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The DAO Essentials: What You Need to Know to Start Your Own DAO

cryptoknowmics.com 18 May 2022 19:33, UTC
Reading time: ~5 m

Decentralized Autonomous Organizations (DAOs) are one of many modern blockchain technologies promising a blockchain-based solution for decentralized automated management of any organization. DAOs are a popular governance model in the blockchain sector, with crypto’s roots in decentralization. With a little technical expertise and certain tools, you can quickly set up a DAO. But first, you’ll need a solid strategy and a supportive community. So let’s go over the fundamentals of what you’ll need and how to build up your DAO.

What are DAOs?

A decentralized autonomous organization (“DAO”) is a group of entities owned and managed with rules written only in computer code. These rules are organized based on the blockchain and given a structure with smart contracts.  With Ethereum’s 2016 venture capital fund, “The DAO,” DAOs became well-known. Unfortunately, the project was attacked three weeks into the token sale owing to a programming vulnerability. The funds were later returned due to a hard fork.  Despite its early difficulties, the DAO concept has become one of the most widely used governance models for Decentralized Finance (DeFi) projects. However, every DAO is different from each other but must have and follow the same basic principles.

How do DAOs work?

Smart contracts are known as the main backbone of a DAO. These contracts help hold the group’s treasury and define the organization's rules. Only a vote can help a group member change the rules when the contract is live on Ethereum. It will fail if someone tries to do something that isn’t covered by the code’s rules and logic. Because the smart contract also specifies the treasury, no one can spend the money without the organization's permission. This eliminates the requirement for a central authority in DAOs.  Instead, the group takes decisions collectively, and payments are granted automatically when votes are passed. This is conceivable because smart contracts are tamper-proof once they go live on Ethereum. Moreover, because everything is public, you can’t unilaterally change the code (the DAOs rules) without others noticing.

What does it take to start a DAO? 

Before creating a DAO, you must know the definition and how they work. You should also get familiar with the benefits and use cases of DAOs, which will help you determine the suitable value propositions of DAOs in different projects.  You should understand that building a Decentralized Autonomous Organization on many Blockchain networks is possible. However, Ethereum is now the most popular blockchain network for forming a DAO. After you’ve mastered the fundamentals of DAOs, you can go on to the stages for constructing your DAO.

Know the Structure of the DAO

Many people who have an interest in DAOs have this confusion about how to start them. Before you write a code for your DAO or buy any DAO tools, you need to define the reason for building it. This includes knowing the structure for the DAO too.  Even if DAOs provide the benefits of decentralization, they are not practical to use everywhere. DAOs’ high performance may motivate people to use them in various companies, projects, and communities. However, as the 2017 ICO craze demonstrated, they are not always the best solution.

Define the type of DAO you want to create

It’s very important to know the type of Decentralized Autonomous Organization you need before creating one. DAOs are still in their infancy and have used for various purposes. As a result, you have various options for building your DAO based on your goals.  To locate the models that can achieve your objectives, you must examine various forms of DAOs and their functions. Protocol DAOs, social DAOs, venture DAOs, collector DAOs, and social media DAOs are some of the most frequent forms of DAOs.

Determine the Use Cases of your DAO Tokens

To build a Decentralized Autonomous Organization with a strong foundation, you need to know its goals and structure. Your focus should be on decisions about your DAO's token allocation that relates to the long-term vision of the DAO. The use of tokens in community governance should be in your plans. Many strategic initiatives, such as effective fundraising and boosting buy-in from supporters and the community in the early phases, can benefit from an adequate understanding of the use cases of DAO tokens.  The developers put the code for the DAO on the blockchain. Stakeholders voting together can only change it after then. The project is no longer under the control of the original developers.

What are the essentials of DAOs?

Starting a business with someone that includes money and funding necessitates high confidence in the people you’re working with. However, it isn’t easy to trust someone you’ve only ever communicated with on the internet.  You don’t have to trust anyone else in the group with DAOs; all you have to trust is the DAO’s code, which is completely visible and verifiable by anyone. This throws up a slew of new possibilities for global cooperation and coordination.

Relationship Between Ethereum and DAOs

Ethereum is the perfect foundation for DAOs for several reasons:

  • Organizations can trust Ethereum since its consensus is distributed and well-established.
  • The owners of smart contracts can’t modify it once it goes live. This makes the Decentralized Autonomous Organization run by the rules the developers programmed it with.
  • Smart contracts may receive and transmit money. You’d need a trustworthy middleman to manage group funds if you didn’t have this.
  • The Ethereum community has shown to be more collaborative than competitive, enabling the rapid development of best practices and support mechanisms.


Technically, creating your own DAO is easy, but properly running one is tough. As you can see, there are many basic tools available to get you up and going quickly. However, your project and community will be the most important aspects of creating your DAO.

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