Starting a DAO: Beginner Steps to Follow

Right away, let’s make one thing clear: this is not a technical guide on creating a DAO using the DeXe protocol (that will come later). The purpose here is to give first-time DAO creators a simple, easy-to-follow guide to creating your first DAO, whatever technical implementation you end up choosing. Your specific DAO may require extra steps. And many will seem pretty self-intuitive. Still, let’s go through the process step-by-step.

Decide on the why

Every organization that wants to last needs a purpose. Are you bringing together like-minded people to talk about a common topic of interest? Are you starting an investment club? Looking for a way to organize your entire extended family for Thanksgiving dinner or Secret Santa? Knowing why you’re bringing people together will determine a lot about how your organization will function.

The organizational structure also needs a reason. Why a DAO? We all love DAOs for their democratic nature, efficiency, transparency, and more. But is that the structure you need for the above purpose? If it would be better served as a classic autocratic, top-down governance model, you don’t have to make it a DAO. If you’re organizing a bachelor party, decentralizing the decision-making may make it a lot more fun. If you’re planning your wedding, the bride may not appreciate decisions about the venue, food, and music being made autonomously.

Decide on the who

It’s tempting to dream big and open up your DAO to the entire world. But just because it’s possible doesn’t mean it’s the best idea. You want DAO members who will not just buy governance tokens but actually want to participate in the governance and act for the benefit of all DAO members, not just themselves.

Deciding on the right audience is hard. Sure, you can hand-pick each member, but that is both limiting and time-consuming. Recruiting among people who share your goals, vision, and values tends to bring the right balance of scale and selectivity. That’s why being very clear on the DAO’s purpose is so important.

What’s in a name?

Naming your DAO is important since it is the first thing people see when they learn about your DAO. Your DAO’s name can indicate its purpose (Constitution DAO, RaidGuild), nature (Friends With Benefits DAO, Giveth DAO), source of revenue, and associated platform (PancakeSwap DAO, Arbitrum DAO), NFT community (ApeCoin DAO, Nouns DAO), and so on. Naming your DAO can bring it a lot of clarity and solidify its purpose. But beware that it doesn’t bind you, and you won’t have to change it from, for example, Constitution DAO to People DAO.

Evaluate the voting

The simplest way to set up governance is with a linear “one token = one vote” structure. That’s very democratic, but is it effective? Such a model can give too much voting power to the governance team or to a single whale (rich investor) who accumulates a lot of tokens. You may want to give more voting power to experts or trusted community members.

Get tokenized

Pick a governance token with a ticker that has some reasonable connection to your DAO’s name (e.g. MKR for Maker DAO, ARB for Arbitrum, CAKE for PancakeSwap DAO). Or use an existing one. Let’s say you feel that the token holders of Cardano are in need of a DAO to govern together, create the CarDAOno DAO (you’re welcome for the name), and use ADA as its governance token.

Or don’t use regular fungible tokens at all. If your community is NFT-centric, why not use NFTs as governance tokens? If you’re an artist with a dope collection of PFPs and you want your community to participate in the ecosystem in more ways than just buying and reselling your art, why not make the NFTs they bought from you into governance tokens that open up access to your creative and economic process?

Choose the chosen

As mentioned above, having everything decided by the entire community with equal voting power sounds better than it is. There are a number of malicious actors constantly searching for ways to overtake DAOs and drain their treasuries. Plus, inadvertently, bad proposals and decisions happen more often than anyone would like. Not to mention that most members don’t have the time to vote on every proposal — people have jobs, families, and lives outside of DAOs. So there are several measures to implement as safeguards.

One is a delegate system, where governance token holders can delegate their tokens to representatives. This is similar to how a Congress works in representative democracies. Ideally, you want to encourage representatives with specific expertise in what they’re voting on (i.e. meritocracy) and to discourage excessive accumulation of power in the hands of one or few people, even if they are experts. Look up quadratic funding to get ideas on how to encourage a plurality of delegates.

Another is to appoint a group of trusted community members to have secondary voting on the most critical proposals (like the ones that may drain your treasury or change the DAO’s structure) — just to make sure that your DAO is not getting scammed or shooting itself in the virtual foot. This group can - and should - be rotated and modifiable via proposals.

Call a friend

Do you know others who have started DAOs? Are you in a Discord/Telegram/etc. group with others who may have gone down the DAO path? It doesn’t hurt to get an outside review of your DAo setup before you launch it. Even the sharpest eyes get sore after a while — get that second look.

Press Go

Once you have all of the above covered, go ahead: create your DAO. Remember: DAOs are living organisms, even though the smart contracts they are based on are hard-coded. If you build it thoughtfully and on a good platform, your members can modify and improve the DAO via the proposal process. Just set up the right foundation by being very clear on why you’re forming the DAO, whom you’re trying to attract into it, and what the voting structure will look like. The rest you will figure out together — as a DAO.

Also published here.