So you want to start a DAO…

Well, the first thing you need to do is read this blog.

See, DAOs are the latest fashion for a reason. And getting started could seem like a monumental task if you don't know where to begin your research.

But hey — don't sweat it.

At Spark + Mint, we're a team of experts in everything from Web3 to Decentralized Autonomous Organizations… So you're at the right place to learn how to start your next DAO adventure while skipping the learning curve.

Or at least most of it.

So, without further ado…

Let's talk DAOs, shall we?

What is a DAO?

A DAO is an acronym for Decentralized Autonomous Organization. This is an emerging legal structure for organizations with no central governance structure. 

Every member within a DAO shares a common goal and responsibility of acting in the organization's best interest. Thus, the community has an intrinsic value here — something that almost every Web3, Crypto, and Blockchain entity shares.

It's been popularized by cryptocurrency enthusiasts and Blockchain technology lovers to enhance decision-making in a bottoms-up management approach.

Sounds lovely, right?

Well, that's not it. There are several layers to peel off to get to the bones of it.

Like Investopedia says, there are many benefits and crucial factors of getting started with a DAO, like:

  • A decentralized autonomous organization is an entity structure in which tokenholders participate in the management and decision-making of an entity.
  • There is no central authority of a DAO; instead, power is distributed across token holders who collectively cast votes.
  • All votes and activity through the DAO are posted on a blockchain, making all actions of users publicly viewable.
  • A DAO must ensure security is prioritized, as exploits can leave a DAO drained of millions of dollars of its treasury savings.

But it all began long ago in a computer lab far, far away…

The DAO: The First Decentralized Autonomous Organization, probably ever

Continuing with Investopedia on this subject…

"The DAO was an organization that was designed to be automated and decentralized. It acted as a venture capital fund, based on open-source code and without a typical management structure or board of directors. The DAO was unaffiliated with any particular nation-state to be fully decentralized, though it used the Ethereum network. 

The DAO launched in late April 2016 thanks to a month-long crowd sale of tokens that raised more than $150 million in funds. At the time, the launch was the largest crowdfunding fundraising campaign of all time."

But… It was not just smiles and laughter.

Eventually, things came crashing down, as this was one of the first Web3 attempts the Internet remembers.

Clearly, there was a lot to fix. The intention was there, but when you're managing capital… Security must be on point. That was The DAO's Achilles heel.

Like Gemini says:

"The DAO had raised more than $150 million from more than 11,000 investors, making it one of the largest crowdfunding campaigns in history at the time. However, even before the token sale had concluded, several onlookers expressed concerns about vulnerabilities in The DAO's code. More specifically, computer scientists were concerned that a bug in The DAO's wallet smart contracts would allow them to be drained. While programmers attempted to fix the bug, an attacker exploited the vulnerability and began siphoning funds from The DAO.

In the meantime, the Ethereum community debated how to respond to the attack. The DAO's failure would not only mean financial loss for investors, but it also bore dire repercussions for the nascent Ethereum network. The DAO had become such a heavily invested project that its contracts contained approximately 14% of all ether (ETH) in circulation at the time. At only one year old, the promising Ethereum technology and community faced a genuine existential threat…

…​​initially, Ethereum founder Vitalik Buterin proposed a soft fork of the Ethereum network, adding a snippet of code that would effectively blacklist the attacker and prevent them from moving the stolen funds. However, shortly after that, the attacker — or someone posing as the attacker; it has not been verified — published an open letter to the Ethereum community claiming that the funds had been obtained in a "legal" way, following the rules set out in the smart contract. The attacker also said they would take legal action against anyone who attempted to seize the ether."

Words less, words more… This ended up with two competing Ethereum Blockchains. One of them being the pre-forked version known as ETC, and the other Blockchain presently known as Ethereum — now one of the World's most used Blockchain channels.

So, was The DAO crisis crucial? Yes, it was.

