Decentralized Autonomous Organizations, or DAOs, have become the next big things in the revolutionary transformation of digital businesses. DAOs offer a new perspective on financial services, and they are member-only communities without any centralized authority. Decentralized Autonomous Organizations utilize blockchain technology to establish decentralization and enable organization members to pursue common objectives. Interestingly, you could create a DAO in 10 minutes with new tools like Aragon. However, it is important to learn about DAOs and the important factors you must consider before creating your own DAO. The following post offers you a brief introduction to DAOs and the reasons why businesses should focus on DAOs. You can also identify the mandatory factors required for DAO creation, followed by an example of using Aragon for creating a DAO.
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Understanding the Importance of DAOs
Before you start creating a DAO, it is important to understand how a DAO works. The definition of DAO is your first step in finding answers to “How do you make a simple DAO?” as it would help you understand what you want to build. A decentralized Autonomous Organization or DAO is a governance entity without any centralized authority. You can think of it as a business without a single owner. As a matter of fact, every member of the organization is an owner of a DAO, and the community of members addresses the need for self-governance.
DAOs are governed by computer code, and they should be managed by using autonomous processes with the power of programmable smart contracts. As a result, it can help in running transactions and governance processes without human intervention. The fundamental principle behind how to make a DAO revolves around creating digital organizations which could use digital assets and blockchain.
Such types of organizations can create an efficient approach toward the management of resources, coordination of activities, and making decisions. You can notice how businesses can promote an open and egalitarian identity by serving the objectives and interests of a large group rather than a limited group of individuals.
The increasing search for queries such as ‘how to create an NFT DAO’ is a glaring indication of the popularity of DAOs. Decentralized organizations can guarantee the following benefits for users.
- Adaptability for different industries and use cases.
- Scope for better transparency.
- Expanding the pool for innovation and financial returns.
- Establishing the foundations of trust.
- Better processing speed as compared to traditional organizations.
The entire community manages the DAO, and every participant in the community has voting power in decisions related to DAOs. Depending on the governance model, DAOs follow different types of voting systems and forms of representation. For example, some DAOs use the principle of ‘one token, one vote’ while others could use a representative system that involves delegation of proposal power to other individuals.
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What are the Important Factors You Must Consider Before Creating DAOs?
The objectives of DAO might create doubts in your mind regarding the different ways to create a Decentralized Autonomous Organization. You might come across some prominent challenges during the search for answers to “how to set up a DAO,”, particularly in terms of technicalities. However, you must keep some steps in mind before you create a Decentralized Autonomous Organization, such as the following.
Plan Your Goals for the DAO
The first thing you need for your Decentralized Autonomous Organization is a clear set of objectives. You should start creating a DAO only after you have established the main set of objectives or goals. It is the most significant aspect in the process of creating a DAO, which helps you ensure the proper creation of the DAO.
In the initial stage, you should think about the problems you want to solve with DAOs or the strategies you should follow. Most important of all, your goals should also emphasize the type of people you want to include in your DAO. Many DeFi apps use DAOs as the primary governance medium.
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Determine the Type of DAO You Need
The next important consideration for creating a DAO reflects on the structure of the DAO. Once you have created the list of objectives for creating the DAO, you can find how a decentralized structure would help your organization or project. The responses to “Is it easy to create a DAO?” would point to the necessity of such steps in creating DAOs.
In this step, you would define short-term and long-term goals for the DAO and the working of the voting system. You should also think of the best practices for allocating voting rights and distribution of benefits in the community. Furthermore, you should also focus on the type of resources required for the operations of the Decentralized Autonomous Organization or DAO.
Which type of DAO structure would be the ideal pick for your objectives? You can find an answer to the question in the different types of DAOs, such as protocol DAOs, grant DAOs, investment DAOs, and collector DAOs. If you want to know how to set up a DAO, you should familiarize yourself with the types of DAOs and their goals. Here is an outline of the types of DAO structures which you should take into account based on your objectives.
Protocol DAOs are digital organizations that rely on governance for decentralized protocols.
Grant DAOs serve different approaches for working and have been primarily used to offer to fund for new and innovative DeFi projects. In addition, Grant DAOs have also evolved as a popular choice for offering donations to NGOs and charitable trusts.
Investment DAOs have emerged as one of the most innovative examples of DAOs in the web3 landscape. Interestingly, you can also create a DAO in 10 minutes as an investment DAO and support emerging crypto projects alongside web3 startups in raising capital.
Collector DAOs are another prominent category of decentralization autonomous organization with an objective of purchasing and investing in digital assets. Such types of DAOs focus on allowing the participating members to pool their funds and invest in digital assets. All the participants in the collector DAOs would have an ownership share in the digital assets project.
