How To Create a DAO: 6 Steps To Get It Done

DAOs are being advertised as the next technological revolution in spheres such as finance and business.

These decentralized autonomous organizations are member-only communities, with no centralized authority, that leverage blockchain technology to pursue common goals.

There are many advantages to implementing a decentralized organizational model over what’s seen in a traditional organization as DAOs benefit from decentralization, community-powered decision making and democratic voting to accomplish the interests shared by all its members.

A crypto organization like a DAO also relies on smart contracts to ensure efficiency and transparency of all transactions.

If you like how DAOs work and you want to create one, you’ve come to the right place. Dealing with blockchain might seem intimidating at first, but today we’ll help you create your first DAO the easy way.

All it takes is having a mission, the right community and a few minutes to complete the technical side of things with the help of an easy-to-use DAO creation platform.

What Is a DAO?

A decentralized autonomous organization (DAO) is a type of governance entity where there is no central authority. Instead, this type of organization is owned equally by all its members, who also are also responsible for self-governance.

Being ruled by computer code, DAO’s are meant to be largely managed through autonomous processes enabled by programmable smart contracts, helping run processes without the need for human intervention.

The core idea behind this concept has to do with creating digital entities that leverage blockchain technology and digital assets to create a more efficient way of managing resources, making decisions and coordinating activities.

DAO proponents say that this organizational model can be a reliable alternative to undemocratic, centralized models, offering an open and egalitarian way of serving the interests and goals of an entire group rather than a strict group of individuals.

Other benefits brought by decentralized organizations include:

• Enabling greater transparency
• Promoting trust
• Adaptability across sectors and scenarios
• Higher speed of processes over traditional organizational models such as corporations
• Potential for innovation (and financial returns)

DAOs are created and managed by the entire community based, in large part, on the voting power held by each participant.

Nowadays, there are a wide variety of voting systems and forms of representation being used. Here is how it could look like: some DAOs follow a “one token, one vote” rule, others leverage a representative system where proposal power is delegated to other individuals (similar to many political systems), and many DAOs are also experimenting with a stake-base model, whereby individuals who lock the greatest amount of tokens in an escrow smart contract are given more voting power.

If you’d like to know more about the nuts and bolts of a decentralized autonomous organization, feel free to check out our complete guide to DAOs.

Why Create a DAO?

Hold up. This all sounds great on paper but why should you actually consider creating your own DAO? For starters, a decentralized autonomous organization allows a group of people to cooperate and self-govern with full transparency towards the goal of achieving a common set of interests.

Digital assets are used to represent DAO membership. A governance token allows participants to put forward proposals and vote on changes related to the goals of the DAO.

As the majority of these organizations are “public” as they are based on freely-tradable tokens, any user that purchases these digital assets can, in theory, become a part of the DAO.

There are a wide range of projects that would benefit from using this organizational model, especially when it comes to joining forces with other people, including strangers, to realize a project.

What Should You Know Before Creating a DAO

I might seem intimidating at first, but launching a DAO is actually quite simple. But before you get down to work, here are a few steps worth keeping in mind:

1. Set Out The Goals For The DAO

As with any other organization, the critical initial step is to establish the main goal or the set of objectives a DAO is meant to achieve. This is the chance to get the creation of your DAO right so it’s certainly one of the most important aspects to keep in mind. Currently, Decentralized Finance (DeFi) is one of the crypto segments that features a great number of DAOs as these organizations are used as the primary governance medium. During this initial stage, you’ll likely find yourself thinking of what problem your DAO is meant to solve, what strategies you’ll have to follow and the kind of people you want to attract to your decentralized organization.

2. Establish the DAO's Structure

Based on the objectives of your DAO, you’ll have to reflect on whether a decentralized structure suits your project. Moreover, as part of this step, you’ll be defining short and long term goals, how will the voting system work, how will voting rights be allocated, what benefits will be distributed across the community, what kind of technical and otherwise resources will be needed, among many other aspects.

When it comes to deciding what’s the type of DAO you’ll build, there are many types to choose from, including:

• Protocol DAOs: These organizations focus on governance of decentralized protocols
• Collector DAOs: The main goal behind this type of DAO is to allow participating members to pool funds and invest it in digital assets of which each participant has an ownership share.
• Grant DAOs: While there are a few ways in which grant DAOs can work, they’ve been mainly used as a way to fund emerging and exciting DeFi projects. More recently, grant DAOs have helped facilitate donations to NGOs and other charitable organizations.
• Investment DAOs: Early stage Web 3 startups and a wide swathe of crypto projects are increasingly turning to this type of decentralized organizations for capital.

