A Decentralized Autonomous Organization (DAO) is an entity structure in which tokenholders participate in the management and decision-making of an entity
DAOs are not working as traditional organizations. They perform on a unique model that may sound far-fetched, but many DAOs currently operate and are making profits. Groups of people with similar interests tend to start a DAO so their organization can operate without a hierarchical authority figure.
This, in turn, allows DAO members to work with complete transparency. We recognize DAOs as the future form of running organizations of all sizes – no emotions, just math-based, logical decisions.
If you want to start your own DAO, Lumen Spei Web 3.0 experts will gladly help! Reach out to us, and let’s start planning your new DAO!
Here’s a step-by-step guide on how to launch and run a DAO.
Step 1: Define goals and create a mission statement
As with any business, first, you need to draft a mission statement. This is the most crucial step in the process since this is where will be established how the DAO runs and the main goals. It’s like a business plan in traditional startup companies.
Be very specific
Make sure the goals are realistic and achievable. Define what the organization plans to do and break it down into steps. The mission statement should briefly describe the journey from point A to point B, so everyone involved knows what they need to do.
Step 2: Incorporate smart contracts into your framework
A DAO runs on code rather than rules set by people. That said, developers need to create smart contracts to determine how the organization functions. These contracts should be unbreakable, so there can be no room for human error or corruption. The code should also be open source so anyone can view it, audit it, and suggest improvements.
Part of this step is also setting up a token system. This will give users voting rights within the organization according to how many tokens they own. These tokens will also be used to reward participants who contribute positively to the organization. Essentially, they work as an incentive for people to do good deeds for the DAO rather than bad ones.
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Step 3: Set up a treasury
Now that there’s a system in place to determine how decisions are made and participants are rewarded, it’s time to set up a DAO treasury. The treasury should hold all of the funds raised by the organization, such as membership fees, investments, and grants. Members can then use this money to finance projects that align with the goals as decided by the smart contracts.
Step 4: Launching your new DAO
Once everything is set up, it’s time to launch your new DAO! Invite members, promote your organization, and reach out for funding opportunities—whatever it takes to get things off the ground (or, instead, onto the blockchain). And just like that, you’re ready to start reaping the benefits of decentralization! ]]>
Step 5: Determination of ownership
A DAO’s distribution of ownership rights is how you permit partners to vote on decisions and represent access. There are two ways to distribute ownership rights: NFTs and fungible tokens (ERC-20 tokens). Both have benefits and weaknesses that vary depending on the type of DAO and how it works. Some DAOs use NFTs as governance tokens, while others use ERC-20s.
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The most popular types of DAO
Not all DAOs are created equal. Different types of DAO serve different purposes and come with different benefits.
As you are reading this, new types of DAO are being developed at this very moment. To simplify this matter, we’ll go through the 9 most popular types of DAO we currently know.
Here are the 9 main types of DAOs:
- Collector DAO
- Venture DAO
- Protocol DAO
- Philanthropy DAO
- Social DAO
- Media DAO
- Grant DAO
- SubDAO
- Gaming DAO
So, let’s review these types of DAOs and discuss their most common uses and benefits!
DAO #1: Collector DAO
Collector DAOs attract collectors aiming to invest together in blue-chip NFT art and digital collectibles. And there has been some success with Collector DAOs recently!
In essence, the main purpose of a Collector DAO is to gather members willing to pool funds so that the community can more easily buy expensive digital art.
Of course, each member owns a share, which represents that member’s personal investment.
Some of the noteworthy Collector DAOs we can point out are FlamingoDAO and NEON DAO, so check them out if you are interested in investing in digital art! Or contact Lumen Spei to start your own Collector DAO!
DAO #2: Venture DAO
Venture DAO, also called Investor DAO, functions similarly to a Collector DAO. The purpose of a Venture DAO is to pool funds from all members (investors) and use that money to invest in Web 3.0 startups and protocols and even make off-chain investments.
It’s similar to an investment fund, but the difference here is that privacy, security, and decision-making function on a completely new set of rules.
DAO members participate in the decision-making process, eradicating the common issue of top management making subjective decisions that may not be the best.
When investors from a Venture DAO say they’re in this together, they mean that. No single person can make a decision.
If Venture DAOs seem much more interesting to you than Collector DAOs, check out BitDAO and DAOventures. They are the 2 most popular (and biggest) Venture DAOs at the moment.
DAO #3: Protocol DAO
In short, Protocol DAOs are created to govern a decentralized protocol. Examples would be borrow/lending applications, DEXs, or other types of dApps.
We’ll mention the three most noteworthy Protocol DAOs in detail: MakerDAO, Uniswap, and Yearn Finance.
How does MarkerDAO function?
MakerDAO is one of the first DeFi applications built on the Ethereum blockchain. The unique purpose of MakerDAO is to enable users to lend and borrow cryptocurrencies with customized lending rates and repayable amounts – by leveraging smart contracts.
Any change to the Maker Protocol is voted through MKR governance tokens.
MKR holders are also buyers of last resort for DAI loans, with DAI being a stablecoin created by MakerDAO. If the value of ETH in their treasury, the Maker Vaults, doesn’t cover the amount of DAI in circulation, more MKR is created and sold in a debt auction to raise the needed funds.
How does Uniswap function?
Uniswap is one of the most popular automated liquidity protocols. It’s powered by a constant product formula and implemented in a system of non-upgradeable smart contracts on the Ethereum blockchain.
