Summary

DAO This governance method is commonly used in decentralized applications (DApps), various projects and cryptocurrency investment funds. DAO is open and decentralized. In addition, it also has the function of automatically executing smart contracts. Therefore, it is extremely popular among users. Creating a DAO requires technical solutions in order to manage your proposals and votes. Whatever your needs, there's an open source option for you.

Introduction

Decentralization is the core essence of cryptocurrency. Therefore, DAO is in the field of blockchain is a highly regarded governance model. You can use technical knowledge and various tools to quickly create and run a DAO. But first, you need to develop a good strategy and make sure you have community support. Next, let’s learn the basics together, understanding what’s required and how to create a DAO.

What is a DAO?

DAO is the abbreviation of Decentralized Autonomous Organization  As the name suggests, DAO is an organization that is automatically embodied in computer code and is open to all users participating in activities, but only if the users meet some basic requirements. "Autonomy" means that smart contracts can handle most processes without human intervention. DAO is created and managed by the community, and its funds and projects are jointly managed by all members of the community.

DAO is well-known for the venture capital fund project "The DAO" launched by Ethereum in 2016. Unfortunately, three weeks after the token sale, the code was hacked due to low security. But after a series of remedial measures to turn the tide, the funds were eventually recovered. Although DAO faced many challenges in its early days, after years of testing, its concept has been continuously optimized, and today it has become the most popular governance model for many decentralized finance (DeFi) projects.

Each DAO may have vastly different features, but most of them follow the same set of basic principles. For example, all holders of DAO governance tokens have voting rights, and their power is proportional to the number of tokens they hold. In addition, holders can also submit proposals on how to change the way the DAO operates.

Why create a DAO?

For cryptocurrency projects, DAO has significant advantages. The most noteworthy thing is the model’s reliance on smart contracts. It is precisely because of the existence of these on-chain code snippets that DAO reduces its dependence on manual input. For example, the proposal results are self-published on-chain and automatically trigger proposed changes. New proposals cannot be reviewed, and votes cannot be tampered with through technical means.

DAO is an effective way to organize a community, especially when ensuring anonymity in most cases. Accountability often doesn't involve the user's true identity, so you have to trust strangers within the community. DAO allows users to effectively organize internally with technology that ensures integrity. This is easier than creating a traditional organization or entity because many projects have international teams. Last but not least, DAOs have advantages in organizing functionality for users, making them a cost-friendly option. You can create a DAO for free or for a small fee.

Please know that the DAO will hold you accountable for its decisions. Decentralization means that you lose complete control over your project. If you insistently ignore governance decisions, it can lead to negative consequences.

What is needed to create a DAO?

A successful DAO should contain at least the following 5 points, among other things:

1. The DAO needs to establish a purpose. DAO can be used to easily organize projects or plan funds. If a suitable basic project is not determined and the reason for its establishment is unclear, the DAO will not be able to operate.

2. DAO needs to establish a voting mechanism. This is the primary way users interact and complete changes in a DAO. There are several workarounds to achieve this goal. You can create your own voting mechanism or use a third-party provider, which we will discuss later. Your DAO can even vote to change the mechanism later, but you have to set it up first.

3. DAO needs to provide governance tokens or equity participation systems. How can users prove that they have the right to express their opinions in the DAO? In fact, it is a common means to use governance tokens that can also be used as utility tokens. The equity participation system is more common in the process of operating funds, through which users can deposit cryptocurrency into DAO for investment.

4. DAO needs to create a community. As users continue to join and participate in the governance of the DAO, the degree of decentralization will also deepen. As a result, power is dispersed to more stakeholders.

5. DAO needs to establish a fund management method. Most DAOs have vaults or have access to some crowdfunding financing. But funds are typically held in multi-signature wallets and can only be used with the unanimous consent of all key participants.

How do I create my DAO?  

