For a while, I've been wanting to work for a Decentralized Autonomous Organisation (DAO). I've also wanted to set up a non-profit organisation to provide financial aid/help to people in need, maybe as some form of universal basic income (UBI), but lack the finances to do so. Hopefully, that will change with starting a new job. (Giving money away will hopefully help me feel less guilty/underserving of it.) In the small hours of Sunday morning (2022-09-18), during one of my bouts of insomnia, the idea occurred to me that maybe I could leverage my Web development skills to kill a number of birds with one stone if I start my own DAO. Even if I don't yet know blockchain and Web 3.0 technology/development, I can surely learn. I went looking for resources and tutorials. Here's what I found:

Before we dive in, we might need some context.

What is a DAO? How does one work?

"A decentralized autonomous organization (DAO) is an emerging [(new)] form of legal structure [more like a collaborative commune than a corporation]. With no central governing body, every member within a DAO typically shares a common goal and attempts to act in the best interest of the entity. Popularized through cryptocurrency enthusiasts and blockchain technology, DAOs are used to make decisions in a bottoms-up management approach."
 — Investopedia; What is a DAO?; Accessed 2022-09-18

Key Takeaways

• There is no central authority of a DAO; instead, power is distributed across token holders whom 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.

"A DAO, or “Decentralized Autonomous Organization”, is a community-led entity with no central authority. It is fully autonomous and transparent: smart contracts lay the foundational rules, execute the agreed upon decisions, and at any point, proposals, voting, and even the very code itself can be publicly audited.

"Ultimately, a DAO is governed entirely by its individual members who collectively make critical decisions about the future of the project, such as technical upgrades and treasury allocations.

"Generally speaking, community members create proposals about the future operations of the protocol and then come together to vote on each proposal. Proposals that achieve some predefined level of consensus are then accepted and enforced by the rules instantiated within the smart contract.

"Familiar hierarchical structures seen within large corporations give way to community collaboration under this framework. Each individual member of the DAO oversees the protocol at some level.

"Part of the elegance of this framework is the alignment of incentives. That is, it is in the individual’s best interest to be forthright in their voting and only to approve proposals that serve the best interest of the protocol itself.

"The rules of the DAO are established by a core team of community members through the use of smart contracts. These smart contracts lay out the foundational framework by which the DAO is to operate. They are highly visible, verifiable, and publicly auditable so any potential member can fully understand how the protocol is to function at every step.

"Once these rules are formally written onto the blockchain, the next step is around funding: the DAO needs to figure out how to receive funding and how to bestow governance.

"This is typically achieved through token issuance, by which the protocol sells tokens to raise funds and fill the DAO treasury.

"In return for their fiat, token holders are given certain voting rights, usually proportional to their holdings. Once funding is completed, the DAO is ready for deployment.

"At this point, once the code is pushed into production, it can no longer be changed by any other means other than a consensus reached through member voting. That is, no special authority can modify the rules of the DAO; it is entirely up to the community of token holders to decide."
 — ConsenSys; What is a DAO and How do they Work?; Accessed 2022-09-18

"DAOs are often built on a single mission. It could be anything from managing a multi-layered corporation to a local church’s fundraiser.

"Many DAOs are created for charity and non-profit purposes, such as the Big Green. We’re confident there will be more and [are] looking forward to DAOs overcoming their challenges."
 — Liquid Crypto; How to Create a DAO in 10 Simple Steps; Accessed 2022-09-18

Right, with that explanation out of the way, lets look at how to create and run one. Lets start with a simple overview and expand from there.

Why Should (or Shouldn't) I Create a DAO?

For crypto projects, DAO’s have some significant advantages (but also some disadvantages).  

• Perhaps the most important is the model’s reliance on smart contracts. These on-chain pieces of code make DAOs less reliant on human input to operate. A new proposal can’t be censored, and, technically, votes cannot be rigged or biased.
• DAOs are useful ways to organize communities, especially if the communities are distributed and mostly anonymous or want to be so.
• There is often no accountability to a real identity, and you have to trust people you don’t know. A DAO allows them to organize themselves efficiently with technology that guarantees integrity.
• Creating and running a DAO is often easier than creating a traditional organization or entity as many projects have international teams. 
• A DAO is a cheap option for its functionality in organizing people. You can set one up for free or pay a small fee to do so.
• By decentralizing power, you no will longer have total control over your project.
• If you decide to ignore governance decision-making, there will almost always be negative consequences.
• A DAO needs a purpose. DAO’s are simply a way of organizing projects or funds. Without a good underlying project and reason, your DAO will have nothing to run.
• A DAO needs a voting mechanism. This is the primary way people interact with the DAO and make changes. There are multiple ways to do this. You could create your own voting mechanism or use a third-party provider. Your DAO may even vote to change the mechanism later, but you need to start with something.
• A DAO needs a governance token or share system. How will people prove their right to an opinion in the DAO? A governance token is very common, and the token often might also be a utility token. A shares system is more common to funds where users deposit cryptocurrencies with the DAO, to be invested and dividends distributed.
• A DAO needs a community. Decentralization gets stronger as more people join and participate in the governance of your DAO. This way, power is spread across more stakeholders. A DAO without a community is like a body without a soul. (In the case of Snapshot, the community needs to be at least 1 000 members strong in order for it to be verified!)
• A DAO needs a way to manage its funds. Most DAOs will have a treasury or access to some crowdfunding. This is usually held in a multi-signature wallet, which can only be used if all key participants agree. Without funds and funders, a DAO is pointless/useless.

