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Online communities can echo their powerful voices that change the world for the better.
Worldwide businesses and institutions have recognized the potential to revolutionize the world through communities.
But what is the way to build the right kind of community that encourages global participation, brings trust, and ensures that all the members follow community rules?
A DAO can be the perfect fit for the above question. DAO stands for a decentralized autonomous organization that runs through anonymous participation and voting.
Powered by blockchain technology, DAO can keep them decentralized and empowers online communities by bringing a democratized and transparent way of decision-making (which is publicly discussed, collected, voted on, and documented).
Moreover, many companies rely on the DAO approach to generate funds for their projects and use them correctly.
Instead of relying on other DAO platforms, building an exclusive one can help businesses get more control and flexibility over their online communities.
Explore how to build DAO on the blockchain, its types, and its advantages.
What Is A Decentralized Autonomous Organization (DAO)?
DAO is an emerging organization where no central governing body is involved. All the members share a common goal and make a mutual decision and settlement based on the majority of votes.
The decision power is distributed across token holders, who collectively cast votes. All the votes are posted on a blockchain to make it viewable for all the members.
Each centralized institution, like the government or central bank, has no authority to control the organization. Instead, the power to lead the decision is distributed among various computers, nodes, and networks holding DAO’s native tokens.
The Types Of DAO Blockchain
Based on different use cases, the classification of DAO on the blockchain is as follows.
1. Protocol DAOs
The DAOs are used as governing mechanisms in apps for lending money. Moreover, protocol DAO acts as a voting metric to implement required changes and ensure the app works as a decentralized, transparent entity.
2. Collector DAOs
Artists can use collector DAO to create art and establish their art ownership. PleasrDAO and Flamingo are some of the best examples of collector DAOs.
Collector DAOs are a community for collectors that create a common fund to share and buy valuables, NFTs, and other digital assets.
3. Grant DAOs
The goal of Grant DAOs is to accumulate funds from the contribution of certain community members. The community decides the purpose of money raising, and then some are allocated to new decentralized finance projects.
4. Investment DAOs
The DAOs under this category enable capital pooling to democratize investment in multiple Defi operations.
Investment DAOs collect money to invest in start-ups and innovative protocols, and investors can diversify their portfolios even with a limited budget.
5. Social DAOs
People with similar interests join these organizations for networking. Certain common interests are popular in social DAOs, such as purchasing several tokens, receiving special invites, or purchasing NFT.
Advantages Of Developing DAO On Blockchain
The popularity of DAO is increasingly being adopted in crypto and decentralized finance projects such as charity, borrowing, investment, fundraising, and NFT buying.
DAO can receive donations worldwide without the involvement of any traditional institution, even excluding banks. Members can decide how they will spend their donation funds through voting.
Here’s how DAO offers benefits over traditional organizations
| Parameters | DAO | Traditional Organizations |
| Voting | Need all members to participate | A single authority can make decisions |
| Services | Automated | Require human effort |
| Transparency | Fully transparent | Not transparent |
| Governance | Community based | Based on executives or board of directors |
Moreover the additional advantages of developing DAO on the blockchain are as follows.
1. Powered By Smart Contracts
The involvement of smart contracts reduces the dependency on human inputs by recording DAO’s rules and financial transactions on the blockchain.
With the help of smart contracts, DAO members can post proposals of change on-chain and will automatically get triggered.
Moreover, blockchain ensures complete transparency so that no proposals will get censored and votes will not get technically rigged.
2. No Requirement Of Legal Status
The majority of organizations are backed by legal status.
However, in the case of DAO, there is no requirement for legal status. The need for the involvement of third-party or any traditional institution body is eliminated.
3. Community-Based Governance
Community-based governance over traditional governance (where a handful of executives, board of directors, or activist investors) regulates the organization’s governance is another benefit of DAO for the organizations.
4. Economical
A DAO is an economical option to organize and set up a community. The funding of DAOs comes from crowdfunding, where tokens are issued.
Before setting up DAO, organizations must ensure its decentralization by keeping them from having total control over their project.
Challenges Of DAO Implementation
The following challenges may exist when building a decentralized autonomous organization on the blockchain.
