Creating a DAO: A Simple 6-Step Process
Decentralized Autonomous Organizations (DAOs) are an innovative way of organizing and managing businesses and projects using blockchain technology. Within a DAO, decision-making and governance are decentralized and autonomous, meaning that they are not controlled by a single individual or group but rather by a set of rules, protocols and tokens that are encoded on the blockchain.
If you are interested in creating your own DAO, this guide is for you. In 6 simple steps, I’ll walk you through the process of setting up and launching such an organization. From choosing the right mission to defining your governance structure and raising funds, I’ve got you covered. This will be a strategic guide: great technical & technological guides have already been covered by other writers.
The very first thing you need to do is understand what a DAO is. You may have a great idea for a product or service and, having been told by the internet that DAOs are the next big thing, wish to jump in quickly to catch the wave. But you don’t create a DAO just because it’s cool. You create it to complete a specific digital project (MakerDAO, UniSwap…), to invest (Krause House, Meta Cartel…), to create a community, to provide specific services, or to hoard digital collectibles. There are few other use cases; don’t be fooled by delusional Twitter hype. I recommend two articles to get better informed: “Are DAOs the Future of Work?” and “Everything Wrong With DAOs”, both by The Pourquoi Pas.
Once you’ve mentally validated a proof of concept, you can start gathering a Core Team. Those are the people you’ve had an original idea with, who you want to take on your value-creating journey. Of course, you can do it all by yourself… but it’s less fun. It may be tempting to create something with friends… but choose talent and dedication to the cause over personality fit, at least at first.
Write down with that group why a DAO is needed for your purpose as opposed to a more classical structure. This exercise is paramount as the question will be asked every time you meet someone new. If you are struggling, it’s probably because you’ve fallen victim to the Hype.
DAOs are purpose-led organizations. You should use the time spent on the above exercise to specify clear ambitions / goals / objectives for the DAO. Its mission statement, or “constitution” as some call it. This should not take more than one paragraph. The clearer it is, the easier it will be to automate, and the less argument you will have with other members. Above all, identify and specify how the DAO will be a profitable money-making organisation. Dividends are most common today… but so boring. Think outside the box.
Once the intent is out of the way, you need to decide with yourself and/or your team what the ownership of the DAO will be. As highlighted in this helpful guide, voting shares in a DAO can be attributed based on financial amounts or time invested, or based on operational value added to the organization… or really any other element you might think of. I personally enjoy the idea of attributing shares based on number of clients signed; it promotes growth.
This goes hand in hand with an agreement on token economics. Should the tokens be earned? Bought? Can they be transferred? Sold? How much are they worth? Pricing is an important part of token economics: their price is also their cost, and defines the value you provide through your DAO. If that sounds confusing, you may need to spend some time in a business school classroom rather than in front of a laptop hyping sh*tcoins.
Token economics is particularly important because it will be your first recruitment tool, along with your raison d’être.
If you are serious about starting a project full-time, you need cash, with which to pay yourself and contributors. And I am talking about real cash. Fiat. Dollars. Euros. My local supermarket doesn’t accept Tron tokens, and I doubt it ever will.
You need to ask yourself how a treasury will be created. Through original members pulling in their money and additional members buying tokens? Through crowdfunding? NFT drops? VCs (lol)? There are a million imaginative ways to make money in the space… and a million ways to lose it. Tech bros are a very unimaginative bunch, and most have never opened a book, it seems. Break that circle.
Governance is the most important part of a DAO; the technology enables new ways to organise ourselves in the digital world. Without ambitious and innovative governance, we may as well stick to LLCs (and many should have…). I see governance definition as a 6-step process.
Define roles and responsibilities… with a twist. In a DAO, it’s counter-productive to codify R&R too early, as such organizations should thrive on emergence, or letting the needs of the organization drive role creating. Codifying too early might kill the benefits you might derive from an alternative organization. You should nevertheless keep this list of tasks that need some in the back of your mind: identity, tasking, documentation, UI, treasury management, codebase, bug tracking, payments, social management, encryption, smart contracts, meetings, scheduling and attendance. Tip:start with “why”.
Kill two birds with one stone by also setting and acknowledging ways of working expectations for yourself, your core team and your contributors. How independent will you all be? How often will you work together? How centralized will your decision-making be? This will help with the tooling.
Decide who can vote on DAO motions. Today, token-weighed voting is most common, though this way of doing things has many issues. I prefer a seniority bias, but that just recreated corporations. Go back to the paragraph you wrote about why a DAO can solve the issue you had whereas other shape of organisation shapes could not. This is you North Star.
Then, decide how votes happen. Can anyone submit topics to a vote? Only founding members? Can voting powers be transferred? How much time is the voting open for? What type of voting mechanism is best? What’s a good average participation level to set your quorum at? These are all very important questions as each of these aspects has been exploited unethically in the recent past.
Finally, specify rewards, incentives and compensation. Will contributors be rewarded with voting tokens? More well-known crypto-currencies? Or even fiat rewards (hint: yes)? The answer to these questions will make or break your DAO.
You can now specify how your organization will work: what are the automated IF/THEN statements that will rule the smart contracts? This needs to take finance and voting into account… but can and should go much further. The best DAOs are the ones with the foresight to plan when and how their organizations should be dissolved, for example.
This can all be written on a note-pad and word document. Taking a few days to go through these motions may save months of pain down the line.
A lot of guides start here. But technological tooling is just a means to an end. And as I’ve highlighted above, the raison d’être for your DAO trumps all else. If you’ve gotten so far, you can now look into the technology.
Choose a blockchain platform which will host your DAO. Ethereum is secure and reliable, but slower and more expensive than its peers. Polygon is cheap, fast, but less secure. Arbitrum is somewhat in the middle of the two. I recommend Ethereum. It works with proven tools like Alchemy and Hardhat, which will help with the writing of smart contracts.
Then comes the operational tools. Discourse is a well-known place for discussing potential votes, along with any other topics concerning your DAO. For submitting votes, Snapshot is the best option, while Coordinape should be your go-to for revenue sharing. If you want to ensure everyone in the room has the right to be there, Collab.land can gate your stack. A Gnosis safe is where you should store your assets, and a Discord channel is what you should use to chat/discuss/vote. The latter tool may well be the only good thing to come out of this whole web3 insanity.
That’s it. Now you just need to learn how to code. But that’s the easy part, right?
Corporations are always reinventing themselves to survive, but are slow to do it. DAOs have a great advantage over them, as they are much more agile. Yet, very few ever change, choosing to fail instead… because changing is hard work, and often entails killing one’s darlings. DAOs are often seen through the same lens as other get-rich schemes, and participants don’t put in the work. Why would they; costs of failure are minimal
If they did, they’d understand how rewarding it can be to re-code and change the rules as new trends and community wishes emerge. Being flexible can help members self-organize, and empower a new generation of mission-driven leader who may take the reign once you’re gone.
Experiment. Take feedback. That’s the only way to survive. Blockchains are littered with failed projects that got started on a whim, and who’s founders were too lazy to pivot.
Don’t be one of them. Have a bias towards action, and do the hard work.
With this guide in hand, you are equipped to embark on a journey of creating your own DAO, and with each step, bring your organization or project closer to reaching its full potential. Just make sure you’re honest with yourself before you get started. Do you do it because you see a problem to solve… or because you want to get rich through the latest hype trend?
Good luck out there.