From a technical perspective, you need to set up voting and proposal mechanisms. Today, there are numerous open source solutions available for you to choose from. Among them, Aragon is one of the most popular choices in the Ethereum blockchain, along with Snapshot, a solution that can be applied to multiple blockchains. The structures of these solutions are similar, but there are differences in functionality. For example, the polling method of the DAO system has two options: on-chain and off-chain. Which method you actually choose depends on what your DAO values.

When you deploy your DAO to the blockchain, please remember to provide sufficient cryptocurrency to cover transaction fees.

Aragon

Aragon allows you to create a DAO organization on Ethereum, Polygon, Andromeda or Harmony. The project provides open source software via the Aragon client, allowing users to create custom DAOs. In addition, the project runs through a DAO and has its own non-profit organization, so it can manage the funds raised by Aragon.

Creating an Aragon-based DAO is very simple. All you need is:

1. Have an Ethereum Name Service (ENS) domain.

2. Make sure you have enough cryptocurrency to cover the DAO creation fee (0.2 Ethereum plus mining fee).

3. Create an organization linked to the ENS domain through the Aragon decentralized application. You can choose from a range of preset organizational structures.

4. Configure settings such as voting duration and required percentage support, then launch the DAO.

You can visit Aragon’s FAQ page for more information.

Snapshot

Snapshot is a customizable off-chain voting mechanism. It looks at a snapshot of token holders, who can then vote via digital signatures in their wallets. If a block has been selected, all token holders and/or stakers will receive a stake reminder. This prevents users from purchasing large amounts of tokens in order to influence the outcome of public voting. Off-chain voting mechanisms work well for multi-chain projects if users own governance tokens on many blockchains.

To create a voting system in Snapshot, you will need:

1. Have an ENS domain. No matter which blockchain your project runs on, the ENS domain must be on the Ethereum mainnet.

2. Link Snapshot to your ENS domain.

3. Customize your space settings such as admins, voting rights policy, terminology, and more.

4. Verify your space. This will include having at least 1,000 members and proof of ownership of related projects.

You can find full instructions in Snapshot's documentation.

DAOstack Alchemy

DAOstack Alchemy is used on Ethereum and Gnosis chains (formerly known as xDAI) Tools for creating DAOs. Through their user interface (UI), you can create a minimalist DAO, add DAO members, and open your organization. As of this writing, creating a DAO on Ethereum costs approximately 0.2 Ethereum (ETH) in fees, but in this case you do not need to provide ENS.

To create a DAOstack DAO, connect your wallet to its decentralized application, complete the four steps shown, and pay the fee. Successfully deploying a DAO requires approximately 0.2 Ethereum.

Successful DAO examples

If you need some inspiration on the best rules and settings, please refer to Some examples of mature DAOs in the cryptocurrency space. Some users run organizations with extremely detailed and open internal information, comparable to large enterprises. Some examples are as follows:

MakerDAO

MakerDAO is the earliest DAO to enter the market and the most successful development. The organization manages the cryptocurrency-collateralized DAI stablecoin. They divide proposals into two categories: governance surveys (for non-technical decisions) and executive votes (for smart contract changes). Every holder of MKR, the project’s governance DAO token, can participate.  

Aave

Aave is a DeFi lending platform running on Ethereum. Holders or pledgers of the ERC-20 token AVVE can join its DAO. In addition to project changes, Aave management votes on new projects with full protocols and Aave grants to fund the implementation of ideas.

Uniswap

Uniswap is a multi-chain automated market maker (AMM) that facilitated the completion of DeFi projects. This is one of the largest decentralized exchanges where every UNI holder has the right to vote and create proposals. To submit a new proposal, you need to hold at least 0.25% of the total UNI supply. To encourage a healthy discussion environment, community members can go to the governance forum to discuss changes.

Conclusion

From a technical perspective, create your own DAO is very simple, but actually running it is not easy. As you can see, there are a number of simple tools you can use to help you get your DAO up and running quickly. However, the project and the community are the key to your creation of a DAO.