How to build a DAO

How to Build a DAO?

In today’s technology-rich world, tech changes every part of our lives. Following the evolution of Ethereum’s ecosystem, including DeFi and Web3, you’ve probably run across the term “DAO.” A DAO is a blockchain-based solution for governing online communities and managing proposals and votes.

With the right tools and technical knowledge, you too can get a DAO up and running quickly. Each DAO is different and handles different needs, but most follow the same key principles. Anyone owning a DAO’s governance token has the voting power proportional to the number of owned tokens. Holders can make decisions and influence the work of a DAO.

Three reasons to build a DAO

Unbiased communities

Unlike traditional institutions, DAOs are run by computer code. Blockchain-based tokens ensure that there is no single person with complete control and power over the community.

Trust and transparency

The most convenient thing about DAOs is their immediate trust and transparency. All the rules are encoded in a secure, open-source, and public blockchain record and nothing can be changed without a majority vote.

Built by the community and for the community

Though DAOs have no management, they have a consistent hierarchy. According to the rules of a DAO, voting power is proportional to the number of tokens held.

How do DAOs work?

DAOs are governed and run by smart contracts. They are evident, verifiable, and open to the public. Smart contracts make up the foundation for a DAO’s operations. They are stored on the blockchain and cannot be changed. Every transaction in a smart contract is automatically processed without the participation of a third party.

According to Deepdao.io, there are over 180 DAOs with 2+ million members. These include small DAOs organized around media, investment, social communities, and DAOs that help to manage the largest crypto protocols.

How do users vote in DAOs?

Every decision that is capable of affecting a DAO is based on a voting process. Here’s how DAO community members vote:

Token voting

Token-based voting is the most widespread voting mechanism with a history that predates the blockchain. The more tokens a user has, the more voting power they get. There are several risks associated with a token-based voting mechanism; the biggest is an outside party buying votes.

Skin-in-the game voting

Implementing this type of voting is a real challenge for both parties — developers and users. Within the skin-in-the-game voting, users’ tokens that are used for voting are destroyed when users make a bad decision. But how to find out if the choice is good or bad? No one has a working mechanism for this type of mechanism yet.

Proof-of-participation voting

Though it’s the hardest voting mechanism to implement from a technical point of view, it’s one of the fairest. According to the protocol, users have just one vote per every usage of the protocol. Unfortunately, this also leaves some room for fraudsters to impact the process: users can cheat by creating hundreds of crypto wallets to get more voting power.

Types of DAOs

Decentralized autonomous organizations can be divided into various types depending on their structure, technology, and modus operandi. Here are some popular types of DAOs:

Protocol DAOs

If tokens are used as a voting metric in the protocol, this type of structure represents protocol DAOs. MakerDAO is one of the most famous protocol DAOs that revolutionized the DeFi sector with its DAI coin.

Collector DAOs

Collector DAO is a type of decentralized autonomous organization that collects, sells, and issues NFTs. PleasrDAO and Flamingo are the best examples of collector DAOs.

Operating system

Operating systems are used to create DAOs. For example, organizations can leverage the power of Colony to build their own DAOs.

Service DAOs

Service DAOs are like talent agencies that bring professionals together from all over the world to build services, experiences, and products.

Investment DAOs or venture DAOs

An investment DAO deals with investments. It democratizes the investment process and makes it more inclusive.

Grant DAOs

Grant DAOs are built to facilitate non-profit donations and deploy capital assets throughout the Web3 ecosystem. These DAOs fund various projects, including innovative DeFi projects.

Entertainment DAOs

With entertainment DAOs, online fun can also be decentralized. Creators can bring their innovations to life and retain full control over their governance.

Media DAOs

These DAOs are used to coordinate and facilitate the growth of bankless media, education, and culture. Decrypt is one of the media DAOs that publish content based on user votes.

Social DAOs

Social DAOs are like social networks but coordinated around tokens. Friends with Benefits is a leading example. Members must fill in the application forms and buy 75 FWB tokens. With these tokens, users get access to an exclusive community of crypto builders, creatives, and artists from all over the world.

Launch your own DAO

There is a range of use cases for the different types of DAOs. Understanding the right one is crucial for choosing the optimal avenue for your business. The role of the DAO will become prominent as most internet users begin transitioning to Web3 digital spaces. Here’s how to develop your own DAO:

• Understand why you need to develop your DAO
• Build a decentralized community
• Choose the right blockchain
• Boot blockchain nodes
• Create or integrate crypto wallets
• Get your own tokens
• Start an account in a DAO dApp
• Make up a template
• Adjust the voting mechanism
• Test your DAO
• Fix the bugs and deploy the DAO on the mainnet

Challenges to consider before developing your own DAO

Though the technical part of building a DAO isn’t so complex, there are several issues you need to consider before building your own decentralized autonomous organization:

Scaling

DAOs depend heavily on community participation to thrive, grow, and scale. Without consistent member traffic, a DAO can dry up like a plant in the desert.

Security

There is no code that hackers can’t exploit. The DAO, an early decentralized autonomous organization, was hacked and $60 million of ether was stolen. But thanks to regular security audits and newer standards, DAOs are becoming more hack-proof.

Conspiracy risks

Though DAOs are transparent and democratized by nature, there is still a chance of voter buyout.

Final note

DAOs have the power to completely change the traditional management and hierarchy system. Just imagine a state governed by a DAO. No bureaucracy and no world elites. Everything is in the hands of citizens. Within the DAO, each citizen would have a voting power proportional to tokens owned. Every decision would be made through a majority vote. But there are still a bunch of grey areas to clear out before this becomes a reality.

These member-owned communities have great potential to enable a more novel future of work. DAOs are transparent businesses that can manage billions of dollars in assets and reveal new ways for members and contributors to make money. DAOs are becoming more and more common, so it’s high time for businesses and brands to keep up with the current trends. Join our DAO conversations on Discord to keep up with the trends as they develop.