How to create a DAO? | The ultimate DAO starter guide

Building a Decentralized organization can be super fun as well as a challenging task. In this post, we dive into the details of how to create a DAO step by step. Let’s begin!

How to create a DAO?

DAO’s full form is Decentralized Autonomous Organization is a digital entity controlled by rules in smart contracts. It is a popular governance model in the blockchain space. Dao voting is a fundamental feature, and members make decisions democratically. If you have some technical knowledge, it is easy to set up DAO. We will go through the steps on how to create a DAO.

What is a DAO?

What is a Dao? Dao or Decentralized Autonomous Organization is a community-led organization and does not report to a central authority. It is autonomous and transparent, and organizers use smart contracts to frame rules and regulations and execute decisions that are agreed upon. Approval of members is required to access the built-in treasury. Some of the best DAOs to join are,

• DAOhaus
• MakerDAO
• RaidGuild
• Proof Of Humanity
• Opolis

Also read: How to write a smart contract? | Step-by-Step Guide

What DAO crypto token?

DAO or Decentralized Autonomous organizations are social organizations represented by rules encoded as a transparent computer program. Once the rules are written on the smart contract and onto the blockchain, you have to arrange for funding. DAO crypto token is used for voting or incentives for certain activities on the protocol. People interested in participating in the growth can purchase DAO crypto tokens which cryptocurrencies tied to it. Token holders get voting proportional to their holdings and own equity in the DAO.

What is DAO blockchain?

DAO is an open-source blockchain protocol administered by a set of rules, created by group members, and automatically performs actions without requiring an intermediary. The DAO rules are coded into the smart contract. The smart contract and the subsequent actions are recorded in the DAO blockchain. DAO blockchain is a transparent, secure, distributed ledger, and the data on the blockchain is immutable.

Components of DAO

The components of DAO are,

• Blockchain is where the DAO software lives, accessing your bank and running the DAO. 
• DAO tokens are a vital component of any Decentralized Autonomous Organization. DAO tokens are used as incentives and rewards, DAO governance, voting on the decision, and unlocking other benefits. Tokens allow users to invest in the success of your company. 
• DAO frameworks are frameworks to launch DAOs on the Ethereum network. There are DAO startup tools and templates that can set up the legal framework of your DAO. Popular frameworks are – Aragon, Colony, Syndicate, and OpenLaw.
• DAO treasury helps you manage funds within your DAO structure. Gnosis Safe is the industry when it comes to securing your treasury. 
• Membership management tools help to add members and unlock ownership of the community.
• Governance tools help in boardroom management and create a voting framework.

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Types of DAOs

Members of decentralized autonomous organizations collaborate according to rules encoded on blockchains. If you want to join the space, there are Dao projects to choose from finance to charity. Types of DAOs are,

• Protocol DAOs administers a decentralized protocol like a decentralized exchange or another dApp.
• Grant DAOs help NGOs strategically deploy capital assets throughout the web3 ecosystem. 
• Philanthropy DAOs support different social responsibility causes by organizing around a shared purpose to create an impact on web3. 
• Social DAO or creator DAOs bring together like-minded individuals like artists, builders, and creators. 
• Collector DAOs are for members interested in pooling funds to collectively invest in expensive NFTs and other collectables. 
• Investment and Venture DAOs pool capital to invest in the early- stage of web3 startups, off-chain investment, and access to portfolios not available in traditional finance. 
• Media DAOs reinvest in traditional media platforms with content driven by the community.

How does a DAO work?

Let us learn how does a DAO work? The core team of community members uses smart contracts to form rules and the framework by which the DAO will operate. After rules are written onto the blockchain, the Dao starts to look for funding.

The group needs to figure out how to receive funding and how will the organization run. Funding is achieved through token issuance, by which the protocol sells tokens to raise funds and fill the DAO treasury. Token holders get certain voting rights in proportion to their holdings. Once the funding goal is met, the DAO is ready for deployment.

Once the code is in production, it cannot be modified unless members reach a consensus through voting. No special authority can change rules arbitrarily, and only the community of token holders can decide on modification. The smart contract executes automatically, once the contract terms are met.

