DAOs or what we generally called Decentralized Autonomous Organizations are cutting-edge solutions that give everyone access to control DeFi project development without subjecting them to any centralized control.
Great, isn’t it?
One of the reasons why there are 1.7 million Governance Token Holders as of July 2023, which is nearly three times as many as was noted in 2022. Apart from this, there are about 2.7 million Active Voters and Proposal Makers. The increase in demand is a result of the numerous advantages DAOs offer.
Now you might be wondering how I can enter the market by developing my own DAO.
Well, this blog will take you on a journey where you will get to know all about DAO blockchain, types of DAO blockchain, how to create a DAO, and much more.
Before diving straight into the topic it is essential to understand what DAO is all about. Well, a decentralized autonomous organization (DAO) is a type of organizational structure that uses smart contracts to operate decentralized and openly.
A DAO’s computer protocols contain a set of rules that are used to manage the organization and control it. It doesn’t have any centralized organizations or hierarchies; instead, decisions are reached by cryptocurrency-based consensus among the group’s participants.
Developers often employ the smart contract features of a blockchain platform like Ethereum to build a DAO. A DAO token is developed to stand in for organization membership and governance authority. These tokens can be used by members to vote on proposals, fund initiatives, and get incentives or income from the DAO’s operations.
A DAO smart contract, which serves as the organization’s governing charter, contains the initial distribution of DAO tokens as well as the governance guidelines. Using blockchain technology, DAOs seek to build organizations that are more open, democratic, and effective.
Well, based on various use cases, there are primarily 5 types of DAO blockchain you can go with.
Protocol DAOs: Apps for lending money employ Protocol DAOs as their governing bodies.
Collector DAOs: Artists can create art and secure their art ownership using collector DAO.
Investment DAOs: These DAOs allow capital pooling to democratize investment in various DeFi businesses.
Grant DAOs: Grant DAOs help raise money through contributions from specific community members.
Social DAOs: Social DAOs draw members with related interests for networking purposes.
DAO models will undoubtedly change over time. DAOs are currently being implemented more frequently in cryptocurrency and decentralized finance (DeFi) applications including charity, fundraising, investing, borrowing, and NFT purchasing, all without middlemen.
As an illustration, a DAO can accept donations from everyone on the globe without the assistance of any traditional institutions, not even banks. Additionally, the members can vote on how the gift money will be used.
Apart from this it has the ability to bring a digital revolution. Let’s discuss the top 4 benefits of DAO to get a clear-cut idea of why creating a DAO can make a difference.
We only need to look at the DAO moniker and what it stands for to get our initial idea of what DAOs have to provide. A fundamental characteristic of a DAO that influences the very essence of this paradigm is decentralization.
Decentralized autonomous organizations rely on their members for governance rather than on a single institution, a small group, or specially chosen individuals. The distribution of voting power substantially encourages group engagement.
Every employee of the company has a voice in decision-making and is free to suggest future improvements to the organization. This frequently leads to innovative and inventive ways to generate goods, services, or other projects for which the DAO is accountable.
Members of a DAO can share their opinions regardless of their position, in contrast to centralized organizations where the CEO or board of directors typically ignores or mutes the voice of the members.
Transparency is another factor on the list of advantages of DAOs. Blockchain technology, which offers an immutable and secure method of recording and managing data. It is the driving force behind decentralized autonomous organizations. Due to the fact that every transaction is recorded on a public blockchain, everyone can see it.
Smart contracts, which form the DAO’s governing principles, also support DAOs. It ensures that all DAO activities adhere to pre-coded regulations after it has been formed and put into place. Only a majority vote of all parties involved is required to alter the smart contract.
As a result, there will be no room for human error or money manipulation; two issues that centralized companies frequently deal with.
DAOs have a uniform organizational structure with no administration, in contrast to typical organizations. Each token holder has one vote per token within the organization.