3. Find Your Community and Founding Team

DAOs are centered around community - so finding the people that will want to be a part of your organization is a crucial step. This also applies to your team. Ideally, you’ll be surrounded by people who share the same vision and level of commitment to the DAO as you. As a team, you’ll have to be dedicated to following through with the long-term goals of your organization.

Moreover, your team can come from a diverse background, although having someone with technical Web 3 knowledge can prove to be advantageous. In addition, it’s advisable that you seek legal help when laying the details related to token utility and allocation. Thankfully, when it comes to promoting your DAO and attracting a community, social media is a great tool so you shouldn’t have much issue here.

4. Governance and DAO Treasury

Once you’ve assembled your team and community, it’s time to decide how your DAO will be governed, by establishing who can make decisions and how those decisions will be made. As the idea is to have a decentralized system in place, at this stage you’ll only have to lay down some fundamental rules and let the DAO’s community work on the rest.

When you create a DAO, you’ll also have to include a treasury and determine its role in managing community incoming funds and distributing money. For this, multi-signature wallets are normally used so that more than one person can be involved in confirming transactions. DAOs can manage their treasury with the help of tools like Gnosis and Coinshift.

5. Encode the rules

Once the rules governing a DAO are encoded in a smart contract, they are immutable and cannot be changed. For this reason, it’s very important that you and your team make sure that nothing is left to chance. Perform due diligence before deploying your smart contracts on the blockchain. Rules can be encoded using DAO tools (more on that a little later) or by simply hiring a blockchain developer to do it for you.

6. Token Creation and Allocation

Now that you have your goals, community and governance rules in place, you should focus on tokenomics, that is, how DAO tokens work. In most decentralized autonomous organizations, tokens are used to incentivize and reward members as well as vote on proposals and decisions, although they can be equally used to access other benefits.

As they play such a central role in a DAO, you must ensure that you have proper tokenomics in place before launching your organization as having the wrong structure could jeopardize the entire community and hurt the long-term goals of your DAO.

For token creation and DAO token allocation, the main consideration to have is the purpose of the tokens. For example: will they be used to vote on decisions, will they have inherent value, could they be staked? You’ll also have to think about how your tokenomics strategy will affect supply.

When it comes to token allocation in particular, it’s crucial to be able to balance incentivizing and rewarding your community while setting aside tokens for the DAO's treasury. Don't worry if you don't know how to create a token. We will be discussing some DAO token minting tools in a bit.

Now that you’re familiar with some of the most important aspects to take into account before launching a DAO, we can move on to developing one.

How To Create a DAO

A decentralized autonomous organization can be an innovative tool in supporting new ideas, accomplishing ambitious projects and connecting like-minded individuals from all over the world with the aim of achieving a common goal.

We talked about the importance of structuring your DAO correctly as its critical to the execution of the community's objectives.

You might worry that you’ll need a lot of technical knowledge in order to develop and launch a decentralized organization, but today we’ll be walking you through ways of creating a DAO without having to code smart contracts from scratch.

Luckily, there are many open-source platforms that make this process easy, especially when it comes to interacting with a blockchain and deploying smart contracts.

In this post, we will be focusing first on how to use Aragon - one of the most intuitive platforms to create a DAO.

Aragon

Aragon facilitates the creation and management of a DAO on an open-source infrastructure, allowing you to launch your customized decentralized organization on blockchain networks like Ethereum and Polygon.

There are a number of features that are designed to help the uninitiated, from letting you choose from a number of different DAO templates to having a voting plugin, which will make DAO governance and the voting process much more straightforward.

We will walk you through the steps you need to follow to create a DAO on the Ethereum blockchain since it is the most popular, but if you’re looking for a more cost-efficient option, you might want to consider Polygon.

Pre-requisites:

• An Ethereum-compatible crypto wallet such as MetaMask or Argent.
• Cryptocurrency to pay for gas fees related to creating a DAO
• Have a designation for your DAO and DAO tokens, as well as voting configurations.

All set? Great. Creating an Aragon-based DAO is pretty simple:

1. Log in to your Web3 wallet (e.g. Metamask), select your account address and the network you want to use.

2. Go to Aragon’s main page and select 'Create DAO'. After this use click 'Aragon Client'.

3. Make sure your wallet is connected and that it has money on it. You’ll need 0.2 ETH (or more depending on the network traffic) to create a DAO on the Ethereum network.

