DAO or Decentralized Autonomous Organization is used to govern distributed applications, blockchain-based products, and funds. The unauthorized nature of this concept makes it very widely applied by those who work in the crypto world. How to create one? Are there any special platforms where you can start a DAO? If there are any, how do they work, and how do you use them? These are questions we are going to answer in our today’s guide.
The main characteristic of everything in the crypto world is that assets don’t depend on authorities. DAO is just a mechanism that helps to provide governance in this universe. Some technological instruments and a few tips from experts will help everyone to start a DAO and run it successfully. However, before you start launching one, it’s vital to learn more about the concept of decentralized autonomous organizations. Here are the key points you need to be aware of.
Introduction to DAO
A decentralized autonomous organization is a special membership that is run automatically. Everyone who meets pre-determined requirements can become a member of a chosen DAO. DAO operations are executed with no individual involvement because the systems apply smart contracts to do this. All assets and products, governed by a specific membership, are managed by its community, consisting of members who have the right to place their offers and vote for them.
“The DAO”, designed by the Ethereum blockchain space in 2016, was one of the first prototypes of a modern DAO. However, that project didn’t succeed. In fact, it didn’t last even a month because its initial code was too vulnerable and was cracked around three weeks after the launch. Despite that unpleasant situation, the idea itself became much better and more legitimate over time. Currently, this mechanism is one of the most frequently used for governing DeFi products.
The industry introduces different autonomous organizations. They all might have unique features, but, in general, their core characteristics are the same. These are the following ones:
- Token holders can vote. The voting power corresponds to the amount of held tokens.
- Token holders may offer their ideas of how the DAO should operate or develop.
Is It Relevant to Start a DAO?
DAOs, in fact, may provide a lot of considerable benefits to projects that are developed on blockchain-based networks. Probably, the fact that the concept relies on smart contracts is the biggest advantage here. Thanks to this, organizations depend on humans only to a very small extent. When this involvement is minimized, the proposals and changes can be activated in an automated mode. Besides, no votes, which meet the requirements of the DAO, are neglected.
Such organizations are considered to be the perfect means of community building in the crypto space. Many DAOs are anonymous, which means members interact with people even without knowing their real identities. However, this technology guarantees integrity, which often means that the process of cooperation will be efficient.
One more cool benefit is that you can create an international community. Such organizations are often open to members from different countries. This is much easier to create an international organization in the digital space rather than in the real world, where you need to register your legal entity and complete tones of other processes that heavily rely on complicated bureaucracy.
Last but not least, you don’t need to possess impressive funds to start a DAO. In many cases, DAOs are created completely for free, while in others, founders are required to pay small fees.
The one thing you should realize before you start creating a DAO is that the decentralized governance means you won’t be the only one who changes your blockchain-based projects. Other participants of the organization might have the same right to impact the final decision. Ignoring them is not the best idea because of the negative outcomes which will probably, come.
In order to start such membership, you should follow some basic requirements. Here are the most important ones:
Don’t Start It if There Is No a Clear Purpose
There is no point in launching a meaningless DAO. Every new business that follows this concept should have a solid project or product. Because DAO isn’t an entity — it’s just a mechanism to manage serious projects.
Work on the Voting Mechanism
Members of any DAO cooperate with each other and bring something new via the means of voting. You might consider different options when it comes to creating a voting mechanism. The easiest way is to use the services of third-party providers who already have efficient models. If it won’t satisfy your members, it’s possible to change it via voting.
Create a Token
DAO’s tokens are the instruments that are used by participants to prove their right to vote and propose changes. You may apply either governance tokens or utility tokens.
Gather a Community
The major purpose of any DAO is to make processes unauthorized. The more various people take part in this, the better decentralization will be provided since the right to make decisions belongs equally to different token holders.
Here we come to the technical side of DAO creation. From the paragraph above, you already know that the voting mechanism is one of the most important features of your future DAO. You can use different open-source solutions to work on it. If you are going to run your DAO on the Ethereum blockchain, you will be likely to choose Aragon. If you aim to work in different blockchains, you should take Snapshot into account. Basically, all these solutions have the same purpose and very similar structures. They differ in the ways they operate.
It’s also important to mention that you need to have enough crypto savings to create a DAO. You will need these savings to deploy your DAO to a blockchain. Their particular usage covers transaction fees and gas fees. Usually, transaction fees don’t exceed 0.2 ETH.
If you want your DAO to operate on blockchains such as Ethereum, Polygon, Andromeda, or Harmony, Aragon is the priority tool for you. The clients of the platform can access open-source instruments to design and launch a DAO. The curious fact is that money for the Aragon platform is controlled via a DAO.
Snapshot is a customizable off-chain voting mechanism. The tool applies digital signatures that are used to register votes based on a snapshot of token owners. A certain block is chosen, and all token holders and/or stakeholders have their holdings noted. This model is a good preventive mechanism against buying more tokens to have more voting rights.
If you want to start a DAO on Ethereum or Cnosis Chain, you might also use the tools of DAOstack Alchemy. It has a very easy-to-navigate interface, which provides the ability to create a simple DAO and easily add DAO members.
Bottom Line: Is DAO Worth Creating?
A DAO is definitely worth creating if you want to provide full transparency, start a fully democratized organization with different members who will vote for proposals and provide changes to your crypto-projects. It doesn’t require impressive funding or any specific technical skills to work within the Ethereum network or any other blockchain without a central authority. But you should realize that DAOs don’t become successful if their members don’t pay an effort and if these members cannot form an effective community.