With the introduction of Ethereum, decentralized autonomous organizations, or DAOs, first appeared in the blockchain industry. A hierarchy is essential for any other sort of group or organization, such as a business. There are formal management hierarchies within corporations, with the CEO occupying the top spot. Managing an online community may be the responsibility of moderators or administrators.
Each member of a DAO has a stake in the organization, which is symbolized by the ownership of governance tokens. It is also possible for the DAO to choose the people who will be in charge.
Participation conditions are decided at DAO meetings and may be written into smart contracts stored on the blockchain. When a DAO must raise money, it enters a financing phase, during which predetermined amounts of tokens are released to raise funds.
In most cases, DAOs are run using tokens that represent votes. Members can acquire governance rights and tokens through their financial contributions by participating in the DAO community or contributing other contributions, such as being early backers. In addition, DAO members may make suggestions for advancement at any time and vote on whether those suggestions should be adopted.
It is common for members of DAOs to select representatives who can monitor progress and cast votes according to their interests. Members of the DAO and the general public have full access to the decision-making process, either directly on the blockchain, where votes immediately translate into actions, or through Snapshot, which provides instant feedback.
DAOs can impose any regulations they wish, such as rewarding voters for participation or penalizing those who submit multiple unsuccessful suggestions.
How does a DAO work?
According to what has already been explained, a DAO is a collective of members-owned organizations where decisions are made from the bottom up. Tokens are most often used to participate in a DAO, but there are other methods to do so as well.
DAOs operate through smart contracts, simply blocks of code that run automatically when a particular set of conditions is met. The first smart contracts were developed on Ethereum, but they are now standard on many other blockchains.
The smart contracts establish the rules that govern the DAO. People with a stake in a DAO can vote and decide on or suggest new governance ideas, which can then affect how the company operates.
By using this methodology, it is prevented from spamming DAOs with ideas: proposals will only be approved by the vast majority of stakeholders. There are differences between DAOs in how the majority is chosen, which is specified in the smart contracts.
In addition to being transparent, DAOs are entirely independent. Anyone can read these codes since they were created on open-source blockchains. Furthermore, blockchain allows anyone to audit their built-in treasuries since it records every transaction.
Why should you create a DAO?
For crypto initiatives, DAOs offer several significant benefits. There is no doubt that smart contracts are an essential factor in the model’s success. As a result of these on-chain pieces of code, DAOs become less dependent on user input. For example, the on-chain publication of a proposal’s findings might result in an instant modification request. In addition, it is technically impossible to manipulate the voting process or to ban fresh suggestions.
It may be possible for communities to be organized well with the help of DAOs, especially if they are mostly anonymous. Verifying someone’s true identity is not always possible, so you need to trust strangers. They can effectively organize themselves by using DAOs and technology that ensures integrity. In addition to being more superficial than starting a conventional business or company, many projects involve worldwide teams. Individuals can organize themselves effectively and at an affordable price with the help of a DAO. You can set one up for free or for a nominal fee.
It is essential to be aware that a DAO may hold you responsible for its judgments. As a result of decentralizing authority, you will only be able to control your project partially. If government decision-making is disregarded, the consequences are almost always bad.
How To Start a DAO
It might be frightening to launch your own DAO, particularly if you’re new to the community. Although it deals with a lot of technical technology, many tools are available today to simplify the process. Here is how to launch and expand your own DAO.
Set objectives
The goal of your DAO is the first thing you need to decide. It doesn’t need to be complicated. It just has to be something that a community can rally behind.
DAOs may be collection platforms like PleasrDAO, social networks like the Friends With Benefits DAO, or decentralized finance (DeFi) protocols like Uniswap and Aave.
Do you wish to buy, sell, or accumulate non-fungible tokens (NFTs) or other digital assets? Do you want to rank and discuss famous memes with your friends? Do you wish to assist creators and artists? Are you preparing to launch a new business? Having a clear objective makes the subsequent stages easier for you.
Find A Community And Build It
You need a community to build a DAO that will endure and maintain itself. Initially, this may be challenging to do, mainly if you’re working from scratch to implement a novel concept.
Through numerous social media platforms and online groups, you may advertise your DAO. For example, send out a tweet, a Reddit post, or a Discord server message with your concept. Another option is to set up your own headquarters as a Discord server or group chat.
In addition to expanding your membership, you’ll also need to raise money. Your DAO would require an initial bitcoin investment to create native tokens. This may be accomplished via venture capital firms’ requests for proposals or through crowdsourcing.
Ask for assistance from your neighborhood if you want to do it with others. Giving rewards for particular actions thus early on can also help you achieve your objectives more quickly.
Codify the Laws
You have several options for how to approach this phase. Either utilize a DAO builder tool that does it all or write your own smart contract using code. In addition, you may employ a group of developers at this stage to hasten the procedure.
Aragon is a well-liked framework for developing DAOs. Users may create and manage DAOs on the Ethereum blockchain using this tool. You simply need to have a concept in mind and a bitcoin wallet addon like MetaMask. Then, even your DAO tokens are created for you by it.
During setup, you may specify your rules, including token distribution and voting authority. Everything else required to operate your DAO is likewise hosted there. It has executive, legislative, and judicial responsibilities, much like a traditional government structure.
You can write your own code if you want to customize your DAO totally. This is more difficult and time-consuming than the first option. However, you can start from scratch. Online, you may find open-source DAO frameworks that you can personalize.
Since a smart contract is irrevocable, double-check your procedures with your community.
Launch The DAO
Once the setup is complete, you may test and release your DAO to the public (or to the membership you choose)! The community you create will undoubtedly be a part of it.
The objectives of your business will determine how you extend your DAO. Discord servers, subreddits, or other DAOs you are already a part of are some fantastic places to start. The DAO is currently a distinct entity. Everything now depends on the community; ownership and centralized leadership are nonexistent.
Create A DAO LLC Account
This is a recommended but optional step if you want your DAO to benefit from LLC protections and advantages.
Successful DAO examples
Take a look at some of the existing DAOs in cryptocurrency if you need some ideas for the finest setups and regulations. Some people manage very comprehensive, transparent enterprises that function like major corporations. Here are a few examples to consider:
MakerDAO
One of the oldest and most popular DAOs available is MakerDAO. The company controls the DAI stablecoin using crypto-collateral. They divided suggestions into Executive Votes for improvements to smart contracts and Governance Polls for non-technical choices. Participants must own MKR, the project’s governance DAO token.
Aave
The ERC-20 token AAVE or staked AAVE holders may participate in the DAO of Aave, an Ethereum-based DeFi lending platform. Aave governance also votes on new projects based on the protocol, and Aave Grants to finance concepts in addition to project updates.
Uniswap
AMM (Automated Market Maker), with many chains, Uniswap has influenced a number of DeFi initiatives. It’s one of the biggest decentralized exchanges, and holders of UNI tokens have the ability to vote and submit ideas. You must own at least 0.25 percent of the entire supply of the UNI in order to make a new proposal. There is a governance forum where community members may discuss modifications to promote constructive dialogue.
Final Words
A wealth of intriguing possibilities are open to companies, artists, and online communities with Web3 developments like Decentralized Autonomous Organizations.
While developing a DAO, explore different DAO technologies, and keep your community-your most precious asset-in mind. A team, tokenomics, and tools that are appropriate to your DAO can significantly increase your chances of success.
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