One of the code rules at the DAO development stage specifies that a person’s voting power is based on the number of tokens they possess. No member is granted any exclusive rights or benefits. So, before writing the code, a seasoned Ethereum development agency is aware of this requirement.
People initially opt to give money utilizing Ethereum contract creation after meeting at various social networking sites. Once the funds are raised the organization decides to carry out its task as a single unit.
4Active Stake in the Game:
Speaking about community involvement, the active stake that each member has in the DAO is yet another noteworthy benefit to mention. The procedures of DAOs are mainly concerned with the notion of letting members exercise their stake in the company.
DAO governance tokens first signify the requirement for spending or burning the tokens in order to obtain voting rights. Members are therefore more inclined to vote carefully and with consideration. In other words, governance tokens on DAOs enable all users to have a say in how the DAO project develops.
Another thing to keep in mind is that every vote on the DAO blockchain is openly visible, making sure that people are held responsible for their votes. A DAO, for instance, is better able to pinpoint the customers who want a product changed. DAOs were created with a literal purpose in mind, guaranteeing a faultless system. Most importantly, DAOs can stop the community from being flooded with bad ideas.
Technically, there is a requirement for a dedicated system to manage votes and proposals in order to construct a DAO. A DAO can be established using bespoke dApps, wallets, and smart contracts, or it can be developed using a variety of open-source platforms. To make it easy for you, here are some of the essential steps to create a DAO.
Step 1: Determine the Purpose & Scope
Needless to say, identifying the goal and scope of the organization is the first stage in developing a successful decentralized autonomous organization. In order to do this, explicit, quantifiable, and time-bound goals and objectives must be established.
The DAO’s mission statement should clearly and succinctly identify the issue it seeks to address. It acts as a benchmark for all upcoming choices. The objectives outline the qualitative and quantitative outcomes that the DAO seeks to attain. They transform the mission into observable results. Through concrete efforts and dates, the objectives specify how and when the aims will be accomplished.
Step 2: Choose a Blockchain Platform
Aspects like security, scalability, cost, and developer ecosystem are highly impacted by the platform choice. Due to its maturity, vast ecosystem, and smart contract capabilities needed for DAOs, Ethereum is the most preferred option. EOS, Tron, Binance Smart Chain, and Polkadot are further alternatives.
Whether we talk about transaction times, costs, and smart contract capabilities, each has advantages and disadvantages. The chosen platform must offer the required features, such as infrastructure for a governance interface, on-chain storage, decentralized governance, identity management, and token production.
The platform effectively acts as the framework on which the DAO can run leveraging the advantages of cryptocurrency and smart contracts. Making the best blockchain choice is a crucial choice that affects the structure of the entire DAO.
Step 3: Design the Governance Model
The DAO’s autonomous decision-making and operation will be governed by the governance model that is contained in the smart contract. The model stipulates:
Step 4: Establish a Smart Contract
The smart contract serves as a DAO’s building block. It contains all regulations, including tokenomics and voting, as well as the governance concept. Written in a language similar to Solidity, the agreement is then deployed on the chosen blockchain. Programmers create functions for:
All decision-making and resource distribution within the DAO is automated by the smart contract. The contract is deployed when it has been written and checked for security flaws, creating a special smart contract address for the DAO on the blockchain.
The constitutional code that gives the DAO life and enables it to function autonomously in accordance with the predetermined regulations is represented by the smart contract, which was constructed using the cryptographic capabilities of smart contracts. For the DAO to be successful in the long run, it is essential to get this core code right.
Step 5: Perform a Security Audit
An important step before launching a DAO smart contract is a security audit. An impartial company examines the code for flaws, errors, or exploits that could jeopardize the DAO. Due to the immutability of smart contracts, post-deployment problems are expensive or difficult to resolve.
Auditors check the code for problems including access control, integer overflows, and reentrancy defects. They create fake attacks to find problems. An audit, however time-consuming, is essential for stopping damaging attacks that can jeopardize the DAO.