Understand carefully, however, that a DAO will hold you completely accountable for its decisions!

How to Create a DAO

"... you can get a DAO up and running quickly. But first, you better have a good plan and a community to support you."
 — Binance Academy; How to Create a DAO; Accessed 2022-09-18

Some sites, such as Moralis, offer an application interface (API) or framework with templates to help you get started.

1. First, set up a crypto wallet. You’ll need it to pay for the setup fees. Metamask is by far the best option for this type of transaction.

2. Choose the site, template or framework you'll use for creating your DAO. Liquid Crypto suggests Aragon, but I'm sure you can find others if you don't like the look of it for some reason. (Since I want to avoid using Ethereum due to high transaction fees, I'll be looking elsewhere, preferably for something that supports privacy coins, given the intended recipients of dividends. Ethereum is crypto for rich people. It's not going to work for the demographic I have in mind.) Binance suggests Snapshot, which apparently works with multiple blockchains. I'll have to look into that. All of them will provide roughly the same structure, but the ways they do it can differ. Some DAO systems work with on-chain polling and others off-chain. The exact one to choose will depend on what your DAO considers to be important.

3. Make sure you have a Website with a custom domain for your DAO. In the case of Ethereum, ENS is recommended, but you might want to go with Unstoppable Domains. However, ENS is required even if your DAO operates on a different blockchain (through Snapshot).

4. Connect MetaMask (or other crypto wallet) to the site. In the case of Aragon, you'll need to use the Ethereum Mainnet.

5. Fund your crypto wallet with at least 0.3 ETH. You’ll need a little over 0.2 ETH to create a DAO on Aragon. (That's a lot of crypto; I'll need to earn/buy substantially more to even get started, so I'm going to need to give my DAO's workings some serious thought.) Don’t forget to have enough crypto to cover your transaction fees when deploying your DAO to a blockchain! Otherwise, you're dead on the starting grid!

6. Choose a template and create your DAO, giving it a sensible name. In my case, it will be BabylonDAO for Project Babylon. (Template choice largely doesn't matter, unless you want to develop supporting dApps and connect it to ENS.) How you name your DAO is likely to impact how you brand and promote it. Give the name some thought.

7. Configure the governance percentages for your organisation. The recommended settings for voting percentages are 51% approval. This means that more than half of token holders must agree on a proposal for it to pass. You can, however, adjust these numbers to your liking.

8. Set up a native token for your DAO. Name it anything you like (as long as it's meaningful) and create a symbol for it. In my case, it will be Dura (SHEK), since the Dura was the Babylonian answer to the Federal Reserve and the Babylonians used shekels. I might have to look into developing my own blockchain and cryptocurrency, but that may have pitfalls of its own. Using an existing one might make more sense. Typically, you can also distribute tokens to the DAO members in the same step.

9. Confirm the transaction on your crypto wallet to create a DAO.

10. Create an initial proposal (such as mission and vision statements), maybe draft a whitepaper. Once your organization is live and open for business, post a question on it, to see if potential stakeholders are interested and will accept/reject it.

That seems pretty simple and straightforward, but there's surely more to it than that, right? Bien sûr!

Possible Caveats

• DAOs are not limited liability corporations. They don’t follow any of the legal formalities expected of an official company. You might be risking more than just your capital investment.
• DAOs face many legal challenges. (Please see the links in the "Resources" section below.)
• Due to decentralization, DAOs aren’t recognized as legal entities, especially in the United States. They do not enjoy corporate privileges or protection from the government. In other words, legal disputes within a DAO are extremely difficult to resolve.
• DAO members are (or at least should be) anonymous. The structure of a decentralized autonomous organization allows associates to withhold their identities. You won’t know anything about the people with whom you work except for their wallet addresses and maybe a username/handle.

Conclusion

While DAOs certainly look like a way to make progress and achieve certain goals that centralised corporations or other organisations would make difficult, I don't think that I am ready to go that route quite yet. It looks like quite an intense and extensive endeavour that could probably benefit from having a head for business and a business/management degree, not to mention a thorough understanding of smart contracts.

Considering that I don't yet have the funds or a thousand-strong community (even if all of my followers are willing to chip in) to create and maintain a DAO (let alone a well-thought-out and documented proposal), I think I'll give creating one a miss for now. Focussing on learning Blockchain and Web 3.0 technology (including creating a cryptocurrency/token), maybe getting a business degree (how boring) would probably be better first steps. However, I hope this information is useful to anyone who is considering creating a DAO or is ready to.

Thumbnail image copyright Ezra Weller/DAOStack