How to Create a DAO: 5 Key Steps

Thousands of DAO experiments have emerged in the field of cryptocurrency. From protocol DAOs, creator DAOs to media DAOs and social DAOs, various types of DAOs are constantly appearing, and there are even some DAOs doing seemingly crazy things, such as raising huge funds for auctioning precious artworks.

These new organizational forms represent a huge opportunity. Many people believe that DAOs are the future of work, and this perspective is worth pondering.

A DAO is essentially the coordination layer of the crypto world. It enables people to collectively decide how to allocate resources globally, thereby forming new digital communities.

As you can imagine, almost any objective can be a reason to create a DAO.

To create a DAO, you only need two elements: a clear mission and a framework for communicating and managing community finances. Aside from that, other aspects can be flexibly designed according to specific circumstances.

The following are 5 key steps to consider when creating a DAO:

1. Define the Mission

Establishing a mission is the first step in creating a DAO, and it may also be the most important step.

What is the purpose of creating a DAO? What are the goals of the DAO?

Clarifying this can provide DAO members with a clear direction for their efforts. If you are still contemplating the purpose of creating a DAO, here are some reference cases:

• Provide funding for public welfare
• Collect rare artworks or cultural relics
• Promote a certain social change
• Allow more people to access cryptocurrencies
• Establish a high-end social circle
• Develop an open value exchange protocol
• Acquire historically significant cultural relics

The mission of a DAO can be anything you can think of. The key is to have a clear goal that will guide the direction of the DAO's development.

2. Establishing a Community

The second step to launch the DAO may be the most challenging: building a community.

First, you need to decide whether the DAO should be large-scale or small-scale; whether it should be closed or open. Do you want a large community of thousands of people, or a select small group?

The answer to this question mainly depends on your mission. If the goal is to help a large number of people access cryptocurrency, then a larger community is needed. If you want to create an exclusive social club, you may need to limit the number of members.

Using platforms like Discord and Telegram can effectively bring like-minded people together for discussions. You can combine these communication tools with tools like Collab Land to create a better web3 experience.

Establishing effective communication channels is crucial for the success of the DAO. Another aspect to consider is the creation of an on-chain address community repository for the eventual allocation of ownership and governance rights.

There are various ways to achieve this, such as distributing POAP and other NFTs, collecting ENS domain names, etc. Having an on-chain community can make the ownership and governance of the DAO easier to implement at the right time.

3. Managing Funds

The community treasury is an important innovation in web3, and it gives DAOs unique value. The treasury relates to how the community coordinates and deploys funds to achieve its mission. Although each DAO is different, determining how to manage funds is an important step.

The specific approach depends on the type of DAO you want to create. For protocol DAOs that require fees, this step may be relatively simple. For DAOs that sell membership through NFTs, the process is also similar. Overall, the goal should be to deposit as much funding as possible into the treasury to provide operational funds for the community.

For social DAOs launched using ERC20 tokens, this part may be more challenging. Some DAOs generate on-chain revenue by launching unique projects and programs, with a portion of the revenue going into the DAO's treasury.

Another way is to obtain investments from large funds in exchange for partial ownership of the DAO. This, in turn, provides the DAO with operational funds that can be deployed, whether to pay core contributors or to fund new projects.

Once you have funds in the community treasury, the next step is to figure out how to manage it.

4. Establishing a Governance Framework

Although not everyone enjoys governance, it is an important responsibility of members in a DAO. Participating in discussions, proposals, and voting are key tasks to drive the development of the DAO.

Currently, there are various methods for governance, which are generally divided into two categories: on-chain governance and off-chain governance. On-chain governance mainly revolves around token voting, while off-chain governance includes discussions and forum posts, ultimately leading to formal on-chain governance votes.

The general governance process is as follows:

1. Conduct high-level community discussions through chat and phone.
2. Publish proposals on the forum and gain initial consensus.
3. Conduct token voting to achieve final consensus
4. If the quorum is reached, the proposal will be executed.

In addition to complete community governance, we also see delegated governance starting to take effect, where the community grants certain decision-making powers to specific individuals or working groups. This is particularly prominent in funding committees, which can gather broader community opinions but are ultimately authorized to make decisions on how to allocate funds.

Determining when, where, and how these entrusted governance groups will function is a key aspect of the DAO, as formal governance for every action and decision would reduce efficiency. You don't want every decision to go through a governance process that takes weeks.

The working group with established authority enables the DAO to act quickly and flexibly while maintaining moderate community participation. However, it is important to use delegated voting moderately to avoid the risk of excessive centralization.

5. Allocation of Ownership

Once you have a governance framework, you can allocate ownership. This determines membership and voting rights on governance decisions.

There are mainly two ways to allocate ownership: fungible tokens (ERC20) and non-fungible tokens (NFT).

Some projects use community NFTs as governance weights for voting, while others use native ERC20 tokens. Both methods have their pros and cons.

One of the main advantages of NFT membership ownership is that it is easier to sell memberships through NFT airdrops, thereby making it easier to raise funds for the community treasury.

The main advantage of using ERC20 tokens is that it can better drive the internal economy. The fungibility of ERC20 tokens makes it easier to incentivize contributors compared to using NFTs. Furthermore, if most of the supply is allocated to the treasury, in the long run, if the DAO is successful, it can create a higher leverage effect for raising funds.

The future DAO is likely to use both NFTs and ERC20 tokens in its ownership structure and governance framework, but this field is still in its early stages.

Conclusion

DAO provides humanity with a new way to collaborate and have collective ownership through the internet. This model has huge potential, and cryptocurrency native users are just beginning to recognize this.

Ultimately, more people will realize the value of DAO, and the era of DAO will eventually arrive.

If you want to create a DAO, whether for entertainment or to initiate a serious plan, there are plenty of opportunities and design space for you to explore.

In general, you can start a minimum viable DAO through the following 5 steps:

1. Establish the mission of the DAO
2. Build a community on Discord or Telegram
3. Create a Shared Fund
4. Build Governance Framework
5. Allocate Ownership

The rest depends on you and the community. Good luck!