hundreds of grant DAOs that support the development of new businesses.

Preparing to launch your DAO

DAOs are inherently flexible, in that you can design them however you want. As such, it would be prudent to plan some of the essential elements before starting a DAO, otherwise you risk having to start a new DAO from scratch later. This section assumes that you already know the purpose of your DAO.

Before starting to plan your DAO, there is one question that must be addressed first: Does a DAO with a similar purpose already exist? If so, you might want to consider joining this DAO instead of starting your own, especially considering that you’ll be competing with an already established community.

To start building a DAO, you need to either find or create a community of people who share your vision and goals, preferably online. It’s the community that will help grow your project and realize your vision. If you don’t know where to start, there’s probably a subreddit full of people interested in your area of ​​interest. As you start meeting people, set up a Discord channel to keep all your communications in one place.

Together with your community, your next task is to determine how much funding your DAO needs to achieve your goals, including whether any ongoing funding is necessary, and where you will allocate this funding. will get from Your community also needs to decide how much of your future income to give up in exchange for any investment or venture capital. Depending on how large your DAO community is at this point, you can assign these duties to one or two people who will act as a point of contact for outside funders and investors.
Once your DAO community has established its direction and funding sources, you need to consider how your DAO members will be rewarded for their contributions. . Your rewards structure will naturally vary depending on the goals of your DAO — whether it’s profit, networking, entertainment, community or charity.

You should also consider how the members of your DAO will add new members: Will one member make decisions on behalf of everyone else? Can anyone join whenever they want? Or will the membership collectively vote all new members into the DAO?

And finally, we need to create the DAO itself.

How to create a DAO

There is more than one way — and more than one platform — to build your own DAO. We explain how a few of these platforms work below, but we still recommend that you research each option on your own. After all, DYOR is one of the crypto community’s favorite acronyms for a reason!

How to create a DAO using Aragon

Aragon is a platform where you can create your own DAO or join a large number of DAOs built on Ethereum. Aragon is a no-code platform, so there is no need to learn Solidity or any other programming language to build your own DAO.

At the time of writing, establishing a DAO with Aragon requires a minimum of 0.2ETH. Thus, 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, it is possible to experiment with Aragon for free using the trial environment instead of launching your own DAO on the Ethereum blockchain. We explain how to do this 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 will need at least 0.2 ETH.
2. Send your ETH to Web3 Wallet – MetaMask is easy to use if you are not familiar with Web3 wallets.
3. Go to the Aragon website and click on the blue “Create Your DAO” button.
4. On the new page, click “Create Organization”.
5. Choose the DAO template that suits your project.
6. Enter the name of your DAO.
7. Select the voting period limit, then click “Next”.
8. Enter a name for your DAO native token.
9. Now you can review all your DAO settings. When finished, click “Start Your Organization”.
10. Finally, you will be asked to sign a transaction on whatever Web3 wallet you use. Once it’s signed, your DAO will go live.

If you want to try launching a test DAO on Aragon, follow the steps below. At this point, you can use either Rinkeby or Goerli testnets. You would be advised to use Goerli, given that Rinkeby is going to be shut down soon due to the upcoming Ethereum integration. We have used Goerli in the instructions below.

1. Go to Goerli Testnet site.
2. Follow the instructions to get some free test ETH (which will not work on the Ethereum mainnet).
3. Go to the Aragon TestNet site.
4. Select the Testnet you want to launch from the drop-down menu (again, we’re using Goerli.).
5. Connect the Web3 wallet with your test ETH to Aragon. Make sure your wallet is connected to the correct network (in this case, Guierly).

(From here, the instructions are the same as above)

6. Click on “Create Organization”.
7. Choose the template for your DAO that best suits your project.
8. Choose a name for your DAO.
9. Select the voting period limit, and then click “Next”.
10. Choose a name for your DAO native token.
11. Now you can review all your DAO settings. When finished, click “Start Your Organization”.
12. Finally, you will be asked to sign a transaction on whatever Web3 wallet you use. Once it is signed, your Testnet DAO will go live.

How to build a DAO using DAO Haus

DAOhaus, as its name suggests, is a house of DAOs that lets you build DAOS. Through DAOhaus, you can either create your own DAO or join a selection of established DAOs. Keep in mind that if you build 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 withdraw the treasury whenever they want. Can receive their share of the assets. Moloch DAOs don’t have much code and are therefore considered safe and easy to modify to suit your specific needs.

All Moloch DAOs share four main characteristics. Permissive membership, which means that DAO members vote on all new members. Weighted voting, which gives each member different voting power. Non-transferable governing power, which prevents voting and economic rights from being sold or extinguished. and ragequit, allowing each member to leave the DAO in exchange for a proportional amount of the DAO’s assets.

Many popular DAOs use the Moloch framework. MetaCartel, an investment DAO that aims to establish a “cartel” of creators for the Metaverse and Web3 ecosystem, uses the Moloch framework with great success.

To reiterate, what you need to understand about Moloch is that all DAOhaus DAOs are Moloch DAOs; If you feel that the Moloch framework is not suitable for building your DAO, you would be best served by building your DAO through a different framework or platform, such as Aragon.

But if a Moloch DAO suits your purposes, follow the steps below to create your own 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 such as Polygon and Arbitrum can also host DAOs.
2. Go to https://app.daohaus.club/summon.
3. Read the available options and select the type of DAO you want to create. You will see how the DAO framework changes as you click on different options. For example, Club DAOs allow one new proposal every minute, while Venture DAOs only allow one new proposal per day. If you want to choose completely unique settings, click the orange “Hard Mode” button. Note: These settings cannot be changed once your DAO is live.
4. Double-check your settings, then click “Summon”. If you want to start your DAO with multiple members right away, click “Add Multiple Summoners”, which will save voting among all your founding members once your DAO goes live.
5. DAOhaus will prompt you to sign a transaction through your Web3 wallet, which will require you to pay a fee of varying amounts, depending on which network you launch on.
6. Once your transaction is complete, visit the DAOhaus Hub to register the metadata and officially launch your DAO.

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