Envision the Community and Decide on the Founding Team
Decentralized Autonomous Organizations, or DAOs, work around the concept of community. Therefore, it is crucial to find people who would want to become a part of your organization. You can find a guide on how to create an NFT DAO and other resources to create a DAO. However, you should also build the community with members interested in becoming a part of your organization. At the same time, you must ensure that members of your team must follow the long-term goals of the organization.
You could have a founding team with members from diverse backgrounds. For example, professionals with web3 knowledge are a mandatory requirement in the founding team of a DAO. Simultaneously, you would need marketing professionals to promote the DAO and attract new users to the community. DAOs would also need legal assistance to establish the details about token allocation and utility.
Governance and Treasury Management
The search for responses to “How do you make a simple DAO?” would help you understand that you have many concerns in building DAOs. After you have established the founding team and the community, you should determine the ideal approach for DAO governance.
It is important to define the roles of individuals who can make decisions for the digital organization and the approaches followed for making the decisions. You should also establish the important rules that the DAO members must follow and allow the community to develop more rules in the future.
With the creation of DAO, you should also need a treasury and define its functions in managing the funds coming to the community. The treasury would also manage the distribution of money with the use of multi-signature wallets for confirming transactions. In most cases, DAOs could ensure treasury management by using tools such as Gnosis.
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Encoding the Rules in Smart Contracts
Another vital aspect among the considerations for creating DAOs revolves around encoding governance rules through smart contracts. The responses to questions like “Is it easy to create a DAO?” would point to encoding rules in smart contracts. Once you have encoded the rules for DAO governance in smart contracts, you cannot modify them.
Therefore, it is important to verify everything about the rules before encoding them in smart contracts. You should address the requirements of due diligence before deploying smart contracts on the blockchain network. It is possible to encode rules by using DAO tools or through blockchain developers.
Token Development and Allocation
The tokenomics of a DAO are also another important factor you must take into account for designing DAOs. Most of the guides on how to make a DAO will help you understand the role of tokens in a DAO. Tokens can help in offering incentives to members alongside serving as the voting right of members on different proposals and decisions in the DAO.
Members of a DAO can also use tokens to access many other benefits. Tokens have a central role in the DAOs, which calls for proper tokenomics. You should pay attention to the structure of economics so that it does not affect the long-term goals of the DAO or jeopardizes the complete community.
In the case of token creation and allocation, the primary suggestion on how to set up a DAO would focus on determining the objective of tokens. Do you want to use tokens for voting rights, or will the tokens have an inherent value? Will you support the staking of the tokens in your DAO? On the other hand, you must tread lightly while ensuring the balance between incentives for the community and allocating tokens for the DAO treasury.
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How Can You Create a Decentralized Autonomous Organization?
Decentralized Autonomous Organizations can serve as the most innovative tools for supporting the expansion of new ideas. The pointers for defining the structure of your DAO according to desired goals showed the ideal path for developing DAOs. However, the complexities of smart contracts and blockchain technology can create doubts in the minds of DAO developers.
You can find out how to create an NFT DAO with the help of convenient tools such as Aragon. Such type of open-source platforms helps you in creating a DAO without creating code for smart contracts. Aragon follows an open-source infrastructure and could help in launching DAOs on Ethereum and Polygon. It provides multiple DAO templates alongside a voting plugin which simplifies the DAO governance and voting process. You can create an Ethereum-supported crypto wallet like MetaMask and cryptocurrency for payment of gas fees to create the DAO.
Here are the simple steps to create a DAO in 10 minutes with Aragon.
- Use your credentials for logging into the crypto wallet, such as MetaMask, and choose the account address alongside the desired network.
- Visit the main page of Aragon and choose the ‘Create DAO’ option. You should also click on the ‘Aragon Client’ option to start the DAO creation process.
- In the next step, you should verify the connection of your wallet and presence of required amount of cryptocurrency.
- Choose an Ethereum testnet for creating the DAO before launching it on Ethereum.
- Select the templates that are an ideal fit for the objective of DAO and choose the ‘Use this template’ option alongside allotting a name.
- In the next step of how to make a DAO, you should specify the vote duration, support percentage, and minimum approval percentage.
- You should also choose a token name alongside adding wallet addresses for issuing tokens to DAO members.
- After a careful review of all information about the DAO, you can choose the ‘Launch Your Organization’ option.
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You can notice how to set up a DAO in a few simple steps by using an open-source platform, Aragon. If you want to use other tools similar to Aragon, you can explore options such as Snapshot, Alchemy, and Moralis. However, it is important to focus on the crucial considerations which define the foundations of a successful DAO. Learn more about DAO fundamentals and create your own digital organization now.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!