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As DAOs become an increasingly popular vehicle for launching Web3 projects and businesses, developers and builders alike have taken notice, and rightfully so.
But what exactly does it take to go from idea to launching a real-world DAO?
If you're interested in learning the basics of creating your first DAO we have you covered, looking at everything from your DAO structure to what tools you'll need to get started.
Before we dive in, we're going to assume you've given the pros and cons of DAOs careful thought, and are ready to put your knowledge into action. Additionally, while you can technically build a DAO on a variety of blockchains, we'll be using the Ethereum network for this breakdown, because as of this writing, it's the standard for creating DAOs.
Before you write a line of code or begin signing up for DAO tools, you'll want to spend some time deciding the reason and structure behind your DAO.
Remember, not every company or project is best suited to being run with a decentralized structure.
a16z shares in their blog post on building and running DAOs that there’s an abundance of ebullience around DAOs whenever they perform well - individuals tend to apply them to every organization, community, or project, when oftentimes they’re not the best approach, similar to the 2017 ICO boom in crypto..
Of course, that isn't said to persuade you not to start one, but rather ensure you're doing so for the right reasons. As such, we've put together a list of questions to get you started.
While you don't have to answer every single one, you should have a general idea of each component before you go rushing to launch.
Although it may be tempting to skip this very important first step, answering these questions will ultimately help you in the next step of the DAO process, determining your token allocation and rewards.
Because DAOs are still in their infancy, there are plenty of use cases that have yet to be tested. That said, there are a handful of practical paths you can take depending on your goals.
Answering the questions in step 1, will help you have a clear picture of what you hope to accomplish. Next up, is determining the type of DAO you wish to explore.
Ledger has put together an excellent resource showing various examples of specific types of DAOs that we highly recommend you read. They cover the following types of DAOs:
In addition to giving thought to the non-exhaustive list of questions above, it's also helpful to consider the overlap of traditional businesses and DAOs.
Govrn DAO writes, "many DAOs and other digitally native organizations have properties similar to Nation-State and City-State governance. By identifying these communities and working with them on the Govrn Governance Model, we can keep improving the tools while waiting for the physical governance world to be ready for DAO Tooling."
Your DAO won't necessarily run with a Nation-State and City-Stage governance framework, but the context is useful in mapping out your general DAO structure to start.
Once you have a clear understanding of what you hope to accomplish with your DAO and the type of DAO you want to build, you'll next want to think strategically about your DAO token allocation, specific to your relationship with your community and long-term vision.
Getting this right from the start, will help you fundraise effectively, and increase buy-in from your initial supporters and community.
DAO tokens can be used for:
DAO tokens allow for your users to be truly invested in the success of your company and be an active participant in your growth.
While your DAO token doesn't need to grant governance or voting rights, in many situations, voting on key issues puts the community first.
For example, LooksRare, a recently launched NFT marketplace, took advantage of the fact that OpenSea is likely not going to launch a token and decided to go directly to the NFT community.
Their token rewards community creators for selling NFTs and members for buying NFTs,, distributes trading fees to stakers, and pays creators instantly at the moment of sale.
While holding their token $LOOKS doesn't give you active voting rights on the direction of the company, 100% of the fees earned on trading is distributed to users and those who are staking the $LOOKS DAO token.
Though LooksRare may not technically be considered a DAO, their community first approach has led to their incredibly rapid rise in popularity.
In another example of how tokens can be used, the ENS community recently voted to remove the Director of Operations and DAO Steward of the ENS DAO for hurtful comments he made on social media several years ago. Whether they should be able to remain on the team was put to a vote, and the decision was made.
How will your tokens be used? Will they be used to vote on the direction of the company? Can they be staked for rewards based on the success of your business?
Having a clear use case for your DAO token is critical for long-term buy-in and success.
While the difference between a billion tokens and a million may be a matter of zeros, there's certain psychological effects of pricing at play.
As research on the psychological impact of cryptocurrency prices showed,
“Low-priced CCs have much less volume, much less market cap, and lower past monthly and quarterly return. Interestingly, low-priced CCs have higher numbers of coins, and as a result, their coins are more traded (despite their lower trading volume in US dollars).”
Therefore, finding the Goldilock sweet spot of token supply is particularly important. For reference, you can read about how ENS, Uniswap, and others came to their specific token supply and allocation.
While there's no direct right or wrong answer without full knowledge of your goals and community, it's a safe bet to choose a reasonable number in the millions or hundreds of millions, and avoid choosing an arbitrary high initial coin supply.
Besides your chosen initial coin supply, the allocation of your tokens is equally, if not more important.
Rewarding your community and ensuring you have enough funds in the community treasury is a delicate balance. As a business, it's critical to ensure you have enough working capital to reach your objectives, but at the same time rewarding early users or supporters.
Because the emergence of DAOs is still relatively new, many projects are experimenting with how DAOs work and novel ways to distribute tokens and allocate resources to their treasury.
