How to create a DAO in 5 minutes. A decentralized autonomous organization… | by Henrique Centieiro | March 2022
A Decentralized Autonomous Organization (DAO) is an organization that does not allow centralization of power. It has no central direction. It’s simply an organization that has everyone’s best interests at heart. Not just the CEO, Not just the board but everyone!
You can think of a DAO as a highly democratic business that lives on the blockchain.
Blockchain gave us the ability to decentralize, the ability to transfer power from those at the top to those who would have been relatively down. Rather than letting someone make the decision, each stakeholder has a say.
If you’re reading this article, I assume you’ve read the previous one which talked about everything you need to know about Decentralized Autonomous Organizations, and if you haven’t, I’ll drop you a link so you can go read it.
If you thought creating a DAO was difficult, you were wrong! This article is for you if you like how DAOs work and want to create your own decentralized organization.
But before continuing, it is important to differentiate between a traditional organization and a DAO.
A decentralized autonomous organization is similar to a traditional organization, but it also has its differences.
1. A traditional organization is structured hierarchically. You have the executives, the board of directors, the management, the employees, etc. Each of these people holds a different level of power. In fact, employees are seen as those with little or no power.
A DAO is by no means like that. It does not follow any hierarchy. It ensures the transfer of power from these “powerful” people directly to people who normally would not have a say. It is a fully democratic organization.
2. To make a decision in a traditional organization, only one person (or entity) is needed. The higher you are in the hierarchical system, the more powerful you are likely to be to effect change. Here, voting is done among the powerful and it is manual and inefficient. Traditional boards of directors often do not represent the interests of customers and employees.
In a DAO, the vote of the group members is required to approve a change. Every opinion counts here and the vote is done. The decision is made based on what the majority of group members agree on. The voting process takes place automatically, without the intervention of any outside person. This is possible thanks to the smart contracts on which the codes of a DAO are built.
3. A traditional organization is private and centralized.
The purpose of a DAO is to defeat the idea of “centralization” and that is why it is called “decentralized”. A DAO encourages transparency, unlike a traditional organization.
Now that we’ve gone through the differences between a traditional organization and a DAO, which do you prefer? Would you prefer an organization in which you actively participate in the decision-making process or a group of people making the decisions for you?
Let’s be factual. If you were placed in a position of power, the type of decisions you would make would certainly be the ones that favored you the most, right? This applies to everyone. We are all human. We are a bit selfish! This is one of the reasons why DAOs are important. They eliminate this selfish self-interest and replace it with group interest and satisfaction. By voting, you can all make decisions that benefit the organization.
Finally, DAOs can be created for a multitude of things. Some DAOs have billions of dollars in cash. Others may be created just to bring like-minded people together with DAO power, which is the case with the RooftopDAO.
If you love how DAOs work and want to start one for whatever reason or purpose, you’ve come to the right place. Here we are not going to code a smart contract from scratch. Some platforms have emerged to facilitate the creation of DAO. Examples are Aragon, DAOstack, Open Zeppelin and others. These platforms act as an interface between you and the blockchain and thus facilitate all smart contract deployments.
In this article, we will focus on using Aragon to create a DAO. I like using Aragon because it gives you access to more options. It also has a very simple and user-friendly interface, so I highly recommend it.
Prerequisites for creating a DAO:
We can create DAOs for free using a test environment instead of creating them on the real Ethereum blockchain. The test blockchain we will be using is the Rinkeby Testnet. The real Ethereum blockchain is the ETH mainnet. The Rinkeby Testnet gives you a free Ether test so you can play and test your DAO before you go ahead and deploy it to the Ethereum mainnet.
Before creating a DAO, here is a list of things to have
- Metamask Wallet — Assuming you already have Metamask installed, make sure you have testnets enabled. Details on how to do it here.
- Test Ether from Rinkby testnet – you will need it to pay the gas charges – you can get it from this faucet. If that doesn’t work, send me a message.
There are many communities that are powered by Aragon. Aave is one of them. Aave is a DeFi lending platform on Ethereum.
Aragon allows you to create a DAO on the Ethereum and Polygon blockchain. We will mainly focus on how to create a DAO on the Ethereum blockchain using the Aragon client. There are additional applications on the Aragon client that allow you to automate things within your organization. Your community can perform actions like allowing voting, fundraising, agreements and more.
Let’s create our first DAO.
- The first thing to do is to go to Aragon and click on ‘Create your DAO’
You will be able to select different main networks and different test networks. Choose wisely 😝
Make sure to connect your wallet by clicking the “connect account” button. Select Metamask, get approval, then click “create organization”
As said before, we want to create our own organization from scratch and that’s exactly what we’re going to do!
2. Select a model
They have templates such as Business, Membership, Reputation, Open Business, Dandelion, and Fundraiser that you can select from. Be aware that each of these models has different purposes.
For example; The COMPANY model allows the use of a transferable token to represent a stake in your organization. Decisions are made on the basis of a vote weighted according to the issues.
The MEMBERSHIP model – allows the use of a non-transferable token to represent membership. Decisions are made on the basis of one member, one vote governance.
The REPUTATION model – allows the use of non-transferable tokens to represent reputation. Decisions are made using reputation-weighted voting.
The OPEN ENTERPRISE model – involves a suite of applications for organizations including project management, budget planning, etc.
The DANDELION model – facilitates collaboration with an organization that allows contributors to easily part ways in the event of disagreement.
The FUNDRAISING model – which allows you to launch a transparent and responsible crowdfunding campaign.
For the purposes of this article, we will be deploying a business. So that’s the model we would select.
3. Next, we go ahead to claim a name
This is the part where you name your organization. Name it whatever you want. It’s your call! Since Aragon uses the Ethereum Name Service (ENS), this means that the name you choose will be mapped to your organization’s Ethereum address and cannot be changed after your organization has launched.
4. Configure the model
This is where you choose your voting settings. Here you configure the percentage of votes you need to approve a proposal and the duration of the vote.
Percent Support is the percentage of tokens required to approve a yes vote. For example, if the percentage of support is set to 50%, it means that you need more than 50% of the votes of the total votes to be a yes for a proposal to pass.
The minimum approval percentage is the percentage of upvotes required to approve the proposal from the remaining token pool.
The voting duration is the length of time participating members can vote.
Minimum support and approval thresholds are very strict requirements so votes will only pass if percentages above the set threshold are reached. Nothing less!
You also choose your token settings here. You choose a token name, your token symbol and token holders here. If you are starting the business with a few other people, you will add members to define the initial distribution of the token by pasting their address in the “token holders” section. Then assign them tokens.
5. Review the information
This is the part where you take one last look at your settings and configurations before launching your organization. If you made a mistake somewhere, you can go back to correct it.
6. Launch organization
Then we launch our organization. Our Metamask wallet will appear for approval. Then we click on confirm.
That’s it! 🥂
This is how you create your own DAO. Surprising!
From there you can do whatever you want. You can start a voting process by creating your proposal question. You can invite members, distribute tokens (which will give them the right to vote), the sky is the limit!
If this article was really helpful to you, please share it with your friends. Also let me know if you use it.
If you have any questions about starting your first DAO, you can contact me or check out the courses below.
👾 Create NFTs, Tokens and DAOs — Smart Contracts Masterclass
🦄 Masterclass Metaverse – All about the Metaverse
⭐ NFT Investing Masterclass – Pro-Tips on NFT Investing
📖 The Complete NFT Course — All about NFTs