But luckily… It didn't affect Web3 negatively. In fact, it opened up the gates to new and enhanced security procedures.

How does a DAO function as a part of Web3?

At a high level, Chainalisys explains how a DAO works here:

  1. DAO founders create a new cryptocurrency, known as a governance token;
  2. They distribute these tokens to users, backers, and other stakeholders;
  3. Each token corresponds to a set amount of voting power within the organization. Each token also corresponds to a price on the secondary market, where it can be bought and sold at will.

While this process is often described as a way to decentralize power, governance token data suggests that DAO ownership is highly concentrated.

Furthermore, IT Business Edge says that:

"In a Web3 world, the management of platforms and systems is through the consensus decisions of its users. They also have ownership and control of their data.

Early adopters believe that DAOs have the potential to completely change the way that humans think about cooperation, collaboration, and collective resources. DAOs present an opportunity for communities and organizations to rethink how we work together to provide more equitable participation and incentives.

If anything, with the trend towards remote work because of the pandemic, DAOs are much more amenable to people. They essentially provide for operations across any geography at any time."

But… If this Web3 effort requires every involved individual's willingness to push in the same direction, how does disruption or innovation happen?

That could cause several delays in decision-making… Or missed opportunities on genius ideas because of roadblocks.

Yet, that's not the main issue for DAOs in the Web3 space as of today: It's security.

As it's still in the early stages, most of these companies are offering big stacks of cash to whoever finds significant bugs to fix — always trying to protect themselves from another "The DAO" crisis.

What does it take to start your own DAO, anyways?

Getting started with a DAO doesn't have to feel like a mission impossible.

In fact, there are a few steps to create one effectively — which, to be frank, are not just clapping and making it happen… But you shouldn't have BIG trouble if you do things right and seek some advice.

To get started, you'll need to:

1. Define the Structure of your DAO

This means: Even before determining what tools you'll use, you need to understand the WHY behind your efforts. If there is a problem… How are you planning to solve it?

Why are you trying to fix what's not broken if there's no problem?

So, in short, you must figure out first:

  • What are your short-term and long-term goals for this project?
  • Given your goals, what kind of structure do you want to use?
  • How are you going to approach decision-making?
  • What will the benefits look like for customers, users, and possible investors?

Ask yourself these questions, and then move on to the next step.

2. What Type of DAO Do You Want?

Now that you have an idea of the problems you want to solve, it's time to determine what framework you should use to create your DAO.

101 Blockchains does a great job explaining this step here:

"The second step in starting a DAO focuses on determining the type of DAO you need. Decentralized Autonomous Organizations, or DAOs, are still in the stages of infancy and can serve many use cases. Therefore, you can choose many practical paths for creating your DAO according to your objectives. You must go through different types of DAOs and their functionalities to find the models which can fulfill your goals. Some of the most common types of DAOs include protocol DAOs, social DAOs, venture DAOs, collector DAOs, and social media DAOs. 

At the same time, you must also focus on common goals between DAOs and traditional businesses for improved efficiency. For example, if you are wondering how to start a DAO, you can use a nation-state governance framework for mapping out the general DAO structure. With a good overview of the type of DAO you want, you can develop a definitive approach for building the DAO."

3. Determine the Use Cases of DAO Tokens

See, DAO tokens can be used for several things. Rewards, voting rights on the company's direction, and other types of benefits. But, these DAO tokens can play a massive role in the DAO creation process.

So, if you want to push things forward and make everyone happy… Be wise in determining the types of use you'll give your DAO tokens.

4. DAO Token Allocation, Supply, and Rewards

Sure, pricing is essential. But it's not everything.

Token supply matters, and setting the demanding standard instead of just offering a random value of the original coin supply is what will get your DAO far.

Let's say you've cracked the initial coin supply:

Now, you'll need to focus on allocating these DAO tokens.

This means finding focus on providing appealing rewards to your community.

