What is a DAO?
If you’re interested in getting involved in the world of distributed ownership and participation that is Web3, you need to know about DAOs. Decentralized Autonomous Organizations (DAOs) are tools for coordinating communities. In a DAO, like-minded participants contribute to a project with a sense of shared purpose. Membership is usually represented by ownership of a token, which may be purchased or earned through participation.
Participants normally get a vote in determining the project’s direction, collaborating to create rules for their project’s governance and operation. A blockchain uses smart contracts to execute key functions of the Web3 project that would otherwise be performed manually. This structure ensures tasks are executed in a consistent, transparent way.
DAOs operate with open source code all can examine, contribute to, and use. The community determines when a major change such as a hard fork is desired to move a project in a new direction. One advantage of having all participants take ownership of the project is that it can spur more rapid development, with everyone keeping an eye out for opportunities.
DAOs aim to avoid “trusted third parties” and centralized points of failure. With their highly participatory structure, DAOs strive to avoid conflict of interests, such as profit motives conflicting with privacy goals, or for beneficial project directions that may not produce the most profit.
In a DAO, the project moves in the direction agreed upon by the community. Engagement is prioritized over growth.
Types of DAOs
DAOs are fairly new and still developing. So far, DAOs have been used as the structure for several different types of projects, including decentralized finance, social networks, and media organizations.
Read on for Web3 community examples that spotlight the diverse ways DAOs are convening to build interesting projects.
Protocol DAOs
Protocol DAOs use voting by token to approve any change to the DAOs’ governance protocol. One of the first protocol DAOs was Ethereum-based MakerDAO, which innovated the Dai stablecoin.
Collector DAOs
For people without the budget to own pricey collectibles on their own, collector DAOs offer an opportunity to collaborate with other investors. Participants pool their funds to acquire desired assets. Unsurprisingly, many collector DAOs focus on collecting NFTs.
One collector DAO that’s shot to prominence is Flamingo, which acquired some of the hottest NFTs, including Bored Apes and CryptoPunks. The portfolio was valued at over $1 billion in early 2022. It’s not all graphical-image collectibles, either–NoiseDAO collects music NFTs, for instance.
Entertainment DAOs
These organizations take digital assets a step further, allowing participants to write new endings for stories–see the Bored Ape project Jenkins the Valet–or design new features or abilities for existing creations. An example can be seen in Fluf.World, where fluffy bunnies and other collectible 3-D NFTs can be customized.
Grant DAOs
Think of this as crowdfunding in crypto. Grantmaking DAOs offer peer-to-peer lending opportunities. The market leader in grant DAOs is Aave Protocol, which has over $5 billion in liquidity put up by nearly 150,000 users. Participants can borrow from the lending pool, earn interest on assets they offer, or use the resources to build apps.
Investment DAOs
Also known as venture DAOs, these organizations seek to democratize investing. As with collector DAOs, investment DAOs allow participants who couldn’t buy into startups or other investor opportunities on their own a chance to do so fractionally.
All eyes in this space are on Krause House, a DAO of basketball fans that’s pooling funds to try to buy an NBA basketball team. So far, they’ve bought a BIG3 team, the Ball Hogs, acquiring ownership by buying up all the players’ NFTs.
Learning DAOs
The need for education in Web3 is huge, as the whole industry is in its infancy and millions of people are just discovering the promise of this next-level use of the internet.
Communities are forming rapidly within the Web3 world, many of them for users who may not feel part of the mainstream. For instance, Developer DAO is a community of developers focused on learning and contributing in Web3. If you’re looking to learn to be a Web3 developer, a DAO would be the ideal place.
Media or ‘content creator’ DAOs
Traditional media has undergone massive consolidation with many negative effects. Advertiser goals have exerted undue influence on what gets reported and doesn’t.
Media DAOs seek to eliminate advertising and develop the information the community wants. Many journalism-watchers are checking out Mirror, which has been described as “the Medium of Web3.” Where Medium and other Web2 content platforms like it dole out pennies to content creators, Mirror writers retain control of their pieces and can monetize them in multiple ways, from turning an article into an NFT to using their content as the springboard for a crowdfunding campaign.
Social DAOs
Think of social DAOs as networking on steroids. An example is Friends With Benefits. Founded in 2020, FWB has been called the “VIP lounge for crypto’s creative class.” Membership and voting rights are determined by ownership of their $FWB token, some 600,000 of which are now in circulation.
Activities in the community range from winning grants and fellowships to collaborating on NFTs and creating editorial content. Because the value of its token rises as the value of the assets created within the community increases, FWB members are incentivized to collaborate with others in the DAO.
Building a DAO
DAOs can often be created at very low cost. The minimal elements are defined community and mission, a voting mechanism to decide on proposals, and a treasury for managing funds.
There are different options for building a DAO. At one end of the spectrum, you can assemble the different elements one by one with different tools. At the other end of the spectrum, you can use an all-in-one framework. There are also combination options in between. In any case, the basic steps will be to:
- Create a name and mission statement
- Create a communication forum (usually a Discord server or Telegram)
- Create a Twitter account for more public communication
- Issue invitations for people to join
- Create a treasury (usually a multisig wallet like Safe)
- Create a governance framework for voting (e.g., with Snapshot)
- Distribute ownership of the governance token
Let’s look at some of the most popular all-in-one frameworks. These frameworks simplify the process of building and managing a DAO.
Frameworks
Aragon allows you to create a DAO organization on Ethereum and a few other chains. In addition to DAO creation, it includes governance and dispute resolution. It provides an open source client used to create customized DAOs by linking an organization to an ENS domain. You can select from several organizational structures. You can then configure settings such as vote duration and percentage support needed for a vote to pass.
DaoLens is a platform with one-stop project management for communities. It lets you manage async discussions, including channels gated with tokens; create proposals with voting; manage bounties for project management; build and manage courses; and integrate with Web3 tools.
DAOstack is an open source tool suite for creating DAOs on Ethereum or Gnosis Chain. It doesn’t require an ENS. Through its UI, you can create and manage a fairly simple DAO.
Colony supports very simple DAO launching.
Syndicate specializes in investment DAOs.
DAOhaus allows you to create and manage DAOs using Moloch smart contracts. They support several predefined types of DAOS, such as guilds, clubs, ventures, and products.
Governance tools
A number of DAO tools are focused on governance in particular.
Snapshot allows you to create a “space” and link it to the ENS domain for your DAO. Snapshot supports using digital signatures via wallets for casting votes. You can customize settings for your DAO, such as admins and strategies for managing voting power. Your DAO requires at least 1000 members to be verified.
Other governance-oriented tools include:
Join a DAO
As you can see, DAOs can be used to pursue a wide variety of different endeavors. Somewhere in the DAO universe, there’s probably a community where you’d be welcomed and could contribute.
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