With the emergence of Cryptocurrencies and DeFi on the blockchain, the structure of the finance industry is gradually changing. In addition, The surge in popularity of NFTs, Play-to-earn games, Yield farming protocols and other DeFi protocols has raised concerns about how these platforms should be governed. To provide a suitable solution, DAOs (decentralized autonomous organizations) are setting up the structures by which these DeFi ecosystems and other companies are governed.
This Post Contains
- What Is A DAO (Decentralized Autonomous Organization)?
- Brief History Of DAOs.
- Why Do We Need A DAO?
- How To Create A DAO.
With the emergence of web3, DAOs have been able to change the way companies will operate in the future when web3 goes mainstream.
DAOs, or decentralized autonomous organizations, are the organizational structure of web3 companies and organizations. These new organizational structures operate on the back of a series of interconnected smart contracts on the blockchain.
DAOs are the new way of determining how gaming organizations operate, build communities, and develop new projects.
What Is A DAO (Decentralized Autonomous Organization)?
Decentralized autonomous organizations are an organizational structure on the blockchain that are created via smart contracts with the aim of eliminating the risks of human error by automating the system, removing power from centralized authorities and giving those decision-making powers to the investors.
In a DAO, there are no board of directors, the investors (Most times holders of the governance token of the ecosystem) are the owners and they all come together to vote and decide on how the organization should be run.
Brief History Of DAOs
“The DAO” the first decentralized autonomous organization was launched In 2016 on the Ethereum blockchain, The developers of the first DAO created it with the aim of eliminating the risks of human error and mismanagement of investors’ funds by centralized authorities. To achieve this, the system placed decision-making power in the hands of an automated system and a consensus process which provided the holders of the governance token the voting rights on how the organization should be run.
Why Do We Need A DAO?
Centralized authorities in the past have made decesions that go against the will of investors who happen to be the backbone of the organization.
For most organizations, there are some policies that they’ve made which their investors/customers would want them to change.
Let’s take Internet organizations as an example, Facebook and other social media companies have been repeatedly accused of spying on users and selling their users private information to 3rd party companies and advertisers.
This is one of many things that search engines, Financial service providers, marketplaces and other organizations have been criticized about. DAOs are designed to address this issues as the way the organization operates in terms of Privacy and ownership reflects the will of the people.
Here are some important reasons why DAOs are needed.
Decentralization is the bedrock of DAOs and web3 as a whole. As DeFi protocols, NFTs, Metaverse projects, Play-to-earn games and DApps are gaining the attention of investors, growing their communities and going mainstream, a governance protocol that suits these DeFi protocols is needed which is why DAOs are needed. DAOs help fulfill the main goal of decentralized finance by decentralizing the powers that govern the ecosystem.
Related: DeFi Scams: How To Detect ICO Scams, Honeypots, Rug pulls, Pump And Dump Schemes
The Use Of Smart Contracts
Smart contracts enable DAOs to operate more efficiently and transparently by automating the operation module of the organization.
The use of smart contracts through blockchain technology not only reduces operating costs, it also limits the potential for human error. As the governance structures of the organization are encoded on the blockchain and administered automatically through smart contracts, removing the need for management or hierarchy.
Let’s be honest, despite the numerous reasons why DAOs should be deployed, they’re not necessarily needed in every human enterprise. Which is why the ownership structure of the organization should be defined so as to determine if a DAO is needed.
DAOs aid collective asset ownership and distribution of financial burden of coordinating the organization; This means that the costs of coordinating the organization can be distributed among the owners without the financial burden lying on the shoulder of a single entity.
With the incentives of being a shareholder and one of the decision makers of the organization, DAOs can convince investors to invest in their protocol.
Risk management is another importance of a DAO. The automation system via smart contracts and continuous monitoring by different investors, help identify potential vulnerabilities the ecosystem is exposed to. In addition, it can also manage the security and financial risks associated with bugs in the smart contracts, Volatility and harsh market conditions that the organization might be exposed to.
In addition, the money contributed by investors to the organization also provides insurance should an integral part of the organization fail or experience a setback.
If you’re planning to create an organization in which investors need to be assured that their funds are not being mismanaged, a DAO will be the suitable governance structure.
DAOs are transparent and their being operated on a blockchain means that the financial situation of the organization is being recorded in real time and therefore can easily be monitored by all parties involved.
Investors can track the financial inflows and outflows of the organization, as well as how revenues are being disbursed and judge for themselves whether the funds are being spent according to the laid down strategy.
Unlike traditional organizations, DAO members don’t need to reveal their identity to participate. There’s no risk of your private information being sold to third-parties without your consent.
You can invest in a DAO without having to register a profile or pass some form of identity verification.
The use of blockchain technology can help shield you from the prying eyes of organizations.
How To Create A DAO
There are a lot of blockchains and DApps that you can use to create a DAO. You can use Aragon, Snapshot or DAOstack Alchemy e.t.c.
However, we will be using Aragon to create a DAO.
Nevertheless, before we go into how to create your DAO, here are things you need to prepare before creating a DAO.
- Purpose: Your DAO needs to have a project plan and purpose for which you’re creating the DAO. A gaming ecosystem is an example of a project that needs a DAO.
- Voting Mechanism: The way people participate in the decision-making process needs to be defined.
- Governance Token: You need to define the utility of your governance token, with which holders will be able to express their voting rights and also take part in the governing process.
- Treasury: A method of managing the DAO’s finances and insuring it against potential financial setbacks and for executing projects.
How you also get funds should also be determined, whether through crowdfunding or ICOs.
How To create A DAO Using Aragon
Aragon allows you to create a DAO organization on Ethereum, Polygon, or Harmony Network.
To create your DAO you need to:
- Claim an Ethereum Name Service domain name.
- Get Ethereum token to pay the DAO creation fee ( You may need 0.25 ETH to create on Ethereum blockchain, However if you select the Polygon Network $10 worth of Polygon token should be enough).
- Create an organization linked to the ENS domain through the Aragon DApp. There are several preset organization structures you can use.
- Configure your settings, such as vote duration and percentage support needed, and then launch the DAO.
- Choose a token name and symbol and add tokenholders.
- Review organization information: Open each panel to make sure that the information entered to launch your organization is correct. If anything is incorrect, you can click the “back” button to make corrections.
- Launch Your DAO: Sign the transaction click the confirm button in your Ethereum provider to sign the transaction.
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