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Reaching the level of a large, mighty corporation is the dream of any startup owner. However, growing large comes with certain problems, one of which is effective, democratic governance. All companies need to comply with a rich and diverse set of regulations, but large entities also have internal governance tensions; the more participants, the harder it is to reach a consensus. As a result of corporate governance inefficiencies, minority stakeholders’ interests are usually sacrificed for the sake of mighty stakeholders.
Luckily, blockchain technology has a remedy for this corporate flaw, which comes in the form of automatized, distributed governance – a DAO. DAOs are fully automatic digital governance organizations that function based on a predetermined set of rules and offer transparent, democratic voting rights to all participants of their systems.
Here is an introduction to DAOs and a quick breakdown of how much it will cost you to initiate such a project from scratch. We would like to point out that the numbers we will be talking about next are taken from our own experience, which we receive as a result of the provision of DAO and DeFi development services.
What Is a DAO in Crypto?
A DAO is an acronym for a decentralized autonomous organization; it is a DeFi project that uses distributed ledger technology and self-executing smart contracts to execute governance decisions based on voting outcomes.
In a nutshell, the system works as follows:
- A project is launched with a clearly defined purpose and specialization.
- Users join the project by purchasing its native tokens and receiving voting rights.
- The core team of community members votes for all important project decisions and regulate the project in a decentralized way, with every active member with the required number of tokens having a voting right.
DAOs are written in the Solidity language. Thus, if you want to design a DAO, you need to understand in detail how to create a DAO on Ethereum.
- The DAO code is created with Solidity.
- The DAO comes live once it’s activated on the Ethereum blockchain.
- Smart contracts self-execute on the blockchain using ETH, so you must have ETH on your balance to finance the project’s activities.
Once the code is deployed on the network, it can’t be changed without the consensual vote of DAO members.
DAO vs. Traditional Organizations
| Title | DAOs | Traditional organizations |
|---|---|---|
| Organizational structure | Flat, Democratic | Hierarchical |
| Role of Voting | Mandatory for making any changes to the protocol | A sole party can implement changes based on the company's structures |
| Governance | Based on community | Based of board of directors, executives, or activist investors |
| Transparency | Transparent and fully public | Private and restriction on the public involvement |
| Handling of services | Automated | Requires human handling |
Some may say that DAOs are yet another form of a traditional business organization, but that’s quite wrong. Here are the basic distinctions between DAOs and traditional entities you should know.
Membership
DAOs are more democratic in terms of membership. Anyone can become a part of the DAO ecosystem by registering and buying the required number of native tokens. This principle doesn’t work in traditional organizations, as they have more considerable entry barriers to voting. Only the board of directors, senior staff, and significant investors have the right to affect the company’s decision-making to a certain degree.
Organization Structure
Conventional businesses have a hierarchical organizational structure, with top management possessing the strongest power, middle management playing a minor role, and regular staff having no say in the company’s matters. A DAO has a horizontal structure that allows every eligible stakeholder to vote, giving equal weight to every member’s voice.
Decision-Making
The top management makes the final decision and is subject to change, even opposite to the voting majority’s opinion. DAOs are automatically functioning organizations that execute voting results with the help of smart contracts. Thus, the voters’ decision is mandatory for execution.
Operations and Transactions
Operations take place automatically based on the smart contract logic of the DAO. Thus, it is impossible to revert any decisions without the voters’ consensual decision. Regular businesses conduct arbitrary operations and transactions based on minority decisions.
Transparency
Business organizations can function privately and aren’t obliged to publicize all their decisions. DAOs are totally transparent and fully accountable to their members and the public.
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How Do You Start a DAO?
So, how to start a DAO? Here is a simple step-by-step instruction for everyone interested in this project type.
Set Your Goals
Every DAO should have a purpose and foundation to attract fellow thinkers. Thus, you need to develop the business case for your DAO first, explaining what role it will play in the crypto community and what principles it will follow.
Find and Build a Community
How to set up a DAO without a tribe of committed, active followers? It’s pretty hard to complete this task because no crypto project can thrive without a community. The business model of your DAO should cover the incentives for users, encouraging them to join the project and actively participate in its life. So, you should determine the token ownership and voting privileges, incentives, and rewards your members will get for loyalty to the project and token ownership.
Encode the Rules
Next comes the governance structure of your DAO. It should be well-articulated so that interested members know how many tokens they should have to vote, what privileges they will get, and what activities they can conduct within your DAO. Voting procedures and deadlines should be clarified; the principles of joining and withdrawing from the DAO should be clarified, etc.
Deploy the DAO
Now that all organizational issues are over, it’s time to deploy your DAO. Create it on one of the supporting platforms (like Aragon), give it a name, set up a native token, and start operating on the Ethereum network. The rest is a matter of your project’s attractiveness to the members and investors. Promote your DAO, engage influencers, share lucrative token rewards – and your project will quickly get the fame of the best DAO to join.
Register as a DAO LLC
How to create DAO projects? In reality, launching a DAO is not only a digital process; to function legally, you also need to register a legal entity (Brand’s name LLC). You need to do this in the register of your planned jurisdiction and pay a fee (it’s usually not more than $100).
Types of Decentralized Autonomous Organizations
To better understand how to make a DAO, we consider several decentralized autonomous organization examples here. You’re sure to get a better idea of how they work and what purposes they may serve in the crypto space.
Protocol DAOs
This DAO type uses native tokens as a voting tool for its active contributors. The most popular DAO examples in this category are Uniswap and MakerDAO – the projects that use voting metrics for protocol change implementations.