Uniswap eliminates the need for intermediaries and fights back against censorship and centralization.
UNI, Uniswap’s governance token, was launched so the community could have voting rights regarding Uniswap’s development and operations. UNI token holders are deeply immersed into the protocol itself – they control Uniswap governance, UNI community treasury funds, the protocol fee switch, and much more.
And if they want to change Uniswap or introduce a new feature, at least 25,000 UNI yes-votes need to back the decision.
How does Yearn Finance function?
Like MakerDAO and Uniswap, Yearn Finance is powered by governance tokens and delegates funding to DAO Vaults. The YFI holder can provide funds to a DAO approved for acceptance in the vault environment.
Filling an important gap within traditional HR and payroll systems, founder Andre Cronje built Coordinape so that their allocation is managed automatically by computers while also rewarding contributors with cryptocurrency – all without any need for human intervention!
DAO #4: Philanthropy DAO
Philanthropy DAOs purpose is to help instill social responsibility by gathering members around a shared purpose and impacting the Web 3.0 community.
Usually, the aims of Philanthropy DAOs are meaningful and positive. For example, Big Green DAO is tied to Big Green, a national food justice charity that teaches people how to grow their food and improve their mental health through doing that, all while making a positive climate impact.
DAO #5: Social DAO
Social DAOs are also called Creator DAOs. They are focused on the community aspect, and their purpose is to bring together people with similar interests, mostly creatives like builders, creatives, and artists.
To enter a Social DAO, you will most likely need to have a certain amount of tokens, own a specific NFT, or get a personal invitation from one of the current members.
There are no clear criteria for defining a Social DAO, but the recent definitions mention Social DAOs as “digitally native tribes” and places to “meet people with similar interests”.
Some examples of Social DAOs are FWB, Seed Club, and FiatLuxDAO. If you are interested in starting your own Social DAO, contact us, and let’s make it happen!
DAO #6: Media DAO
Alternatively to the traditional top-down approach where content is largely influenced by advertising companies and large corporations, Media DAOs allow content to be fully driven by the community.
To describe Media DAOs, we can imagine them as social media networks, but without corporations governing the profits, meaning that individuals in that Media DAO are earning a piece of the DAOs profit.
Some of the notable examples of a Media DAO are BanklessDAO and Decrypt.
If you want to grow your Web 3.0 community and unite them through a unique reward system, think about starting your own Media DAO!
DAO #7: Grant DAO
Grant DAOs are designed to become a force for good in the Web 3.0 community. They aim to facilitate nonprofit donations and strategically deploy capital assets throughout the Web 3.0 space.
Grant DAOs are usually an extension of a larger Web 3.0 project or a separate entity in the Web 3.0 landscape.
An example of a Grant DAO that functions as a separate entity is MetaCartel. This particular Grant DAO provides project funding and operational support for early-stage dApps.
MetaCartel states its mission is to accelerate the creation and growth of Web 3.0, and they award grants from $1,000 to $10,000 for dApps built on Ethereum, new consumer-facing use-case experiments, and creation of new DAOs, and much more.
With DAOs like MetaCartel, we can confidently say that the future of Web 3.0 looks bright.
DAO #8: SubDAO
A SubDAO is a relatively new kind of DAOs, acting as a division comprised of DAO members that are organized to manage specific functions of a DAO.
So, one DAO can have multiple SubDAOs, which act as different departments of a DAO.
Functions such as operations, partnerships, marketing, and treasury can each be managed by their own SubDAOs. This facilitates decision-making and execution, as proposals don’t need to be passed by the entire DAO, only the SubDAO.
A prime example of successful SubDAO implementation is the Balancer Protocol. As their membership grew exponentially, they proposed creating SubDAOs. Now, with their SubDAOs fully functioning, they are much more efficient and can improve faster.
DAO #9: Gaming DAO
Last but not least are the Gaming DAOs. We’ve discussed them in-depth in our overview of Web 3.0 gaming, so don’t miss out on our featured article!
In short, Gaming DAOs gather Web 3.0 gamers in a single community. On top of that, there are 3 types of Gaming DAOs.
Firstly, there are gaming guilds that function similarly to investment clubs. All the gamers (members) share the funds that the gaming guild accumulates through tokenized payments and purchase in-game assets collectively.
Secondly, incubators and accelerators are the next forms of Gaming DAOs. Generally speaking, they serve as valuable resources for Web 3.0 gaming enthusiasts looking to make their mark in the Web 3.0 gaming industry. They support new Web 3.0 gaming projects both financially and operationally.
The third type of Gaming DAOs is the Developer DAO. They offer a unique model for both game developers and gamers. Developers can directly engage with players, which gives developers more control over their project, and gamers get more involvement in the process of developing games they love.
Lumen Spei will help you start your DAO
We hope the Lumen Spei cookbook has prepared a better vision of how to start a DAO. Since it is a newer organizational model compared to other business models, many questions still arise with DAO. As the years go by, it will be exciting to see how popular DAOs become and how they will contribute to structuring the business landscape.
Starting a DAO may seem daunting at first, but if you follow our recipe, you’ll be well on your way to success! And remember, unlike traditional businesses, DAOs offer transparency, openness, and decentralization—three characteristics that are sure to shake up industries across the board in the years to come.
If you need any help with building your DAO, please don’t hesitate to contact us!