Benefits of starting a DAO

There are several benefits of starting a DAO,

• Decentralization is the biggest advantage of DAO. DAOs focus on achieving maximum decentralization and rely on collective participation rather than depending on one individual.
• Publicly-traded companies have a CEO, and a board of directors has the final say in running the company. Employees and customers do not have a say in the company’s future. In DAOs, members of an organization can express their thoughts about the company’s future.
• DAO has made it possible for people around the world to connect and work towards a common goal. You will need an internet connection and governance tokens to participate. By participating in DAO, you can contribute to a new project like Ethereum Name Service. DAO participants have a sense of ownership and shape the organization’s future.
• DAO members have an active stake in membership. DAO members have governance tokens and are likely to make thoughtful decisions during voting. Every vote on the DAO blockchain is public, making users accountable for their votes.

Also read: How to create erc20 token? | Step-by step guide

Prerequisites to create a DAO

There are some prerequisites to creating a DAO such as

• A DAO needs a purpose – DAO is a way to organize projects and funds and without a project, your DAO will be meaningless.
• DAO needs a voting mechanism – People interact and make decisions regarding the running of the DAO. You can create your voting mechanism or use a third-party provider and can change the voting mechanism by consensus. 
• DAO needs a governance token or share system – You need a mechanism for members to prove their membership in DAO, and governance tokens or utility tokens are some methods to prove membership. Share system is used more, and users deposit cryptocurrencies with DAO to be invested. 
• DAO needs a community – Decentralization gets more robust as more people join and actively participate in the governance of the DAO. This helps the power to spread across more stakeholders. 

How to create a DAO tutorial?

In this section, we discuss how to create a DAO, you need to mechanism to handle the votes and proposals. You can use various open-source platforms to develop DAO or build from the ground up with customized dApps, wallets, and cryptos. Aragon is a popular platform for building DAO on the Ethereum platform, and Snapshot is an option for DAOs on multiple blockchains.

STEP 1: Set up Metamask crypto wallet

You need to set up a Metamask crypto wallet to make any transactions in your DAO. MetaMask is the best choice in Ethereum. 

• Visit the MetaMask homepage and download the browser extension. 
• Follow the create wallet instructions for your MetaMask account.
• Once your MetaMask setup is complete, you should be redirected to your newly created MetaMask Ethereum Wallet.

STEP 2: Go to Aragon

Aragon is an open-source Ethereum Dapp to build and launch a DAO on Ethereum. Aragon DAO app is the next generation DAO platform that is easy to use, modular, and adaptable. It is the perfect platform for starting a DAO. Argon has three offerings,

• Aragon Client a toolkit for developers to create a DAO.
• Aragon Network is an association that supports the interaction between the platform’s community of DAOs.
• Aragon association is a non-profit that manages and allocates the funds raised by Argon’s token sale. Many Aragon wallets help manage ANT, Aragon’s native currency.

STEP 3: Connecting Metamask to Aragon

The step of connecting MetaMask to Aragon is straightforward. 

• Select your QuickNode Rinkeyby Node in your MetaMask wallet. You will need some test ETH in your MetaMask wallet.
• Click on the Connect Account on the top right corner of your Aragon homepage, and select MetaMask. 
• Approve the request from MetaMask.
• Select your network as Rikeby testnet.
• You should be able to see MetaMask wallet details on the top right-hand side.

STEP 4: Funding crypto wallet

Here is how you can go about funding your crypto wallet,

• Purchase some ETH using a well-established platform like Coinbase.
• Send the ETH to your MetaMask address.
• Connect your MetaMask wallet to 1inch or Uniswap and swap your ETH for ANT Tokens. We suggest you copy/paste the contract address to avoid confusion.

STEP 5: Create Organization and select a template

• To create an organization and select template select – Create an organization. 
• On the next page, you will see many template options to choose from, and depending on the purpose of your DAO, you can select a template of your choice. 
• Click on Use the template, and give a name to your DAO.

STEP 6: Claim organization name for DAO

• Claim the organization name for DAO by entering the name for your DAO. 
• Configure your organization.