Collector DAOs
These DAOs connect artists with their followers and help creatives to share their artworks via NFTs. The collector DAOs help people claim a part of the artwork’s ownership with DAO tokens. Some famous examples are Flamingo or PleasrDAO.
Operating systems
Operating system DAOs are not connected to any other project; they function as standalone platforms and use DAO tokens to enable user voting on the project’s essential issues. The top DAO projects in this category are Upstream, Aragon, and Colony.
Service DAOs
DAOs specializing in varied digital services are referred to as service DAOs. These organizations don’t differ from other digital service agencies in terms of a business model; they only have a different governance structure. The best DAO platform example of this type is MetaverseDAO.
Investment DAOs
As its name suggests, this DAO type deals with investments in crypto or stock market assets. The fund is compiled of investor money, and the DAO invests the collected money depending on the users’ votes. The best DAOs in this category are bitDAO and ConstitutionDAO.
Grant DAOs
Just like in other spheres, grants in the crypto space are also a popular tool for encouraging innovative startups. Grant DAOs collect money from participants and allocate it via grants to finance promising projects and DeFi initiatives.
Entertainment DAOs
DAOs in the entertainment sector are also gaining momentum, allowing investors and participants to customize their experience with the project and participate in its governance decisions. Some noteworthy examples are Bright Moments Gallery or Friends with Benefits (FWB).
Media DAOs
Media DAOs unite content creators and consumers without the need to pay fees or advertising commissions to the platform. Content fans can reward creators for their labor with the platform’s native tokens. Some examples of such DAOs include Forefront, Scribe DAO, and Joystream.
Social DAOs
DAOs pursuing social initiatives are a new form of democratic expression in the digital space. For instance, the FreeRossDAO targeted a prison reform and aimed to free the founder of Silk Road, Ross Ulbricht. Another well-known example is Blockster – a social networking DAO. Read also: How to create a decentralized application.
How Much Does It Cost to Start a DAO?
Starting a DAO is not as expensive as you might think. The final quote depends on the blockchain you’re using and the type of project you’re planning.
- The DAO setup cost on Aragon and DAOstack Alchemy is 2ETH.
- Registering a DAO as an LLC costs around $100.
- You’ll also need to hire a blockchain development company to create an internal token (ERC-20) and generate its supply for your system.
- DAO smart contract audit
- The DAO should have a platform for member communication and essential news updates, so you should build a website with a reputable provider.
- A web agency should create a voting system with consistent smart contract logic and safe functioning.
The rest depends on your unique project details. For instance, if you’re planning a DeFi DAO, you will need a DeFI platform with lending, staking, and borrowing features. An average budget for a project with such features would be around $200,000-$240,000, including the ERC-20 token creation, DEX, DeFi lending/staking, liquidity mining, wallet integration, and a liquidity protocol’s setup.
You can also consider DEX DAOs, NFT marketplace DAOs, or IDO launchpads. A budget for a DAO blockchain game would cost around $74,000, with the work covering an ERC-20 token, a voting system, a community forum, and an NFT marketplace. If you don’t have a game yet, add from $70,000 to $150,000 to that budget estimate, with the final cost depending on the game’s complexity.
An essential part of budgeting is a smart contract security audit. You should analyze your project’s smart contract logic inside out to ensure that it is free from vulnerabilities and crucial errors. Use the audit report to eliminate weaknesses and ensure end-to-end user asset and data protection.
In any of these cases, you will require a digital platform functioning on the chosen blockchain and allowing members to register, acquire tokens, participate in voting, and partake in the project’s essential activities.
With these estimates, you can calculate the expenditures to create DAO projects much easier. The breakdown will help you evaluate the project’s cost and plan your budget accordingly.
Conclusion
DAOs are a real revolution in governance and user control, so you can quickly gain publicity if your project purpose is relevant and interesting for the crypto community. So, here’s everything you need to know about types of DAOs currently existing in the crypto landscape and the ins and outs of how to create a DAO. Hopefully, these DAO examples have inspired you to set up your own decentralized organization and have given you the right direction. Use these tips to launch your new project and take the crypto space by storm with innovative, decentralized solutions.
FAQ
Setting up a DAO comes with a couple of standard expenditure categories, such as paying a blockchain DAO creation fee (as a rule, 2 ETH) and the legal registration fee. The rest depends on the type of DAO platforms you want to create. If you create a DAO DeFi project, you might also need to invest in lending, staking mechanics, wallet-linking features, and liquidity provision functionality.
Creating a DAO in crypto doesn’t require excessive effort or full-scale software development. You only need to link your crypto wallet to Aragon and pay around 0.3ETH to create a DAO with one of the provided templates. Enter your organization’s name, provide its configuration details, and generate a DAO token for internal transactions. The first proposal question makes a DAO live; now, you can popularize it online and draw loyal followers to grow your project.
Those who consider DAO to make decentralized service projects are interested in making those platforms popular and successfully monetized. Thus, it’s vital to consider your business model before initiating the DAO setup. The main revenue stream is the dividends from DAO’s investments or earnings from the investments that the DAO itself attracts. The project can also earn on the appreciation of its native token or from the exclusive access tiers for the project’s service offers.
DAOs are a distinct type of crypto projects that requires much for success. First, you need to share a unique, appealing purpose with crypto enthusiasts to attract people to your DAO. Next, you should have a safe and democratic voting system and a governance token. Once your community grows, its active participants will promote your project’s goals and move your DAO project ahead.
