For decades, the business world has become even more centralized, fueled by greed and power. The current system’s rigid organizational structures encourage information silos and centralized decision-making. As a result, there is an urgent need to develop a relevant and robust solution to combat growing corporate greed and corruption.
Enter DAO, or decentralized autonomous organizations, a blockchain-based virtual platform. A DAO is founded on the principles of democracy, trust, and decentralization. DAOs have literally changed the game by offering a core solution as well as a strong community platform that promotes global participation, equality, and information sharing.
A DAO is built on blockchains, and what better platform to build decentralized applications than Ethereum, the most popular blockchain-based platform? Ensure a smooth Ethereum node deployment and start working on a variety of projects, ranging from dApp development to DeFi projects. DAOs, or Decentralized Autonomous Organizations, are yet another wonderful addition to the growing list of Ethereum projects.
What is DAO?
DAO is an acronym for Decentralized Autonomous Organization. DAO can be referred to as a self-governing organization where all decision-making is autonomous. This kind of organization operates without any singular authority, entity, or hierarchy. What it means is that a DAO is not controlled by any individual or group of individuals but instead governed by an immutable set of business rules encoded into smart contracts on a blockchain. All the individuals who join DAO have a collective responsibility to manage funds, projects, and the governance process.
History of DAO
In 2016, a group of individuals wrote an open-source code intending to form an organization driven by investors that operate similarly to a capital venture fund. And so the first ever Decentralized Autonomous Organization, “The DAO” was launched on the Ethereum blockchain the same year through a 28-day crowdfunding campaign. Unfortunately, the venture suffered a massive setback as a result of an attack caused by a vulnerability in the code. After some deliberation, a hard fork was eventually created as a corrective measure, reintroducing the diverted tokens into the original smart contract. However, “The DAO” went bankrupt within a few months, and the Moniker DAO token was delisted by Poloniex and Kraken. Since this debacle, Ethereum developers have come a long way in fortifying DAO platforms, thereby expanding their utility.
What is the objective of DAO, how does it operate, and what are its benefits?
The DAO’s goal was to provide a new type of organizational structure that would promote openness, transparency, and equality in asset management. It is completely governed by smart contract codes, which are visible to all and subject to audits if necessary. Its primary goal is to achieve maximum decentralization and give its members a sense of ownership through smart contracts.
The following are some of the prime benefits of a DAO.
Innovation aggregator: DAO is driven by a reward system motivating its members to think of smart and innovative ideas and bring their best to the table.
Encourages inclusiveness: It promotes community participation in which all members with voting rights contribute to the organization’s current operations and future plans.
Revolutionary concept: DAO has completely restructured the traditional organization in terms of functionality and governance. It
eliminates hierarchical infrastructure favoring collective responsibility, ownership, and management.
Complete automation: DAOs are governed by codes that are driven by complex algorithms, leaving no room for human error or manipulation. Members must ensure that codes run smoothly and mutually agree on any changes or updates required in the code in the future.
How are DAO memberships dispersed?
DAO members have the governing rights to decide how funds are to be utilized and participate in the voting process for the proposals submitted for future projects. A DAO membership is of three types.
● Token-based membership: Absolute permissionless Decentralized Autonomous Organizations such as MakerDAO allow members holding majority tokens to automatically hold voting rights.
● Share-based membership: DAOs like MolochDAO allow members to join the platform by presenting some kind of offering in the form of expertise or tokens. Members with shares enjoy unconditional voting power and are at liberty to leave DAO and take along their allocated shares.
● Reputation-based membership: Members earn voting rights by establishing a reputation based on their level of participation. Membership of this type cannot be purchased, delegated, or transferred. Decentralized automated organizations, such as DXDao, allow reputation-based membership, which allows people to submit proposals, make valuable contributions to the DAO, and receive reputation and tokens in exchange.
Examples of DAO
Many crypto pundits feel that DAO is the future of web3. Today there are more use cases of DAO than in its initial days. From charity,
crowdfunding, DeFi protocols, NFT investing, and social media apps to creating DApps on Metaverse, DAO’s utility is growing at an exponential rate. Already many ventures utilize Dao’s core functionalities to create their autonomous organizations. Here are a few examples where DAO can be used.
● UkarineDAO: A charity or fundraising DAO that is created to support war-affected Ukrainians
● BitDAO: An PayPal-backed investment fund created to help crypto enthusiasts buy stakes in DeFi startups
● Uniswap: One of the most successful DAO ventures which is an Ethereum-based cryptocurrency exchange platform
● Decentraland: A DAO-governed online virtual platform that is immensely popular among big brands like Coca-Cola and Morgan Stanley.
● Curve: Another DAO crypto project, a DeF protocol on Ethereum focussing on stablecoins
Why is Ethereum an ideal platform for creating DAO?
Ethereum was the first blockchain network upon which the first-ever DAO project was created. Since then, many DAOs have been developed on this network. There are several reasons why Ethereum is an ideal choice for DAO creation.
● Ethereum is a well-established public blockchain network that is trustworthy and already home to thousands of applications. Anyone can easily connect to an Ethereum node and choose to create a DAO as per their needs.