4. Select “Ethereum Testnet (Rinkeby)” from the dropdown menu. It’s recommended that you create your first DAO by using a test environment instead of launching it on the real Ethereum Blockchain. In this case, “Rinkeby Testnet” is the test blockchain. Follow this link for a step-by-tutorial.

5. Next, choose a template that better fits the purpose of your DAO. The most common templates are “company’ and “fundraising”. Click on ‘Use this template’, then enter the name of your DAO.

6. Now, you’ll have to set the following:

• Support percentage: Refers to the percentage of yes votes necessary to approve a proposal. This is calculated in relation to total votes and not the total voting tokens issued by your DAO.
• Minimum approval percentage: This is the percentage of yes votes required from token holders to approve a proposal from the remaining tokens.
• Vote duration: This is the period of time within which the members can vote.

7. Pick a token name and add wallet addresses to issue your tokens to DAO participants.

8. Review all of your information and click “Launch Your Organization”.

9. Lastly, the transaction to set up the DAO will begin. Depending on your wallet, you should get a notification to confirm your transaction (i.e. fee payment) and once you’re done, your first DAO will be all set up. Congratulations.

Now that you know how create a DAO with Aragon, here are some other platforms you might want to explore similar platforms:

Snapshot

Snapshot is another great tool that allows off-chain community voting mechanisms using token and NFT ownership. How it works is simple: this software relies on digital signatures attached to wallets to cast votes that are based on a snapshot of the owner of the token. Because Snapshot doesn’t use ‘on-chain’ verification, votes are essentially fee-less. For this reason, Snapshot is a very appealing platform when it comes to creating a DAO as members can create proposals and vote on them for free, unlike the majority of the other alternatives.

DAOstack Alchemy

DAOstack Alchemy is a decentralized tool for creating DAOs on Ethereum and Gnosis Chain. Fortunately, it’s fairly uncomplicated to set up things like collaboration, budgeting and DAO management and the cost of using this platform is roughly 0.2 ETH (at the time of writing). Connect your wallet to the DAOstack Alchemy dApp, set the parameters for your DAO, add community members, and launch your DAO.

Frequently Asked Questions About DAOs

What does 'DAO' stand for?

Decentralized Autonomous Organization. The term was first coined by Ethereum founder Vitalik Buterin in this 2014 article.

How Is a DAO Different From Traditional Organizations?

A normal organization - let’s imagine an Limited liability company - is managed by one or more owners. They alone are responsible for making all decisions related to the business and the organization. However, in a DAO, all members have a say in matters related to the community. In addition, DAOs are usually managed through smart contracts, thus relying less on direct human intervention.

What Is a Smart Contract?

Simply put, a smart contract is a piece of software stored on a blockchain and that runs when predetermined conditions - defined by the contract - are met. We can call smart contracts the building blocks of DAOs as they automate many of its key processes. As importantly, the strength of a DAO is directly tied to the DAO’s rules and transactions that are facilitated and recorded through smart contracts. Moreover, blockchain enables complete transparency, which is important when it comes to ensuring that DAO proposals don’t get censored or that votes aren’t rigged.

Can a DAO Run On a Blockchain Other Than Ethereum?

Ethereum was the first network to allow the creation of DAOs and the majority of decentralized autonomous organizations still run on this blockchain. However, there are many other platforms that enable DAO development, including Polygon, Polkadot and Cardano.

Do I Need Technical Skills To Join a DAO?

No. DAOs usually have members from a wide range of backgrounds, be that design, marketing, community management or IT. The main goal within the community is joining forces with like-minded individuals and adding value to a DAO together.

Who Can Join a DAO?

Anyone is free to join a DAO so long as they become holders of the DAO’s token. That said, all DAOs have different rules so you might find yourself not being aligned with all organizations. The majority of these organizations are public and permissionless. That way, when you buy a DAO’s token, you automatically become one of its members.

Where Can I Buy DAO Crypto Tokens?

If you’re looking to buy a DAO token the best place to get started is a reputed crypto exchange like Binance or Coinbase. Before that, you need to make sure you’ve opened a crypto wallet and have it loaded with cryptocurrency which you can then exchange for your DAO token of choice.

What Are The Main Benefits Of a DAO?

• Decentralization: DAO members have full ownership over the protocol.
• Automation and transparency: All transactions are made on the blockchain, which means they’re recorded and they’re all public so that any DAO member can access information.
• Community-driven: Decision-making power is given to each token holder and all decisions are made by the community, making it a truly democratic alternative.