If the future will be truly decentralized, it is quite possible that the forms of governance we know today will be replaced by a new type of organization known as DAO.
When we speak of decentralization, we refer to interacting with horizontal structures. In these, the need for dependence on the final decision of an individual is eliminated. The paradigm shift is brutal.
Ethereum, thanks to its Smart Contracts, gave birth to DAOs. These Autonomous and Decentralized Organizations changed the way projects are carried out and decisions are made around them.
Today I want to tell you how to create your own DAO, step by step.
DAOs, a first approach
When you hear this acronym, you probably think of MakerDAO. It is, without a doubt, one of the best known in its field. MakerDAO is the organization in charge of the governance of the decentralized stable coin DAI.
Why do I start talking about it? Because, in this ecosystem, it is rightly recognized as a success story and has served as a model for other DAOs subsequently created.
Today we find new examples of DAOs, with purposes extremely different from those of MakerDAO, but valuable at last. A great example is PleaserDAO, a community of crypto-friends who coordinated efforts and funds to acquire NFTs that represent important moments in the history of this ecosystem.
Now, making a correlation between both organizations we can notice that what is necessary to form a DAO is:
- An objective
- A group of people interested in that goal
- A common space to discuss ideas
- Decentralized governance methods to decide on the ideas to take forward
- Tools to manage the funds needed to achieve the DAO’s goal.
The DAO type of this guide
After this brief introduction to what we need to create a DAO and knowing some relevant examples of this type of organization, it is time to set the limits of this article.
A MakerDAO-style organization or governance of most decentralized protocols or applications has a method of identifying its members. I am talking about the governance token. By means of it, users access and participate in these organizations.
Now, when forming a DAO whose purpose is “private”, as in the case of PleaserDAO, it is not strictly necessary to create a governance token. All that is needed is to reach an agreement, give access to the necessary tools to the interested parties and decide whether or not to admit new users through internal voting systems.
In this guide, I will focus on the second type of organizations, as I understand that this will be the type of DAO that our readers will be closest to being able to put into practice.
Without further introductions or explanations, let’s move on to the guide on how to create a DAO itself.
How to create a DAO?
A brief introduction already gives us a guideline of what we need to create a DAO. But, let’s attack each of the components separately, to define step by step how to form one of these organizations that aim to revolutionize our usual ways of relating to each other.
First and foremost, people
The first point, the most important capital of a DAO, is the people who form it. Perhaps this is too obvious, but I think it is necessary to mention it. Without a group of people there is no chance of forming a DAO.
Ultimately, a group of people is the one that will carry out all the tasks to be performed in the DAO. It can be a group of friends, acquaintances or, why not, a family. The important thing is that this group of people share the next point of the guide.
An objective
Undoubtedly, I dare say, this is the component that causes most DAOs to fail. It is extremely necessary that the group of people who come together to form the DAO be united behind a common goal.
Obviously, it is necessary to take the time to define an objective that should be:
- Extremely clear or specific
- Shared by all members of the DAO
- Easily quantifiable
- Achievable, beyond being ambitious
A good measure is to set “sub-goals” or intermediate milestones to be reached while pursuing a final goal, so that it is easy to make decisions to correct the path and not find it too late to make a U-turn that twists the course of the DAO.
Examples of objectives
Far from trying to influence readers, I find it interesting to give some examples of objectives that DAOs I know have set themselves:
- Raise funds for donations or charity
- Investing in DeFi projects and reinvesting profits
- Acquire NFTs as collectibles or as investments
- Generate funds to set up a validator in a POS (Proof of Stake) network.
Undoubtedly, these are objectives that can lead to different purposes. For example, the first objective can serve from raising funds for donations to covering family expenses, paying off debts or simply saving for joint vacations.
A clear example, for this World Cup year, are the groups of friends saving together to be present in Qatar.
Governance methods
Having defined who the participants will be and the purpose for which they are coming together in such an organization, it is necessary to define precisely how decisions will be made in the DAO. Once again, it is vital for the smooth and healthy functioning of the DAO that the method of decision making be extremely clear.
