Organizations are hierarchical traditionally, and control flows from top to bottom. Traditional organizations require people to trust each other, or at least those at the top, and power is centralized in the hands of a few.
These concepts are against what modern internet-native organizations want- trustlessness, transparency and decentralization. Decentralized Autonomous Organizations (DAOs) fulfill that need.
A decentralized autonomous organization justifies its name. It’s a governance style for decentralized applications (DApps), projects and crypto-investment funds, whose roots lie in decentralization.
A DAO is a community-owned, decentralized, autonomous organization automated by code and open for participation. Its autonomous quality comes from smart contracts that run processes without human intervention, offering trustlessness.
A DAO is created and run by a community, which collectively partakes in decision-making, funds management and project undertakings. DAOs have been continually improving since 2016 when Ethereum’s capital fund, “The DAO”, suffered an attack due to a vulnerability in its code.
Today, DAOs are the top choice for the governance of Decentralized Finance (DeFi) projects.
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DAOs offer significant advantages for crypto projects.
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A successful DAO doesn’t happen by default. Here’s what it needs.
If you’re planning on creating a DAO from scratch, defining its core structure is key. There are many ways a decentralized structure could serve an organization or project. Find out how it might serve you.
Here are a few questions to help you decide on a structure-
The next decision to make is choosing the type of DAO you want. DAOs as a concept are still in their nascent stages, but there are quite a few exciting areas for their application, such as:
DAOs are a way to organize a project, fund or organization, which is futile without a purpose and reason. What is the underlying purpose driving your DAO?
A DAO needs to start with a chosen third-party or custom-created voting mechanism. This is the primary way a DAO’s participants interact among themselves and propose and vote for changes.
Getting the governance token right allows a DAO to fundraise efficiently and garner support from the original community. DAO tokens are useful in-
Choosing token supply volume and allocating them is crucial for DAO development to achieve business growth. Like any other project, early investors of a DAO expect rewards in return. So, it’s crucial to maintain funds for the capital needs of the DAO and reward the founding community.
Community is one of the foundational pieces of a DAO. as the community grows, decentralization gets more robust, and power spreads across more stakeholders. Community creation is a priority when developing a DAO cluster, as it becomes the backbone of the project’s expansion.
An engaged, interactive and strong community that freely participates in the management and decision-making of the DAO defines its success.
After completing the DAO token’s ICO supply, you need to guarantee the security of the collected funds. Most DAOs have a treasury or access to some crowdfunding, usually held in a multi-signature wallet, accessible if all key participants agree.
Some popular DAO treasury tools are Gnosis Safe– a reliable and lightweight solution for DAOs without specialized use cases, Multisis– an analytics tool built on Gnosis for multi-wallet fund tracking and reporting, Llama– a tool that allows more sophisticated analytics and proposal linkages and Parcel– a tool that enables mass payouts in ETH/ERC-20 and offers a comprehensive analytics dashboard.
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DAOs need a mechanism to manage votes and proposals from members. There is a wide array of open-source solutions to help do that. Here are a few popular ones-
Here are successful DAO examples to get inspired.
MakerDAO is one of the most stable and earliest DAOs. It enables the generation of DAI, cited as the world’s first unbiased currency and a leading decentralized stablecoin. The peer-to-peer decentralized protocol is based on the Ethereum network and facilitates borrowing, lending and saving. It allows borrowing funds in DAI.
Users need Ethereum and a MetaMask wallet to lend themselves money in DAI. Users can lock up some ETH in MakerDAO’s smart contract to create DAI.
Aave is a DeFi lending platform originally built on the Ethereum network, with all tokens (ERC20) also using the Ethereum blockchain. Aave has since expanded to other blockchains, including Avalanche, Fantom and Harmony.
Aave uses a DAO in that it’s governed and operated by users who hold and vote with AAVE tokens. Besides project changes, Aave governance also votes on new projects on the protocol and Aave Grants to fund ideas.
Uniswap was one of the first DeFi applications to gain huge traction on Ethereum. It is a decentralized exchange that uses the governance token UNI to allow users to vote on protocol changes. The multi-chain Automated Market Maker (AMM) inspired many DeFi projects.
Users must hold at least 0.25% of the UNI’s total supply to submit a new proposal to the DAO. And, a governance forum exists where users debate changes.
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The technical part of creating a DAO isn’t the only aspect of it, as running it successfully involves a lot of other moving parts. For assistance and consultation around your DAO idea, speak to an expert at KiwiTech.