Even little flaws in the governing code could have enormous consequences. A thorough audit considerably lowers the dangers connected with the weak smart contract that powers the DAO. The DAO is empowered by the powers of crypto and smart contracts thanks to an audit, which provides assurance that the code works safely and as intended when deployed.
Step 6: Launch the DAO
The DAO smart contract is prepared for deployment on the blockchain once it has been audited and authorized, thus launching and bringing to life the DAO. In order to communicate with the blockchain, developers submit the compiled code using applications.
By doing this, the DAO’s on-chain identity is represented by a special smart contract address. All upcoming DAO operations will be linked to this address. The hypothetical DAO is now a decentralized organization with crypto capabilities through the activation of its smart contract.
Members can use the smart contract’s features right away in accordance with the DAO’s established guidelines. The DAO is brought to life through the use of cryptocurrency and smart contracts when the smart contract is deployed to the blockchain. The DAO’s on-chain identity and the point of all upcoming interactions are represented by the generated smart contract address.
Step 7: Token Distribution
The core function of a DAO is token distribution. Tokens stand for rights to membership, government, and money. Functions to mint tokens in accordance with tokenomics regulations are included in the DAO smart contract. A token sale, airdrop, merit-based distribution, or a combination of these could be used as the initial distribution model. The initial distribution of tokens has an impact on the following:
As voting power is distributed proportionally to holdings with tokens, the initial distribution has an effect on the DAO’s decentralization as well. The DAO’s operations are shaped by the first distribution, which is carried out programmatically using the cryptographic capabilities of smart contracts. The long-term health of the DAO can be determined by getting this allocation right.
Step 8: Establish a Governance Interface
Although the DAO smart contract provides autonomous governance, participants still require an interface to use cryptocurrency. Members can communicate with the community, monitor tokens and power, suggest initiatives, vote, and receive updates through an interface. Options consist of:
The selected interface must safely connect to and activate the governing smart contract’s functions. Although the smart contract facilitates governance, an interface is required for members to take part and vote using cryptocurrency. A well-thought-out interface can enhance the user experience, remove obstacles, and encourage decentralization inside the DAO by encouraging greater involvement.
Step 9: Engage and Expand the Community
In order to build a critical mass, the founding members are essential evangelists. Potential members are introduced to the DAO through forums, social media, and events. Members can make significant contributions, thanks to the governance interface and participation incentives. Building trust requires openness about the DAO’s operations, development, and financial use.
Members have an interest in the DAO’s success thanks to on-chain governance. The community might develop naturally over time as a result of word-of-mouth as the DAO achieves its goals. A growing and active community that values participation, in the long run, is necessary for long-term sustainability. This community will be enabled by the crypto capabilities provided by the DAO’s design.
Step 10: Iteration and Improvement
Decentralized autonomous organizations get practical experience that highlights areas for development as they run and fulfill their original function. The DAO’s design must be improved and iterated over time, from tokenomics to governance to the smart contract itself.
Through the governance interface, members can suggest changes to voting procedures, reward distribution schemes, and other rules. Cryptographic-powered on-chain governance allows the DAO the flexibility to adjust and change in response to input.
The DAO’s performance is regularly reviewed to verify that goals are still in line with its aim as the situation evolves. As a DAO develops, what at first seemed to be the best design may need to be periodically reviewed. Thus, iteration and improvement become continual and are incorporated from the beginning using cryptographic capabilities into the governance architecture of the DAO.
DAOs have seen significant growth in terms of both numbers and investment in recent years, totaling billions of dollars. Because of their promise to provide decentralized platforms, they have experienced widespread adoption. The demand for DOAs has increased as a result of the growth of DeFi, Web3, and the metaverse, which all place a focus on decentralized governance and community-driven decisions.
So going for a DAO by partnering with Blocktunix can be a great option. Blocktunix specializes in developing time-sensitive, hack-proof DAO platforms that let people interact and take control of issues that are important to them. Then why not make a quick move?
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