That said, DAOs may have different use cases for their token utility, which factors into your initial allocations. As ConsenSys shares on their blog, "In some instances such as Uniswap, token holders can vote on distributing a portion of the fees that the protocol collects amongst themselves. In other protocols such as Compound, token holders can vote on distributing these protocol fees towards bug fixes and system upgrades."
This is why step one was so important:
Understanding the use case of your tokens and the allocation can help ensure you're optimal in growing your business while also creating value for your users and community.
BarnbridgeDAO reflecting on their experience with governance had this to say:
"Splitting out the governance from the start helped us to have an equitable vote across numerous parties where no one person could commit a cardinal sin in the early stages for distribution. It helped keep us honest and avoid proposals that would unilaterally benefit a single party. It required us to vote in every seed round fund provider and that forced us to look into each one for the merit they brought to the project. We stopped thinking of capital as pure capital but as what the people who would be using their capital to fund the seed round, in turn getting a seat at the voting table, would vote. It forced us to think about what their incentives were and if we wanted those people involved early on in the project."
Once you’ve determined your DAO’s structure, type, token use cases, and allocation, it’s time to create your DAO. While DAO startups can build their own systems, there are many DAO startup tools and templates to set up the legal framework for your DAO, DAO token minting tools, teams, founding members, and creating your DAO’s name.
The most popular Ethereum DAO tools for establishing your DAO’s structure include:
Once your DAO is set up, the next step is to set up your DAO treasury tools so you can effectively manage your tokens, fundraising, and treasury operations at scale.
After you've finalized the initial coin supply and allocation for your DAO token, it's time to ensure you're able to securely manage your funds within your DAO structure.
While there are many options to consider, Gnosis Safe is the industry standard when it comes to securing your DAO’s treasury, and leveraging the security of multisig wallets which require multiple people to sign transactions before they are executed.. Gnosis Safe has been providing security solutions in the Ethereum ecosystem since 2017 and is incredibly active in the community.
From CabinDao on why they choose Gnosis Safe: "We chose Gnosis Safe as our crypto-native treasury platform. Gnosis provided two critical features: The ability to have each distribution of funds approved by multiple team members (a.k.a. Multi-signature), and a central location to preserve a mixture of funds: Ether and the social token. "
DAOs, like traditional companies, control a treasury of funds that can be used to cover operational expenses (e.g. DAO tooling costs) and strategic investments (e.g. partnerships).
To secure the DAO’s capital, treasury management tools are used to ensure no one party can make unilateral decisions on how funds are spent and capital is truly owned by the DAO.
Besides Gnosis Safe and their toolkit of DAO governance tools, SafeSnap, here are some of the most popular Ethereum DAO treasury options to consider:
Given the importance of this decision, we highly suggest you take your time here. While you can technically switch DAO treasury tools, it's best to get it right from the start.
Your choice of treasury options will help you keep your funds safe, secure, and ready to effectively distribute funds when needed.
The Bankless newsletter said it best, "The community treasury—shared ownership—is the major unlock from web3 that makes DAOs so valuable. The treasury is how the community coordinates and deploys capital to achieve the mission."
Governance is the process of having members and token holders directly participate in making decisions. To effectively steward a decentralized organization, DAOs must have a trustworthy and accessible method for their token holders to vote on key issues including how treasury funds are distributed, spent, and allocated.
The most popular Ethereum DAO governance tools include:
Proposing improvements, debating decisions, and voting on important topics is core to DAO operations. Having the platforms in place where members can connect their wallet, propose, review, and vote on key issues treasury and protocol decisions is essential tooling for DAOs.
While you theoretically can start a DAO in as little as 90 seconds using tools such as Colony, the reality is, virtually every successful DAO starts with an engaged and active community. Building a community should be first on the list.
If you do decide to build a DAO, your community will be the determining factor of your success. We'll save the in-depth community building tips for another article, but if you aren't already actively building a community or supporting your current one, you're at a severe disadvantage from the start.
Contrary to popular belief, building a community isn't just about having a Discord,Telegram group, or posting on Crypto Twitter. A thriving community is the result of builders and Web3 enthusiasts who put their users and supporters first.
As a successful anonymous builder in crypto once said:
“The best time to build a community was years ago. The next best time is now.”
When organizational structures are decentralized and the locus of conversation is not a singular location, the importance for communication increases dramatically.
To accommodate people, potentially living all over the world, DAOs need scalable, accessible, and manageable communication platforms for all types of communication including messaging, forums, blogging, marketing promotion, token gating, and support for multiple languages.
The most popular Ethereum DAO communication tools include:
Regardless of DAO structure, members need to communicate effectively at scale, and these DAO communication tools enable decentralized teams to engage 24/7.
Looking for more options? Check out DAOmaster’s list of popular DAO tools.
Web3 innovations like Decentralized Autonomous Organizations open up many exciting possibilities for startups, creators, and online communities.
When starting a DAO, keep these steps in mind, explore different DAO tools, and always focus on your number one asset: your community.
With the right tooling, tokenomics, and team, your DAO has every chance for success.