How You Can Launch the Perfect DAO for the Web3 World
In this article, you will find the basics of what a DAO or Decentralized Autonomous Organization is and how to launch the perfect one for the Web3 world.
The idea for a decentralized autonomous organization, or DAO, started in 2016. The concept of a DAO is to organize funds, projects and communities. DAOs operate on blockchains and rely heavily on smart contracts that lay out the rules which govern the DAO. DAOs are operated by a community of token holders who are able to vote and have a say in key decisions. However, the key to a DAO is the lack of central authority; the collective group of leaders and participants act as the governing body.
If you want to launch a DAO, you will need a mechanism to handle the votes and proposals. A DAO can be developed through various open source platforms, and can also be built from scratch with customized dApps, wallets and smart contracts. For example, you can build DAOs with Aragon on the Ethereum blockchain, or with Snapshot which works over multiple blockchains. Though the ways of DAO systems vary from platform to platform they roughly have the same structure.
The Pros and Cons of DAOs
As we know, a decentralized autonomous organization is a fully automated business structure in which control of a business is owned by a small group of people, and sometimes by a single person. DAO helps to “hear” everyone’s opinion. The full automation of blockchain systems allows at the same time to vote with demonstrable honesty and to execute the decisions of the organization’s members. There are also other advantages of DAO over traditional organizations:
DAO is considered to be a decentralized governance structure that allows you to get rid of the managerial staff. Moreover, project organizers will be able to save on salaries.
There is a high speed of work due to automation, and you needn’t wait for the secretary to process the application and find the information of interest for the operation.
The percentage of errors is low due to the absence of the human factor, and users do not have to worry about a distracted manager mishandling the operation.
DAOs are available for everyone, and becoming a member is easier than getting a seat on the board of a traditional organization.
As the control of the organization and its assets belongs to the project participants it ensures that the DAO’s founders do not abscond with investor money to tropical islands.
Besides all their advantages, DAOs have their disadvantages, too. There is no guarantee for the security of DAO – some mistakes in the code can lead to big losses.
In addition, DAO members are obliged to obey the opinion of the majority. Plus, it may take a long time to decide on project development as the system cannot always collect votes quickly.
And finally, an automated system lacks critical thinking, which means that in case of crisis or non-standard situations, they are not always able to manage the project properly.
How to Start a DAO?
Decentralized Autonomous Organizations or DAOs are a promising intervention in the gradually evolving web3 landscape. DAOs are progressively growing in terms of popularity for launching web3 projects and businesses. We can say that DAOs are a revolutionary tool for facilitating governance in the new breed of decentralized applications.
Anyone who wants to create a DAO, must be familiar with the definition of DAO and how they work. In addition, you must find out the benefits and use cases of DAOs for determining the suitable value propositions of DAOs in different projects. Note that you can build DAOs on multiple blockchain networks. However, Ethereum is the standard blockchain network for creating a DAO in the present time.
1. Define the Structure of the DAO
You should figure out the reason for building the DAO before writing code or purchasing any DAO tools. In addition, you must also look for the structure you want for the DAO. Even though DAOs introduce the benefits of decentralization, they are not the best option in all cases. The good performance of DAOs can encourage people to implement them in different organizations, projects, and communities.
How can you define the structure of the DAO? Consider the following factors before you start creating the DAO.
- Objectives of creating the DAO alongside short-term and long-term vision for the same.
- The urgency for a decentralized ownership structure.
- Decision-making approaches in the DAO.
- Challenges are resolved by creating a DAO in your industry.
- Benefits of a DAO for the customers, users, and community.
- Previous instances of DAO implementation.
- Possibilities for community-centric aspects when you create a DAO alongside preparation for unprecedented consequences in the crypto market.
2. What Type of DAO do You Want?
The second step in starting a DAO is to determine the type of DAO you need. As DAOs serve many use cases, you can opt for many practical paths for creating your DAO according to your objectives. You must go through different types of DAOs and their functionalities to find the models which can fulfill your goals. Some of the most common types of DAOs include protocol DAOs, social DAOs, venture DAOs, collector DAOs, and social media DAOs.
You should also focus on common goals between DAOs and traditional businesses for improved efficiency. For example, if you are wondering how to start a DAO, you can use a nation-state governance framework for mapping out the general DAO structure.
3. Determine the Use Cases of DAO Tokens
The goals and structure of your DAO give you the strong foundation to create a DAO from scratch. You should take into consideration the DAO token allocation, associated particularly with the long-term vision of DAO. In addition, you have to think of the use of DAO tokens in community governance. An effective overview of the use cases of DAO tokens can support many strategic activities such as effective fundraising and improving buy-in from supporters and the community in the early stages.
The use cases of DAO tokens can include serving as instruments for incentives and rewards or benefits and new opportunities for the community. DAO tokens also play an important role in creating a DAO by enabling the active participation of users in the growth of the organization.
However, DAO tokens are not always associated with voting rights on the direction of the company, and users can choose to stake the tokens for desired benefits. You need to figure out some clear goals for using the tokens and the methods for using them and whether you want to offer DAO tokens for voting privileges or staking.
4. DAO Token Allocation, Supply, and Rewards
Pricing of DAO tokens is one of the main concerns for anyone who wants to start a DAO while also focusing on the supply of tokens. One should figure out the ideal pointer for token supply and set the demand running rather than offering a random value of the initial coin supply.
You must focus on the allocation of tokens and keep a steady focus on providing rewards to your community with adequate funds in the community treasury. Therefore, you would need substantial working capital to achieve the initial objectives alongside providing rewards to early supporters and users. Remember that the various use cases of token utility can play a critical role in determining the initial token allocations.
5. Create the DAO
You will be ready to create your DAO only after setting the goals, structure, and DAO token use cases alongside allocation. There are companies that opt for developing their own systems, while others choose DAO tools and templates for creating the DAO. You can define the legal framework for the DAO you wish to create due to tools and templates. Besides, these tools may provide the required infrastructure for DAO token minting tools, creating the DAO name, and supporting the teams and founding members.
You can choose some of the popular Ethereum-based DAO tools for creating your DAO as they offer multiple functionalities. For example, Aragon is a comprehensive DAO toolkit with functionalities for dispute resolution and governance. Here are some other promising DAO tools.
- Syndicate is specially tailored for creating investment DAOs.
- OpenLaw is a powerful tool for creating Ethereum-compatible legal documents.
- Colony is another popular tool and a plug-and-play DAO platform that loads within 90 seconds.
- The Orca Protocol is a people-centric protocol aimed at decentralized organizations of users.
- DAOstack is a trustworthy option with various modules for launching your DAO.
6. Establish the DAO Treasury and Community
Focusing on building the DAO treasury and community is the final step to creating a DAO. DAO treasury is an important requirement for secure management of your funds in the DAO infrastructure. For instance, you can try tools like Gnosis Safe for the security of the DAO treasury.
Parcel, Utopia, Multis, and Superfluid are some of the popular DAO treasury management tools. You will also need to set the stage for the future growth of your DAO with a strategic focus on community development. Try using Twitter and Discord to spread the word about your DAO.
The demand for DAOs is growing due to the advantages of decentralization and its favorable prospects for supporting web3 applications. Thus, more and more organizations may adopt a DAO model to help govern some of their activities.
You can create DAOs effortlessly if you have a clear idea of where you should go and what you need to create with DAOs. So you must be careful at all stages of the process – starting from the evaluation of the need for a DAO to the selection of the right tools for DAO implementation.
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