Founders dream of finding investors who can provide them with multiple options for business growth and innovation. However, this dream often comes with investors taking seats on their boards.
Though founders often gather known members of their boardroom to show who is in charge, they can also engage in a power game of egos. When a founder finds himself or herself under pressure to make wrong business decisions, it is understandable that they find it difficult to say no. A business’s operation and its future are in jeopardy because of ego clashes and a lack of a strong voice.
As businesses have slowly started turning to DAO blockchain to solve these problems across a range of use cases, this example illustrates just how fatal incorrect or pressured decisions can be.
Since you are reading this, it is safe to assume that you are already familiar with the idea of DAOs on blockchains, which are entirely automated democratic communities where anonymous voting and participation are allowed. Smart contracts are crucial to their success as they determine who has the power to make decisions (typically, those with more tokens are the ones with more power).
Ultimately, DAOs work in stark contrast to traditional organizations, because of their multifaceted elements.
|Services||Automated||Needs human handling|
|Voting||Mandatory for all participants||A single party can make decisions based on the company’s structure|
|Governance||Community-based||Based on board of directors or executives|
|Transparency||Fully transparent||Not transparent|
I’d like to give you a few options in terms of what types of DAO blockchains you can invest in before we dive into the step-by-step process of setting up a DAO. It is true that we started our article by connecting DAO models to organizational setups, but the reality is that their uses are much more widespread than that.
Blockchains used by DAOs
Diverse types of DAOs can be distinguished based on their technologies, structures, and end goals.
DAOs defined by protocol
In protocols where tokens are used as a voting metric, protocol DAOs are the governance structure. A liquidity pool contributor receives native tokens which can be used to vote on DEX governance decisions, for example, Uniswap.
DAOs that collect
An example of this is Flamingo and PleasrDAO, a collection of non-fungible tokens (NFT) used by artists for creating art.
DAOs that invest
It is an example of a venture DAO governed by basketball fans that operates the National Basketball Association. Venture DAOs enable capital pooling for democratizing investments in multiple DeFi operations.
DAOs are granted
An example of this is the Aave Protocol, which uses the infrastructure to grow its DeFi initiatives with the community contributing to the grant and voting on fund allocations.
By giving creators control over governance, these DAOs make the digital world more innovative.
In the next section – how to make a DAO – deciding between these or other DAOs on blockchain will have a significant impact. It is undeniable, though, that DAOs are gaining in popularity, as evidenced by these use cases – here are some stats that prove it.
On what blockchain can a DAO be built?
It is essential to understand the four key elements that make up a DAO- Objective, Governance, Voting, and Rewards- in order to understand what a DAO is and how to create one.
It is crucial to understand how a DAO operates and how the rules set by the community members are created and implemented through smart contracts. This is where governance becomes crucial.
When the rules for a DAO have been spelled out on the blockchain, the next step is to figure out financing and governance. The protocol typically introduces a method of token issuance here, which provides token holders with voting rights proportional to the amount they hold. Token holders are then used to replenish the DAO’s treasury.
In the course of deployment on the Ethereum blockchain, the DAO requires Ether (ETH) to perform Ethereum transactions once it has been deployed into production. The initial creation phase of the DAO involves giving ETH to the DAO smart contract address according to the codes.
Getting the understanding of the model will help you understand how to form a DAO, but you’ll still have to plan out the four components we mentioned in the previous paragraph, on a detailed level.
1. Build a foundation based on the purpose
An essential first step is to determine why a DAO is needed, what its purpose is, and how it works. Finding the opportunity, conducting a market validation test, and finalizing processes that can be incorporated into smart contracts would be important for you.
The next step is to create the following:
- Token storage and transaction capability in an encrypted wallet
- Automated smart contracts
- Interested members form a community
- Voting timelines are specified
- To keep members informed about what’s going on, there are forums and chat rooms
2. Set up a voting mechanism and a plan for ownership
After establishing the goal of a DAO, the next step is to determine ownership and voting mechanisms for members. When creating a DAO, ownership must be transferred to members, which can be achieved through airdrops, rewards, or token purchase.
Airdrops involve giving tokens to members based on their contributions to the community, while rewards are given to those who achieve their goals or duties. Listing tokens on decentralized exchanges and allowing members to buy them is the third option.
Membership plays a crucial role in setting up a DAO. Members are required to vote on decisions made by the DAO. There are two types of memberships: token-based, where members own the DAO token, and share-based, where members must submit a proposal showing their expertise in making valuable decisions.
Once ownership is established, a voting mechanism must be created. A popular method is to base the vote on the number of tokens rather than the number of voters. The side with the most tokens wins the vote.
3. Structure the governance of the organization
When it comes to creating a DAO, one of the most critical aspects to consider is the governance structure. This stage outlines how decisions will be made within the DAO once it is established. It includes information about the voting mechanism, various use cases related to the process, and clarifications on the essential components of the DAO network, such as the exchange that will hold transactions, the validator who will verify all transactions, the developers who will build the code, and the users who will participate in the community.
To get an idea of DAO governance structure, one can refer to the Maker DAO documentation, which provides details on topics such as the correct use of wallets, the use of IOU tokens for locking in votes, the duration of token holding required before becoming eligible for voting, unlocking votes, addressing token value fluctuations, and the risk of whales, among others.
It is also important to include a section on how the DAO will generate revenue in the governance structure document. While earning from the sale of native tokens, which grant voting rights to members, is a given, members can also contribute capital in exchange for buying into an early-stage project that would share profits with them as investors.
4. Reward and incentivize your employees
As part of how to start a DAO, you need to determine how to reward DAO members for their contributions. Native governance tokens are usually distributed to contributors who use the DeFi protocol. In addition to cryptocurrencies like USD Coin (USDC), ETH, and Tether (USDT), you may also reward them with grades and titles. These represent the ownership rights they possess.
5. Create the DAO and launch it
After completing all the necessary steps, you will reach the stage where you have learned how to create a DAO and are now ready to launch it. While there are several methods to accomplish this, the most efficient way is to create a Discord and Telegram community to increase awareness and then guide members to your DAO platform.
In conclusion, we have explored the various stages of creating a DAO. It is highly likely that during your research, you will come across platforms that provide a do-it-yourself approach to setting up a DAO, such as Aragon, Syndicate, DAOstack, and more.
However, these articles often overlook the challenges that require strategic solutions. For example, the 2021 incident where a simple user interface error enabled hackers to exploit $120 million from BadgerDAO. Although low-code platforms are convenient, online threats like Badger’s can damage your brand’s future.
Revinfotech is a company that specializes in blockchain development
Collaborating with a blockchain development company that possesses proficiency not only in building DAOs on blockchain from the ground up but also in resolving issues that result from centralization caused by master nodes (individuals who own a majority of tokens), shadow voting, code vulnerabilities, and the delay caused by collecting every member’s vote is crucial.
At Revinfotech , we specialize in crafting secure and efficient DAO platforms that allow people worldwide to come together and make decisions about the issues they care about. If you want to learn more, reach out to us to build your DAO.
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