creation of DAOs

If you want to know more about the process of creating DAOs, read on.

creation of DAOs

1. What is a DAO?

DAO stands for Decentralized Autonomous Organization. As the name suggests, a DAO is an open source automated organization so that anyone can participate (as long as they meet some basic requirements).

In this case being autonomous means that smart contracts help execute most processes without human interference. A DAO is created and managed by a community, which collectively manages its funds and projects.

DAOs became famous with the 2016 Ethereum venture capital fund “The DAO”.

Unfortunately, within three weeks of the token’s sale, the project suffered an attack due to a vulnerability in the code.

The funds were later restored due to a hard fork. Despite initial challenges, the DAO concept has improved over the years and is now one of the most popular governance models for decentralized finance (DeFi) projects.

Each DAO is different, but most follow the same basic principles. Anyone holding the DAO governance token has voting power proportional to the number of tokens held. Incumbents may also make proposals for changes in the operation of the DAO.

2. Why start with the creation of DAOs?

The most important advantage is the autonomy from human intervention thanks to smart contracts. These lines of code on the blockchain make DAOs less dependent on human intervention to operate.

DAOs are useful ways to organize communities, especially if they are mostly anonymous. Often there is no accountability for a real identity, and you have to trust people you don’t know. A DAO allows the community to organize itself efficiently with technology that guarantees its integrity.

It is also easier than creating a traditional organization or entity, as many projects have international teams. Finally, a DAO is an inexpensive option for its people organization functionality. A DAO can be established that does not remunerate community members or pay a small fee for contributions to the DAO.

Carefully understand that a DAO will hold you accountable for your decisions. By decentralizing power, you no longer have total control over your project. If you choose to ignore governance decision making, there will almost always be negative consequences.

If the creation of DAOs interests you and you need help in the process, check out our cryptoasset and blockchain managers.

3. What does a DAO need?

Among other things, a successful DAO must cover at least the following five points:

A DAO needs a purpose. DAOs are simply a way of organizing projects or funds. Without a good underlying project and a reason, the DAO will have nothing to execute.

A DAO needs a voting mechanism. This is the main way in which people interact with the DAO and make changes in the strategy to be followed. There are several ways to do this. You can create your own voting mechanism or use an external provider, as we will see later. Your DAO may even vote to change the mechanism later, but it must start with something.

A DAO needs a governance token or a shared system. How will people demonstrate their right to have a say in the DAO? A governance token is very common and often the token can also be a utility token.
Una DAO necesita una comunidad. Decentralization is strengthened as more people join and participate in the governance of their DAO. In this way, power is distributed among more stakeholders.

A DAO needs a way to manage its funds. Most DAOs will have a treasury or access to some crowdfunding. This usually takes place in a multi-signature wallet, which can only be used if all key participants agree.

How do I create my DAO?

On the technical side, you will need a mechanism to handle votes and proposals. A selection of open source solutions are available for your use. Aragon is a popular choice for the Ethereum blockchain. Snapshot is another one that works on multiple blockchains.

They will all provide approximately the same structure, but the ways in which they do so may differ. Some DAO governance systems work with surveys that are recorded on the blockchain and others outside the blockchain.

Finally, don’t forget to have enough funds to cover your gas fees when implementing your DAO on any blockchain.

Do you know the legal implications of a DAO?

If you want to create a DAO, but do not know the legal implications involved, do not hesitate to contact us, we are specialists in the adoption of blockchain technology.