1. Master Nodes
The members having more tokens gain the authority to become master nodes. Thus, they acquired decision-making power and governed the community, which centralized the organization.
2. Multi-Member Systems
It becomes challenging for thousands of people to make mutual decisions on specific issues, which makes it tough to manage communication, facts, and other processes.
3. Shadow Voting
There is a high chance of having attacks on the voter system through dark DAOs as they can buy on-chain votes and influence essential decisions against the will of the majorities.
The Best Example Of Leading DAO Projects
Here are some leading DAO projects to look out for in 2023.
1. Uniswap
Uniswap is one of the biggest decentralized autonomous organizations offering thousands of tradeable crypto tokens compared to the centralized exchange.
The organization allowed its members to apply for government rights and become integrated members. The organization has witnessed a surge in its volume and membership at a tremendous rate due to its extreme control over the DEFI markets.
| Founded in | 2018 |
| Founded by | Hayden Adams |
| Built on | Ethereum Blockchain |
| Best for | Swapping cryptocurrencies |
2. DAO Maker
The system uses DAO as its default coin. Users can stack their vaults to generate yield.
DAO Maker has become one of the leading reasons that drive the force behind several successful projects, including Seascape Network(CWS), My Neighbour Allies(ALICE), Orient markProtocol(ORN), and Infinity Pad(IPAD).
The organization has moved into new areas of tradeable goods like freight shipping, invoices, business loans, real estate, and other receivables.
| Founded in | 2017 |
| Founded by | Christoph Zaknun |
| Built on | Ethereum Blockchain |
| Best for | SaaS solutions for crypto startups |
3. BitDAO
BitDAO is one of the largest organizations that aim to develop an ecosystem with a decentralized tokenized economy.
The organization has facilitated several initiatives that could benefit the decentralized industry.
BIT (a native token) act as a governance token for the project where holders can enjoy the authority to present a proposal and cast their votes on every decision regarding the project’s future.
| Founded in | 2021 |
| Founded by | Bybit |
| Built on | Ethereum Blockchain |
| Best for | Creation of a decentralized economy |
4. Aragon
Aragon is one of the popular decentralized autonomous organizations that allows users to connect with anyone globally within a DAO infrastructure. Its native token grants the right to its users to create or join Aragon-based DAOs.
Additionally, users can decide the future of any project they want within Aragon.
| Founded in | 2017 |
| Founded by | Jorge Izquierdo, Luis Cuende |
| Built on | Ethereum Blockchain |
| Best for | DAO creation & management |
5. Dash
Another example showcases how the DAO Project can become the driving factor behind the success of DeFi. Dash is the digital payment option that focuses on faster crypto transactions.
Dash is rising to the top of the DAO hierarchy with its surge in demand for anonymous payments, as there are almost 10.27 million DASH tokens in circulation.
| Founded in | 2014 |
| Founded by | Evan Duffield |
| Built on | Bitcoin Blockchain |
| Best for | Flexible governance structure & instant crypto transaction |
Technology Stack To Develop DAO On Blockchain
The following tools are well suitable for building DAO on the blockchain.
| Frameworks | Colony, DAOstack, OPENLAW, Syndicate, Orca protocol, TRIBUTE, Compund Governor |
| Contribution and reputation | GITCOIN, SourceCred, RabbitHole, GOVRN, COINVISE |
| Frontend & analytics | Tally, DeepDAO, Boardroom. |
| Treasury management | Parcel, Multi safe, Gnosis Safe, |
| Content product | GitHub, Medium, Mirror, Radicle |
| Compensation | OPOLIS, Sablier, Superfluid, Roll, Disperse, Smart Invoice, Coordinape |
| Knowledge management | Notion, HackMD, Roam, GitBook, Gsuite Obsidion |
| Governance and voting | Snapshot, Paladin, Tally, Everest, Sybil, boardroom |
| Access | MintGate, Unlock, Collab.Land |
| Discussion | Discord, Telegram, Twitter, ROCKET.CHAT iscourse. |
| Identity | IDX, ENS |
| Databases | The Graph, CouchDB, MongoDB |
| Programming language | Solidity, Vyper, Rust, Python, C++ |
| Smart contracts | Truffle, OpenZeppline, HardHat, Infura, Alchemy, Quicknode, Ganache, Pinata, Metamask, Geth, Chainlink |
| Wallets | Binance, Trust Wallet, Meta Mask, Coinbase, WalletConnect |
How To Build DAO On Blockchain?
