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A DAO’s founders must estimate how large they want it to be; the size will help determine its governance.
Before launching, build interest and create a conversation about what you hope to achieve.
There are many tools for starting a DAO, including voting, fundraising, and treasury management tools.
Since the first decentralized autonomous organization, The DAO, went live on Ethereum in 2016, DAOs have bloomed across blockchains. According to DeepDAO analytics, there are almost 11,000 DAOs holding around $12 billion in their combined treasuries In January 2023 alone, about 100,000 more users became DAO members, making 6 million total accounts holding governance tokens.
DAOs are “decentralized autonomous organizations,” organizations that steer away from the hierarchical power structure of traditional businesses. Instead, the general DAO structure is decentralized, with no one figurehead at its top.
So, how does anything get done?
Anyone in a particular DAO has voting power proportional to the amount of the DAO’s native or governance token. Token holders can make proposals about management within the DAO, and then the DAO votes as a collective. After voting, the proposal is either annulled or acted out through an automated system run through self-executing smart contracts.
It’s worth noting that the DAO format doesn’t suit all business models. Some business concepts need a hierarchical or semi-hierarchical system. But if your mission aligns with having secure, transparent, and democratic management, DAOs may be the blockchain technology for you.
There are many different DAO organizational structures. They range from clubs that handle no money to registered limited liability companies (LLCs), or even philanthropic DAOs, like UkraineDAO.
Learn the different kinds of DAOs (like collector DAOs, venture DAOs, or Protocol DAOs ) and discern which fits your mission. Then you can move toward the community-building and coding-oriented steps of actually building your DAO. In this article, we’ll look at the steps of building a DAO and the tools folks use along the way.
Regardless of which form of DAO you want to build, one thing is universally true: You can’t do it alone. A successful DAOs’ strength comes from its community and its philosophical and financial buy-in to the group’s mission.
It’s important for the DAO’s founder or co-founder to estimate how large they want the DAO to be. Is it limitless, or is it relevant only to so many people? The size of the organization will help to determine its governance. If it gets big enough, you could need SubDAOs so that every proposal need not pass through the entire organization. We’ll get more into governance styles later, but the first step is building your DAO community base.
This is the core of any DAO. Before launching, build interest in the project and create a conversation about what it is you hope to achieve. What problem do you want to solve, and what projects do you hope to tackle? What do others think, who else is interested?
Twitter and Reddit are two of the most popular social media forums for community building. Discord and Telegram are the most functional tools for scalable and digital team dialogue.
Whatever your DAO's mission may be, it’ll take capital to achieve. Creating funding goals for a DAO's treasury is a huge part of getting it rolling. There are many ways of creating funding. Some DAOs require a fee for entry, which could be amassed in the treasury. Others create capital by selling NFTs or other profitable transactions. DAO Tokens can then be used as rewards or incentives for participation within the DAO.
Almost all DAOs use a form of governance token, either through fungible ERC-20 tokens or non-fungible tokens. By purchasing a DAO token, wallet holders gain proportional voting rights or own equity in the DAO. How the native tokens and voting rights function depends on DAO governance.
There are two major forms of governance for DAOs. Each allows for community members to propose and vote on policies within the organization.
Formal governance is similar to the structure of traditional organizations. There are two realms of governance work: off-chain and on-chain.
Off-chain governance includes discussions on the Discord server, or whatever the DAO’s chosen communication method is. This looks like conference calls about organization issues and gauging what issues could use a solution proposal.
The on-chain governance side is everything that gets formally recorded on the distributed ledger’s blockchain. This includes the submission of forum proposals, reaching consensus through voting on proposals, and then the execution of passed proposals.
Some DAOs have found difficulty in having all decisions made through the entire active community. To streamline things a bit more, DAOs have established Delegated Governance. This is where working groups (or SubDAOs) are established to allow smaller groups of DAO members to vote on proposals.
Now we get to the behind-the-scenes of what really makes a DAO work. Many companies that run DAOs on a distributed ledger develop their own code and smart contracts to run their organization. But that’s not the only way. Many tools and templates exist to help you start your own DAO, making it easier to build its legal framework. We’ll get to tools a bit later on, but first, let’s get into the nitty-gritty.
Do you have a baseline community, your code built and tested, and the initial coin supply established? You’re ready to deploy the DAO. This is the official release of the DAO onto the blockchain. It then becomes reliant on its surrounding community and no longer has central leadership or ownership, regardless of its founders. It costs about 0.3 ETH to launch a DAO on the Ethereum Mainnet, where most DAOs are built.
Some DAOs are registered as LLCs for legal purposes. Wyoming is the only state to recognize DAOs as LLCs and requires a registered Wyoming agent to meet statutory requirements. Fees to establish the DAO as an LLC are as low as $100.
Plenty of DAOs opt to build their own code and software to perfectly fit their needs. But depending on what you want out of your DAO, there are many tools that can speed along the process. Specific tools can help with one area of DAO management, or plug-and-play programs (like Colony) start DAOs in 90 seconds.
There are many DAO treasury tools out there. But Gnosis Safe, started in 2017, is considered the industry standard for treasury management. It is an Ethereum wallet, which means that DAO native tokens and ETH can intermingle. And the wallet only allows a transaction after a required minimum number of people have approved it. Once a proposal has been voted on by DAO members, then a core group must sign transactions, often called “multi-sig.” The list of signer accounts can be set and edited, as well as the required number of signers. This prevents the independent movement of funds.
Syndicate is a tool that works very well for investment DAOs. Syndicate helps users create “Web3 Investment Clubs” in which a Syndicate network wallet collects assets. The wallet is transparent to all club members and effectively becomes the pre-DAO treasury that the DAO grows around.
Aragon offers an all-in-one DAO creation service, operating on Ethereum, Polygon, Andromeda, or Harmony blockchains. It offers Aragon Client, a toolkit to create customized DAOs, and Aragon Govern, a framework for governance, including voting systems. Govern also includes a built-in framework for dispute resolution, a handy thing when people contest proposals or rulings.
Snapshot is one of the most popular DAO voting systems out there. It functions using ERC-20 tokens or NFTs, with no cryptocurrency involved. It’s a decentralized system of off-chain proposals and voting, so users can’t influence open votes by purchasing more tokens.
One DAO fundraising platform on Web3 is Juicebox. It’s like traditional fundraising pages, except the funding structure and rewards system are all designed using a smart contract.
Mirror is another Ethereum-based option for crowdsourcing funds. Primarily a blockchain-based blogging platform, Mirror also turns posts into NFTs and uses smart contracts for projects and rewards.
To create a DAO is no small undertaking. There are fluctuating crypto markets to navigate, a token supply to manage, and an online community to foster. Thankfully, there are countless technical and developer resources to make the start-up easier. Once launched, unlike a traditional organization, the DAO process really runs itself. Of course, a DAO requires ongoing attention, but it is a decentralized structure and secure.
At Hedera, we’ve teamed with Developer DAO to build workshops and encourage those interested in creating DAOs. DevDAO and Hedera both prioritize training for our community members, as well as hiring those passionate about decentralized finance.
We offer how-to guides on smart contracts and have a massive amount of educational content. Hedera, through prioritizing education and our Hashgraph consensus mechanism, fosters the creation of scalable and secure Web3 applications.
For an in-depth exploration of how HashioDAO can revolutionize your approach to decentralized governance, visit our solutions page here.