STEP 7: Configuring the organization

You now need to configure the organization by setting the voting, tokens, and finance. You can specify the voting rights in your DAO by,

• Support percentage specifies the number of votes requires to get a proposal approved. If the support percentage is 70%, you need more than 70% votes to get the proposal passed.
• The minimum approval percentage specifies the number of tokens required to approve a vote in favour of the proposal. 
• Vote duration specifies the duration the participating members can vote.

STEP 8: Set up a token for DAO

To set up a token for DAO 

• Start by giving a name and symbol to your DAO token. 
• Add the wallet addresses of the members of DAO and allocate test ETH to them.
• Approve and confirm the transaction in the popup MetaMask wallet window.

STEP 9: Confirm transaction in Aragon

To confirm a transaction in Aragon follow the following steps,

• Open up your browser extension.
• Log out from your account.
• Click on – Import using seed phase. MetaMask should now open up in a new tab with the heading Restore account with seed phrase. 
• Copy and paste the seed phase into the seed text box, and create a new password. 
• When you are done, click restore at the bottom of the page.

STEP 10: Create your first proposal in Aragon

• You can create your first proposal in Aragon once your organization is live. 
• Click on – Get Started, and create your first proposal question to begin the voting process. 
• From the left menu, select – Voting and click on- New Vote. 
• Draft your new proposal questions and open it for voting. 
• The proposal question will stay live for the voting duration, and DAO members can vote yes or no on the proposal.

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Some best examples of DAO

Some of the best examples of Ethereum DAO are-

• PleasrDAO: A collecting DAO that invests in high-value NFTs. It purchased a $5.5 million NFT from Edward Snowden and the only copy of Wu-Tang Clan’s album – Once Upon A Time In Shaolin, for $4 million.
• Uniswap –Uniswap is the largest DAO and second-largest DAO on Ethereum. Uniswap is a cryptocurrency exchange. Uniswap protocol uses a combination of automated market marker (AMM) and liquidity pool. Anyone with a UNI token has voting rights on Uniswap running. 
• MetaCartel Venture is an investment DAO firm that funds projects that build a new application on the Ethereum blockchain.
• Gitcoin DAO is a large DAO firm designed to fund and mentor promising open-source projects with the Defi ecosystem. 
• BitDAO is a decentralized investment fund that allows anyone to buy a stake in web3 and de-fi startups and initiatives. Token holders can vote on how managed capital and spread it across the projects supported by the funds.

FAQs on how to create a DAO

Thanks to advanced tools it is much easier to build DAOs today and process is faster and more streamline.  There is still a lot of work involved and  it can be tricky to set up rules of the organization. If not implemented properly there can be power imbalance that can harm the DAO. In this section we address some FAQs on how to create a DAO. 

1. How much does it cost to set up a DAO?

If you are looking to create a DAO on Ethereum, it does not have a fixed cost, as ETH prices fluctuate. The approximate cost to set up DAO is $350 or 0.2ETH. If you want to form DAO as an LLC, it will cost $100 as fees.

2. Does a DAO have to have a registered agent?

When looking at DAO from a legal perspective, it is neither a corporation nor any other type of legal personality. DAO does not have a registered office or a physical office and cannot own property or engage in contacts, and members need to take precautions if they want to prevent liability or taxes. Some states like Wyoming require a registered agent to register the DAO LLC in Wyoming.

3. Can a DAO own property?

As an emerging commercial organization, DAO is pushing the traditional boundaries. Most DAOs are still unregistered and have an ambiguous legal status. It is difficult for DAOs to meet the legal criteria for a traditional organization like being sued or owning property. Wyoming recently started recognizing DAO as LLCs. CityDao, a DAO registered in Wyoming y purchased a 40-acre property.

Also read: Metamask vs. coinbase wallet | Best crypto wallet comparison

4. How does a DAO make money?

Those who own DAO tokens could profit from the business’s investment either by earning dividends or benefit from the appreciation of the tokens. DAO is at the center of the Defi boom. The funds in the DAO’s treasury entitle the owners to a share of the profit or a say on how the profits are invested.