The essential steps to create your decentralized autonomous organization are as follows.
1. Determine The Purpose
Knowing the purpose of your project is the primary step to building DAO on the blockchain.
Finding the opportunities and running the market validation test is crucial to finalize the project purpose and putting them into smart contracts.
Establish the following things after finalizing the foundation of your project.
- A secure wallet for storing and transacting with tokens
- A smart contract that uses automatic procedures
- A group of people with shared interests
- A specific voting period
- An opportunity for users to communicate in a forum or chat room
2. Establish Ownership & Voting Mechanism
After deciding the purpose of your project, the next step is to establish ownership and decide the voting mechanism among members.
Moreover, it is essential to transfer ownership among members, which can be done in three ways: airdrops, token purchases, and rewards.
Members earn bonuses that achieve their goals and duties when transferring ownership with rewards. In the case of Airdrops, the tokens are given to members based on their contribution to the community.
The third option is to enlist your tokens on decentralized exchanges and allow members to purchase them.
The engagement of members is essential to determine the approval or rejection of the decisions based on their vote majority within the specific decentralized autonomous organization.
After deciding the way of ownership, you will need to create a working mechanism. The best way to approach the voting mechanism is to decide the voting majority based on the number of tokens, not the number of voters.
3. Decide The Governance Structure
The governance structure will decide the critical aspect of setting up DAO.
The DAO will include a voting mechanism, multiple use cases, and clarifications around the essential component of the DAO network, including exchanges, transactions, validators, and the users who will participate in the community.
You must create a governance structure document that will carry the following details: the correct use of wallets, the duration of holding tokens, the unlocking mechanism of the votes, etc.
Moreover, when preparing the governance structure document, mention how DAO will make money from selling their native tokens (which would give members voting rights).
Also, you can allow the members to invest in early projects to let them receive profits from the investors’ shares.
4. Set Up Rewards And Incentives
Decide how you will reward your DAO members for their contributions. Typically, the native tokens get distributed among contributors who participated in the Defi protocols.
Rewarding members through cryptocurrencies such as ETH and Tether is the most popular way among many decentralized autonomous organizations.
5. Deploy & Maintain The DAO
After covering all the basic steps of establishing the DAO, its deployment is in the final stage. Additionally, its marketing is crucial to ensure you capture more global users to your platform.
Setting up Discord and Telegram communities is a way to promote awareness about your DAO platform.
Conclusion
There is a huge discussion about how Web 3.0 can impact traditional organizations and bring community-based governance through decentralization.
DAO becomes a leading factor that encourages decentralization through blockchain by enabling the creation of a voting-based community. Every member has equal power in the decentralized autonomous organization, and there is no centralized leadership.
Businesses can utilize the decentralized autonomous organization to empower their community and bring advantages to their infrastructure.
Idea Usher offers tailored solutions for businesses looking to implement a DAO into their systems, including developing node, dApp, and smart contracts. At Idea Usher, we got expertise in building time-sensitive, hack-proof DAO platforms that enable global connectivity and enable members to become the deciders of causes they care about.
Contact us today to learn about our blockchain development services and how we can help you build your decentralized autonomous organization.
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FAQ
Q. How does a DAO work on the blockchain?
A. DAO utilize the smart contract to enable their functionality on a blockchain. Smart contracts are programs that execute their operations automatically after meeting specific criteria.
Q. How to implement DAO in blockchain?
A. DAO can be implemented in blockchain by following the given steps: determine the purpose of your project, plan out ownership and voting mechanism, establish a governance structure, set up rewards and incentives, and launch the DAO.
Q. What is the best tool to create a DAO?
A. BitDAO, DAO Maker, Aragon, and Dash are some of the best tools for creating a DAO.
Q. What blockchain to use for DAO?
A. Ethereum is one of the most suitable blockchains for creating a Decentralised Autonomous Organisation.
