Despite the nay-sayers and the crypto winter still going, web3 continues to actively develop. That includes an amazing part of it—decentralized autonomous organizations, aka DAOs. In this article, we will explore what DAOs are, what they can be used for, and how you can make one yourself, code-free.
What is a DAO?
DAOs are internet-native organizations with a number of technological advantages as opposed to traditional companies. DAOs combine anonymity, security, and trust to produce stakeholder decision-making fairer than traditional companies. The first DAO was built back in 2016. It didn’t survive, unfortunately, due to a hacking attack (thankfully a lesson learned for everyone else).
The technology behind it is open source, which helps transparency as well: it can be audited at any time, which in turn solves the principle-agent dilemma—a conflict of priorities.
Case in point—let’s take Twitter (because it’s all the rage now). Elon Musk launched a poll 18th of December 2022 to determine if he should step down as the CEO of the company. That’s one person deciding the future of the platform, trying to act for the betterment of the group of users as a whole—without asking them.
If Twitter was a DAO where every member could participate in a vote with a certain level of power based on their stake, based on poll results, he’d be out by now, and it wouldn’t be necessary for Elon to start the poll—someone else could do it and it would be a legit direction for the entire platform to take. The group decides, not a single person.
Thus, DAOs provide true community governance, and the decision of the majority actually matters, unlike the decision of a single person that can weasel their way out or stall for as long as they wish.
DAOs encompass a whole host of different industries: NFT investments, funding projects, social clubs, and even e-governments are explored. On the whole, DAOs are the future of a truly democratic community led by common goals and supported by transparent, secure technology to support it.
How DAOs work
Decentralized autonomous organizations operate with the help of smart contracts (we’ve explained how smart contracts work and how they can be used with no-code Directual). Basically, smart contracts are de-facto blockchain programs with a set of instructions (just about any instructions), and DAOs utilize this as well.
When a voting process is held, eligible (the more tokens held by the user, the more powerful the vote is) members cast their vote on a question at hand. Once the vote is concluded, smart contracts then automatically execute the operation if applicable—it can be token distribution, token burning, or decisions in regards to DAO future, etc. The idea here is that people who are more invested in the DAO will also be more invested in seeing it prosper.
DAOs, like any other organization, can also hold reserve funds in the treasury, in the form of reserve tokens or NFTs, and vote on their use based on the community’s needs.
DAO limitations
Decentralized autonomous organizations and centralized organizations have one common flaw in place—people. No one is perfect. A technological solution to a people's problem can improve things, but it won’t cure them permanently.
DAOs on the whole are a new technology, with a host of problems—structural, security, and legal. As of now, there is no proper legal framework for a DAO that spans multiple jurisdictions. Even for crypto said regulations are still a work in progress. Voting also takes longer, depending on the number of people involved.
The dream of DAO becoming commonplace was also severely damaged in 2016 (yes, “The DAO”, aka the first DAO). “The DAO” launched on Ethereum and spurred the largest crowdfunding campaign of the time, raising $150 million in ETH. Despite the concerns of a potential vulnerability and a proposal set to fix it, an attacker drained $60 million worth of ETH out of the fund. That was quite a sum back in that year—around 14% of all ETH in circulation. The Ethereum network forked as a result and an attempt to make a quick fix.
Lastly, the investors themselves often don’t understand how cryptocurrencies work, let alone the infrastructure behind them. To properly operate a DAO and steer its course in the right direction, every member must be properly educated.
Nothing is without flaws, but the pros outweigh the cons. Let’s dive deeper, and see what we can use to make one.
DAOs and no-code
If you want to start your own decentro-land and generate revenue with its help, no-coding is the answer—after all, you’re setting up shop on an existing blockchain. You’ll need to carefully plan first, here’s what you need to do:
The purpose. Are you buying a plot of land in Wyoming, forming a society of refined tastes, or just offering a decision-making core for your team and customers?
The structure. Decide how voting will work, how voting rights allocation is performed, and what kind of incentives must be in place, etc.
The core team. It’s best to opt for like-minded individuals who are already versed in the world of web3 and can help you educate further members of the network.
Governance and treasury. Establish the rules of your community and allocate a treasury with multi-signature wallets.
Smart contracts rule encoding. Everything you have decided before that can be transformed into a rigid rule set should be incorporated into smart contracts which will run the DAO. Be careful, it can’t be changed.
Creation and allocation of tokens. Determine tokenomics (creation, allocation, staking, rules), and balance what is given to your members, and what is saved for the treasury.
Now, to create a DAO, you don’t need a lot of technical knowledge, so the task looks a lot scarier than it is. Most DAO creation networks support a simple, user-friendly flow that allows the creation of a DAO that can then be fine-tuned. Here’s a list of recommended platforms:
XDAO in particular has low gas fees, which is always a good thing.
A hint towards what’s to come, Directual too will soon incorporate DAOs into its framework, but we are not going to spoil the details of how and when.
Stay tuned!