How To Create A DAO: A Simple (But Complete) Guide
DAO 14 Mar 235 min readThis guide explains the advantages of creating a DAO and instructs on how to create a DAO in Ethereum, Solana, Avalanche, and Polygon. Learn about the six key steps to establish governance, build a community, and launch your DAO. Explore how DAOs can be used for managing community treasuries, creating decentralized exchanges, and running social networks, and how they are shaping the future of cryptocurrencies.5 min read
Blockchains were created to decentralize assets, decisions, or organizations. Most organizations are operated by a central entity that makes all the rules and takes all the decisions. Imagine a decentralized organization where the members take major decisions and do not have to rely on a central body. Luckily for you and all of us, such entities already exist and they are called Decentralized Autonomous Organizations (DAOs). DAOs are operated and governed fully by their members and have become increasingly popular ever since the use of blockchain technology has gained widespread popularity. The use of smart contracts to encode rules and regulations makes DAOs a perfect solution for decentralization. With a market capitalization of approximately 21 billion, and with the top 5 DAO tokens holding a market cap of 13.2 billion, it is natural to assume that DAOs will continue to dominate in the years to come.
With decentralization, inclusiveness, and transparency as its core values, the question of how to create a DAO must have sprung up in your mind. This guide serves to explain the process of setting up a DAO, the advantages of creating a DAO, and how to create a DAO in Ethereum, Solana, Avalanche, and Polygon.
Why Should You Create a DAO?
DAOs by nature are decentralized, transparent, and inclusive since the members of the community govern them. The driving idea of a DAO is the community. DAOs cater well to a community of like-minded people where each and every member can vote on a common goal. They become members by buying the cryptocurrency of the DAO, and the number of tokens they hold is equivalent to their voting power. There are a number of voting mechanisms, and some popular ones are based on ERC20, NFT ownership, quadratic voting, conviction voting, and multisig voting.
The transparency offered by DAOs eliminates fund manipulation and human error, thus making them perfectly suited to fundraisers. Additionally, the ease of global access, anonymity, and privacy offered by DAOs make them suitable for a wide range of use cases.
DAO’s can be used for managing a community treasury for creating a decentralized exchange and even running a social network. DAOs like MakerDAO, Uniswap, and Compound have used some of the above use cases, and token holder communities like ApeCoin provide DAOs for their token holders, all of which are helping shape the future of cryptocurrency.
You can thus consider DAOs to be powerful instruments in shaping the future of cryptocurrencies.
How to Make a DAO: 6 Key Steps
How to make a DAO depends mostly on your needs. However, the basics of starting a DAO usually comprise six key steps:
Step 1: Determine the goal of the DAO
The first question you want to answer is “what do I want to achieve by creating this DAO?”. You must understand what problems you want to solve, and who your target audience is.
Step 2: Decide the type of DAO you want to build
Equipped with the information on the type of DAO you want to build, you will be able to understand and select the structure of the DAO and the method of operation of the DAO. Some common types of DAOs are protocol DAOs, philanthropy DAOs, investment and venture DAOs, media DAOs, social DAOs, investment DAOs, and collector DAOs. For instance, you can choose to create a charity DAO or an investment DAO.
Independent from the DAO type and goal DAO members will need a way to govern the DAO, vote and make proposals. This depends on the community of the DAO, but you need to keep in mind that there should be an on-chain criterion you can apply to DAO members to determine if they can or can't participate in your DAO. DAO members can be NFT or utility token holders, for example. You can create more complex criteria for DAO governance.
Step 3: Establish governance
As mentioned before, DAOs are owned and operated by community members. Hence, you must ensure that the rules and regulations are transparent, fair, and applicable to all.
Simply holding an NFT is not enough to create a fair DAO community and governance. You need to think of the cases where a malicious DAO member can block voting on important decisions. To prevent cases like this you can establish governance using reputation-based systems. You can also use a smart contract system, or a delegated voting system to set your rules.
Step 4: What about the DAO token?
If you don't have an NFT collection or a utility token to base your DAO membership on, why not create one? Setting up DAO tokens is an integral part of setting up a DAO. Each token represents the voting power, ownership, and decision-making power of a DAO member. Depending on the number of members in your DAO, you must consider the number of tokens required, the method of allocation of the tokens, the incentives that you need to supply, and how the tokens will be used for decision-making. For example, you can either use tokens as a share system or for governance purposes.
Step 5: Build the community
Once you determine the goal and structure, the governance, and the token-related decisions of the DAO, the next step in setting up a DAO is to create a strong community. You can do so by providing members with incentives for participation. You can build your DAO community by creating an inclusive governance system, involving community members in all the decisions, and creating ownership by organizing meetings and communication.
Step 6: Launching DAO
Once all the above steps are completed, you can now launch your DAO by deploying your governance smart contracts in your blockchain of choice. To allow community members to interact with the DAO, you may need to set up a front-end interface. In addition, it is important to include the DAO treasury, which is used to fund the organization's activities. You can fund your treasury by initiating community contributions or by creating an initial coin offering (ICO).
How to Create a DAO On Ethereum?
Ethereum is the most commonly used blockchain for DAOs. To create a DAO on Ethereum, you can create a custom DAO, or go with the existing DAO solutions. For custom DAO, you need first to write and deploy smart contracts using Solidity. You might also need to set up the token and governance mechanisms. Finally, you can use Web3 frontend tools like Web3.js and Ethers.js to create a frontend interface to interact with DAO. Alternatively, you can also create a DAO on Ethereum by making use of existing platforms like DAOstack, Snapshot, and Aragon which provide default smart contract templates.
How to Create a DAO On Solana?
You can create DAO on Solana for its speed and scalability. Similar to creating a DAO on Ethereum, creating a DAO on Solana has its share of benefits and pretty similar steps. To create a DAO on Solana, you need to be able to use the Rust programming language to write and deploy smart contracts and to set up the governance rules for the members. Additionally, you will also need to create a front-end interface that members can use to interact with the DAO.
How to Create a DAO On Avalanche?
Avalanche is one of the fastest available blockchain platforms making it a suitable alternative to create DAOs. Avalanche allows you to create DAOs using Solidity and the Avalanche CLI. To create a DAO on Avalanche, you must be able to create smart contracts, set up governance rules, and create a frontend interface that members can use to interact with the DAO.
How to Create a DAO On Polygon?
Polygon is both decentralized and highly scalable. To create DAO on Polygon, you can use the Solidity and Polygon CLI to write and deploy smart contracts. Similar to the process of creating DAO on Avalanche, you need to set up token mechanisms, rules, and regulations, and create a frontend for member interaction.
How to Start a Dao the Easiest Way?
You can use existing platforms like DAOstack, Snapshot, and Aragon to start a DAO in the easiest manner possible. The pre-built smart contract templates, a user-friendly interface, and the absence of technical expertise required to make these platforms an easy alternative to creating a DAO on Avalanche, Solana, Ethereum, and Polygon. It is however important to note that these platforms provide limited support when it comes to customizing the functionality and governance of the DAO.
The point boils down to if you need a DAO that covers most needs, or if you want to build your own mechanics and control. If you want to customize your smart contract, make your DAO extensively decentralized, and make a DAO solution that meets all of your needs, you will be better off hiring blockchain developers to create your DAO as opposed to using existing platforms.
Aegas offers you the coolest developers who can bring your DAO needs to life. With experience creating bespoke solutions, Aegas is not new to the game and has been in the Web3 business since 2017. We believe in providing blockchain solutions to all companies, and we offer guidance, high quality, efficiency, and agility.