● Most DAO software like Aragon and Snapshot enables DAO deployment on the Ethereum blockchain.
● The Ethereum community is very supportive of its projects, offering developers comprehensive guidance and solutions.
How can I create DAO on Ethereum?
Creating and launching a DAO is a straightforward process. The following are the steps for creating a DAO:
Define your objective: Starting a DAO requires complete clarity, purpose, and objective. It would be best if you defined a proper use case and created a strategy with long-term goals before getting to the next step.
Coding smart contract: Smart contracts are immutable backbones of DAOs, so it is crucial to write a flawless code because these codes can only be revised or updated through member voting and a consensus.
Raising funds: The next step is raising funds and onboarding members by selling them governance tokens.
Deploying a DAO: Once funding is completed, one needs to deploy smart contracts, create a DAO using DAO tools, and set up rules for onboarded members.
Choose your toolkit
There are numerous open-source toolkits available that are Ethereum compatible and allow DAO deployment in a matter of minutes with just a few clicks. Aragon is a well-known software for creating DAOs on Ethereum. Snapshot and Tally are other popular toolkits supporting DAO development on various blockchains such as Ethereum and Polygon. Open Law software is a widely popular tool used to develop Ethereum-compatible legal agreements. Choosing an appropriate toolkit is thus critical, depending on the type of DAO ecosystem you want to build. Make sure you have enough tokens to pay the fees associated with creating DAOs.
Let’s check out some well-known software used to create DAO on the Ethereum blockchain.
Aragon software is a decentralized Ethereum application created by Aragon One. It provides an open-source infrastructure for DAO development to developers. Smart contracts on Aragon are created by developers using the AragonOS framework. AragonOS allows you to access various network components to create and customize your DAO.
The software includes several features, including Aragon client, Aragon community, and Aragon fundraising. For example, the Aragon client includes DAO templates and voting plugins for launching a customized DAO. Whereas the Aragon community organizes community support, the Aragon Association manages and distributes funds through the ANT token sale. There is also an Aragon court service to settle disputes that cannot be resolved through smart contracts. Furthermore, the integration of the Agent app enables interaction between organizations and Ethereum smart contracts.
The following are the steps to create DAO using Aragon on the Ethereum blockchain.
1. Boot up an Ethereum node
2. Connect with MetaMask digital wallet to facilitate transactions 3. Login to Metamask and select account address and desired network; in this case, Ethereum
4. Login to the Aragon website and choose the “Create a Dao” option that will open up https://client.aragon. org/#/ window.
5. Select the “Create an Organization” option and ensure you are connected to the MetaMask wallet. You will find DAO templates uploaded on the interface for you to choose from.
6. Launch your DAO by setting up configurations and deciding upon your own rules like duration of the vote, required percentage support, token assignment, etc.
DAOStack alchemy is another popular software for launching DAO on Ethereum. You can do the launching by logging onto their website and choosing the option to create a DAO, followed by setting descriptions,
setting up configurations, adding members, and subsequently launching a DAO platform.
Cost of creating a DAO on Ethereum
Almost $0.2 ETH is required to develop and deploy a DAO plus Ethereum gas fee which can be tracked live on https://etherscan.io/gastracker
Challenges to creating a DAO
Building a DAO on Ethereum or any other blockchain presents its own set of challenges. If you choose to build a DAO from scratch rather than utilizing available toolkits, you will have to write your own smart contract. Creating a smart contract can be a complicated and time-consuming process with a moderate margin for error. It is a well-known fact that the faulty code of “the DAO” was the main reason behind the attack. Furthermore, developing and maintaining governance systems, establishing and managing community support, raising funds, resolving legal disputes, scalability, and other operational factors are challenging enough. As a result, creating DAOs using software that includes all of the necessary components and alleviates some of the issues is preferable.
Some other general persisting issues are:
● Raising funds and ideally allocating tokens
● Lack of legal clarity and settling disputes outside the gambit of smart contracts
● Restricting liabilities on DAO members and stakeholders ● Developing and managing a scalable and decentralized DAO ecosystem
● Acquiring and managing a talented and value-adding workforce
Why choose Ethereum for DAO deployment?
Ethereum provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), that can execute scripts via an international network of public nodes. As a result, it is regarded as the hub through which millions of transactions and hundreds of thousands of different projects are deployed on a daily basis. For that to happen, a smooth Ethereum node deployment is essential, especially for ambitious projects like DAO. Zeeve is that seamless solution, a prominent blockchain development platform and Blockchain node as a service provider facilitating a smooth node deployment process and subsequently assisting in developing your dream DAO.
Decentralized automated organizations, or DAOs, are a relatively new concept, and we have only begun to scratch the surface and explore their potential. It is a popular sentiment of a few in the crypto community that 2022 will be the year of DAOs, as their unique concepts and infrastructure will lead to wider adoption across various industries and sectors. They are putting traditional management structures to the test like never before, and Ethereum can play a significant role in a DAO’s success.
Gargi Sinha is working as Senior Journalist at Confea. She has completed her Masters in Journalism from Delhi University. She has interest in crypto and blockchain technology.