Undoubtedly, voting is the best way to make decisions in this type of organization. The important thing is to define what number of votes will cause a proposal to be approved or rejected.
When dealing with small groups with a number over the total, something like if 3 of the 5 agree the proposal is approved, it is sufficient. When the DAO grows or since its inception has a large number of members, it is better to approve the proposal by percentage of votes.
The discussion channel
After agreeing on the numbers or percentages needed to approve proposals, it is necessary to define the channel in which the DAO’s proposals will be presented and, also, in which the discussion or argumentation of these ideas will take place. It is in this channel that the DAO lives and demonstrates its value.
When dealing with small groups, it is not a bad decision to form a private group on Telegram, discuss proposals and hold votes to discuss next steps.
When dealing with large groups, Discord is a great tool, in which different channels can be created to carry out an orderly management. In case you are not familiar or comfortable with this tool, there is the alternative of creating a forum. Most of these platforms provide simple voting systems and support to carry out the debate of ideas.
A crypto alternative
To carry out voting in a fun way and with a tool found on the blockchain, there is POAP. This acronym, which stands for “Proof of Attendance Protocol”. It is a protocol by which, for free, we can create NFTs and distribute them to those who attend an event or, in this case, as proof of belonging to a group.
In recent months, the team has developed the possibility of carrying out votes in which only those who have certain POAPs can participate. Therefore, it is a way to “materialize” the DAO membership and at the same time carry out voting using tools provided by the ecosystem.
Fund management
Now we come to the technical part of the issue. Undoubtedly, the best way to manage the funds of a DAO is through a “multisig wallet”. As the name suggests, this is a wallet that requires more than one signature to issue a transaction.
To create a multisig, it is necessary to relate several different addresses to it, so each user must create his own wallet and then relate each of these to the “multisig”. The latter is the one that will be used to interact with the protocols, distribute funds and other related issues.
In the “multisig” configuration, you must define how many signatures are required to carry out transactions or, in other words, to release funds.
Although some DAOs require that all users must sign the transactions to release funds from the “multisig”, it is common practice to require less than 100% to avoid obstacles when one of the participants does not have his wallet with him. Imagine not being able to make an investment because one of the participants is sleeping, in a mountain with no signal or forgot his phone at home…
Some options to generate a “multisig”.
The choice of the “multisig wallet” will depend on the network in which the DAO decides to set up its funds. For those DAOs installed on compatible EVM networks, Gnosis wallet is the most popular choice, with Electrum also being a viable alternative.
In the Solana network we find the multisig called Goki, while in the Terra network, recently its official wallet TerraStation, carried out an update to be able to create a multisig wallet.
App to create a DAO
In this guide, I have outlined the manual or, we could say, artisanal way of creating a DAO. But for those of you who are looking for an automated tool that will allow you to create such an organization, the good news is that they exist.
A great example in this regard is the DAOhaus application. After a couple of clicks, we can have our DAO configured on both the Ethereum network and xDAI, with most of the aforementioned tools available.
Beyond being able to create your own DAO, the important thing about this application is the community. Here you will find world-renowned DAOs such as The Lao, with 72 members and more than 17 million dollars, or MetaCartel Ventures, with 80 members and 11 million dollars in its coffers.
By creating a decentralized autonomous organization with DAOhaus, we not only save several steps around the organization, but also our DAO will have a clear objective, which we must define when we create it, and will gain visibility, surrounded by a community that brings a lot of value to the ecosystem.
Final thoughts
From my point of view, one of the biggest changes brought by web3 and all its revolution, is the place of the user. In the past, it was very difficult to leave the place of spectator to take an active role.
However, examples such as the one in this article shed light on how simple it is to be part of the ecosystem from a position other than that of a mere bystander, by taking action.
On the other hand, it is easy to criticize the decisions made by a DAO. Nothing better than to suit up, form a DAO and experience it first hand.