We say this because there are countless projects STUCK on finding out the best way to make their DAO work while also being tangled trying to discover new ways for token distribution.

So, token utility? Hard nut to crack, definitely. That if you do it yourself, obviously.

5. Create the DAO

101 Blockchains elaborate more on this by saying:

"Many companies opt to develop their own systems, while some choose DAO tools and templates to create the DAO. The tools and templates can help you define the legal framework for the DAO you wish to make. In addition, the tools also offer the required infrastructure for DAO token minting tools, creating the DAO name, and supporting the teams and founding members. 

Some of the popular Ethereum-based DAO tools for starting a DAO of your own offer multiple functionalities. You can choose Aragon, the comprehensive DAO toolkit with functionalities for dispute resolution and governance. Here are some other promising DAO tools you can use for creating your DAO."

How to get involved in DAOs?

This is also BIG.

See, before allocating your resources, money, time, and energy to building your next Web3 project or DAO, you need to understand how these work from the inside.

Meaning?

Joining a DAO to see what they do.

That said, it'll be ideal to find one, buy some of its currency, and get familiar with its processes. A great way to do this is by exploring pages like DAOlist and DeepDAO to find exciting projects that align with your particular goals, taste, and values.

Most will highlight their core mission, governance structure, and guiding principles.

But, if you're more of a hands-on type of person…

We recommend diving deep into the subject by directly collaborating with the DAO.

You can join their Discord channel, introduce yourself, and engage in conversations to contribute.

And, if you're more of a seasoned Web3 professional or have an ability you could exploit like design, programming, or copywriting…

You could apply for a job. These projects are constantly hiring and benefiting from a diverse range of skills. For example, your contribution will always depend on your abilities and your hunger for knowledge and changing how the Internet works.

Some popular DAOs to keep an eye on:

Now that you know what it takes to create your own DAO, it's also important to keep an eye on what seasoned companies are doing to minimize learning curves here.

For instance, Binance considers these three DAOs (MakerDAO, Aave, and Uniswap) the most prominent ones to date:

MakerDAO

MakerDAO is one of the oldest, most successful DAOs on the market. The organization manages the crypto-collateralized DAI stablecoin. They split proposals into Governance Polls for non-technical decisions and Executive Votes for smart-contract changes. Anyone holding MKR, the project's governance DAO token, can participate. 

Aave

Aave is a DeFi lending platform on Ethereum that lets holders of the ERC-20 token AAVE or staked AAVE participate in its DAO. Along with project changes, Aave governance also votes on new projects built on the protocol and Aave Grants to fund ideas.

Uniswap

Uniswap is a multi-chain Automated Market Maker (AMM) that has inspired a generation of DeFi projects. It's one of the largest decentralized exchanges, and UNI holders can vote on and create proposals. To submit a new proposal, you need to hold at least 0.25% of the UNI's total supply. To encourage healthy discussion, there is a governance forum for community members to debate changes.

Want to start your next DAO project? Read this:

At Spark + Mint we're committed to helping our community discover new ways to impact the World through Decentralized Autonomous Organizations, Web3, and Blockchain Technology.

That said, we'd be more than happy to give you a walkthrough of some of the projects we've been working on — and answer any questions you might have.

Our CEO and Founder, Jason Goodman, is taking some calls this week to Q&A some DAO-related questions.

And you're cordially invited to schedule a call with him.

Brightside? If you decide to move forward, you'll skip the trial and error, learning curve, and deadly mistakes getting started with a DAO could mean.

And what's more — even if you decide not to move forward… You'll still leave knowing exactly what needs to be done to create your next DAO project.

You can schedule a call with Jason by clicking here.

P.S. Not ready for a call? That's okay! You can still subscribe to our Newsletter and get familiar with DAOs, Web3, and Blockchain every week — for free!

That was it for today's blog, friend.

Hope we were able to provide value!

Until next time,

- The Spark + Mint team

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