Every founder’s dream is to find investors. Even though DAO In Blockchain this dream gives entrepreneurs many ways to come up with new ideas and grow their businesses, investors usually get a seat on the board.
Founders try to get well-known people around their boardroom table, but these people can start a power game of egos to show who is in charge. When this happens, it’s easy to see why founders find it hard to stand their ground and end up being pushed into making bad decisions for their business.
Because of these ego clashes and the inability to speak up, a business’s day-to-day operations and its future are at risk.
This is just one way to show how dangerous it can be to make a bad decision or give in to pressure. Businesses have slowly started to use the DAO blockchain’s comforts of transparency and equal rights to solve these problems in a wide range of other use cases.
If you’re here reading this, it’s likely that you already know that DAOs on blockchain are fully automated democratic communities where people can participate and vote anonymously. They rely a lot on smart contracts, which decide how users who have voting rights can make decisions (typically, the one holding more tokens has more voting power).
In the end, the answer to how a DAO works lies on the exact opposite end of the spectrum from how a traditional organization works.
Before we talk about how to set up a DAO step by step, let’s talk about the different kinds of DAO blockchains you can invest in.
Different Kinds of DAO Blockchain
DAOs can be put into different groups based on their end goal, technology, and structure.
Protocol DAOs
When tokens are used as a way to vote on changes to a protocol, the structure of governance shows protocol DAOs. For example, Uniswap gives native tokens to people who contribute to the liquidity pool. These tokens can then be used to vote on how the DEX is run.
Collector DAOs
Artists who make art with non-fungible tokens (NFTs) have to use collector DAOs to prove who owns their art. This can be seen in the songs Flamingo and PleasrDAO.
Investment DAO in blockchain
They allow people to pool their money to invest in multiple DeFi operations. They are also known as Venture DAOs. Krause House is a great example of a venture DAO that runs the National Basketball Association and is run by basketball fans.
Grant DAOs
In this type of DAO blockchain, the community puts money into a grant and votes on how the money should be split up to invest in new DeFi projects. This is shown by the Aave Protocol, which uses the infrastructure to help its DeFi projects grow.
Entertainment DAOs
The creators of these DAOs can bring new ideas to the digital world because they are in charge of how they are run.
How we talk about how to make a DAO in the next section will depend a lot on whether we talk about these or other DAOs on blockchain.
How To Create A DAO On The Blockchain?
DAOs are made up of four important parts: the Goal, the Governance, the Voting, and the Rewards. To understand how to build a DAO, you need to know what they are.
First of all, if you want to know how to make a DAO, you need to know a lot about DAO smart contracts, which are the building blocks of all the rules set by the community and how the protocol works. This is why good government is so important.
After putting the rules on the blockchain, the next step in building a DAO would be to figure out how to pay for it and run it. Usually, a method of issuing tokens is introduced here, in which the protocol sells tokens to fill up the DAO’s bank account. Here, the number of tokens a person owns determines how many votes they get.
Once the funding is done, the DAO is ready to be put into production on the Ethereum blockchain. Once in production, the Ethereum blockchain needs Ether (ETH) to do Ethereum transactions. After that, ETH is sent to the DAO smart contract address during the first step of making it, which is also written in the codes.
Understanding how the model works will help you figure out how to make a DAO, but you will still need to carefully plan out the four parts we talked about. So, let’s talk about how to build DAO on blockchain.
1. Figure Out the Goal and Build a Base
The first step in making a DAO is to figure out why it’s needed, what role it will play, and how it will work. It would be important for you to find the opportunity, test the market to see if the DAO is needed, and come up with the final steps that can be put into smart contracts.
Once this base is in place, you’ll need to make:
- A wallet that can store and move tokens and is encrypted
- A smart contract that is run automatically
- A group of people who are interested
- A set time frame for voting
- A forum or chat room that members can use to find out what’s going on
2. Figure out who owns what and how to vote
After everyone agrees on the DAO’s goal, the next step is to decide who owns it and how members will vote. When you make a DAO, you usually have to give ownership to the members. This can be done in three ways: through Airdrops, Rewards, or the purchase of Tokens.
When there are airdrops, tokens are given to members based on what they have done for the community. On the other hand, rewards are bonuses given to members who meet their goals or do their jobs. The third option is to list your tokens on decentralised exchanges and let members buy them.
Since we’ve talked a lot about membership, let’s take a quick look at how membership is used to set up a DAO. When you start a decentralised autonomous organization (DAO), you will need members who can vote on the decisions that your DAO will be based on.
To do this, there are two kinds of memberships: one is based on tokens (people who own the DAO token are members), and the other is based on shares. In the second case, people will have to submit a proposal that shows they know enough to make good decisions.
Once the ownership has been planned and set up, you will need to set up a way to vote. One popular way to do this is to let the number of tokens, not the number of voters, decide who wins the vote. The winner will be the side that gets the most tokens.
3. Set up a Governance System
This is the most important part of figuring out how to make a DAO. This step shows how decisions will be made once the DAO is up and running. It will explain how voting works, give examples of how the process can be used, and explain the most important parts of the DAO network, such as the exchange, which will hold the transactions, the validator, who will check all the transactions, the developers who will build the code, and the users who will be part of the community.
The documentation for Maker DAO can give you an idea of how the DAO is run. It has information about how to use wallets correctly, how to use IOU tokens to lock in votes, how long a token holder must have the token before they can vote, how to unlock votes, what happens if the token value goes down, the danger of whales, and other things.
You should add a section about how the DAO will make money to the document you make about the way it will be run. DAO will make money from the sale of their native tokens, which give members the right to vote. Members can also give it money in exchange for buying an early-stage project whose profits will be split with them as part of the investors’ share.
4. Set up Incentives and Rewards
Setting up rewards for DAO members for their contributions is the last step in how to start a DAO. Most of the time, contributors who use the DeFi protocol for consideration get native governance tokens. These are the rights that come with owning them. You can also give them grades and titles, as well as cryptocurrencies like USD Coin (USDC), ETH, and Tether (USDT).
5. Launch DAO
Once you’ve done all of the steps, you’ll reach a point where you know how to build a DAO and are ready to launch it. There may be more than one way to deal with this, but the fastest way will be to set up a Discord and Telegram community to spread the word and then direct members to your DAO platform.
We have now looked at the different steps of how to make a DAO. Now, I’m sure that the more you look into it, the more you’ll find platforms like Aragon, Syndicate, DAOstack, and others that tell you how to set up a DAO on your own.
But these articles rarely talk about the problems, which will need a plan to solve. Remember the incident in 2021, when hackers stole $120 million from BadgerDAO by taking advantage of a simple mistake in the user interface? Even though these low-code platforms are easy to use, online threats like Badger’s can steal the future of your brand.
How to fix it?
Working with a Reliable Blockchain Development Company
Partnering with a blockchain development company that knows how to build a DAO from scratch and has solved problems like centralization caused by master nodes (those who own the most tokens), shadow voting, code vulnerabilities, and the time it takes to get every member’s vote.
