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How to Build a DAO on Blockchain In 2023

Mohtajj

March 20, 2024

Introduction

DAO is a decentralized autonomous organization which is a type of organization that works by code and not by the people.This also tells us that the rules and regulation of a DAO are encoded in a smart contract and it is a self executing contract that is stored on a blockchain.These DAOs are often used to manage collective resources like funds and data and they can also be used to coordinate the activities of a group of people like a team of developers or even a community of users.

DAO was a crowdfunding platform in the past and the first DAO was launched in 2016 called The DAO.It raised over $150 million in ETH.However the DAO was hacked and lost around $50 million.This event raised the security risks of DAOs and led to the development of more DAO platforms.

DAOs are built on a blockchain technology which is a distributed record that counts the transactions in a very secure and irreplaceable way.This makes DAOs resistant to fraud and restriction.Blockchain also allows DAOs to be transparent and auditable.This means that anyone can see how a DAO is being run and how its funds are being used.Though building a DAO is a complex process but it is becoming more and more accessible.There are now many tools and resources available to help people build DAOs.

Create Self-governing blockchain organization

a. Set the goals and purpose of the DAO

This is the first and most important step because it will find out the structure and governance of the DAO as well as the specific features that it needs. For example a DAO that is designed to provide loans and funds to small businesses would have different goals and purpose than a DAO that is developed to create a decentralized social media platform.

b. Choosing a blockchain platform

The blockchain platform that you select will affect the features and capabilities of your DAO so it is also important to choose a platform that is well-suited to the purpose and goals of your DAO. There are a number of different blockchain platforms that can be used to build DAOs.Some famous examples consist of Ethereum,EOS and Tezoz.

c. Creation of smart contract

The next step is to develop a smart contract which is the core of the DAO.It will encode the rules and regulations of the DAO as well as the way that its funds are managed.The smart contract should be carefully designed so that it becomes secure and efficient.It is also important to have surety that the smart contracts is reliable with the blockchain platform that you have selected. For example the smart contract should be written in a secure programming language like Solidity.

d. Launch the DAO

When the smart contract is designed it can be launched on any reliable and well-suited blockchain platform.This will make the DAO accessible to members and allow them to start participating in its governance.In order to make it successful the DAO should be actively managed and governed.

e. Build a community

A DAO needs a strong community of members to be successful.This community can help to promote the DAO and vote on its decisions and contribute to its development. It is important to develop an engaged community around the DAO from the start and this can be done by creating a chatroom where members can discuss the DAO and its activities.They can also make decisions about the future.

e. Secure the DAO

The security of the DAO is essential and the smart contract should be carefully audited to ensure that it is secure.The DAO should also have a plan in place to deal with security breaches. Security is an ongoing concern for DAOs and it is also important to take steps to secure the DAO from the start and to continuously monitor its security posture.

Popular Read: What Is Account Abstraction ERC 4337?

Smart contracts ensure automation security and transparency for DAOs.

Smart contracts are self-executing contracts that are stored on the blockchain.They are used to automate the execution of certain tasks like transferring funds or voting decisions.This are essential for building DAOs as they are the foundation of the DAO are important in building a DAO successful.They are essential for automating the DAOs operations and ensuring the security and transparency.

Automation

As smart contracts are pre-set contracts and are stored on the blockchain which means that they can be programmed to automatically execute certain actions when some conditions are made.This can help to automate the DAOs operations making it more efficient and less prone to errors. For example a smart contract could be programmed to automatically distribute dividends to DAO members or to automatically verified payments to vendors.

Security

This smart contracts are stored on the blockchain which is a secure and censor-proof record.This means that the code of the smart contracts cannot be changes without the consent of all of the DAOs members.This helps to ensure that the DAOs suns are secure and that the DAOs operations are not replaced with.

Transparency

The code of the smart contracts is open-source which means that anyone can view it.This helps to ensure that the DAOs operations are transparent and that there is no fraud. For example, anyone can see the code of the smart contracts that is used to distribute dividends to DAO members.This helps to ensure that the dividends are being distributed fairly and accurately.Overall smart contracts are a powerful tool that can be used to improve the DAO.

Blockchain platforms crucial for DAOs in 2023, why?

For finding out which blockchain platform to choose for building DAO on blockchain, you can visit our Blockchain development services page where you can find out which platform suits perfectly as per your goal. Ans there are few blockchain platforms given below :

a. Ethereum

Ethereum is a universal blockchain platform which means that it can solve any problem like computer and can be used to create any type of smart contracts.This also makes it ideal choice for DAOs that need to automate their operations or create custom applications.It is also developed platform with a large community of developers and users and it is easy to find help and resources.

b. EOS

EOS is a newer blockchain platform that is designed to be more scalable and efficient than Ethereum.It is good for DAOs that need to support a large number of users and transactions.EOS also has a built in governance system that makes it easy to manage the DAOs operations.

c. Tezos

Tezos is a pre-set blockchain platform so it can be upgraded without the need for a dividend.This makes it a good choice for DAOs that want to be able to adapt the changes in the environment.Tezos is also a universal platform and it has a built-in governance system.

d.Polkadot

Polkadot is a multi-chain blockchain platform that is designed to connect different blockchains together.It is a great choice for DAOs that want to interact with other blockchains or applications.It is also a universal platform and it has a built-in governance system.

e. Cardano

Cardano is a proof-of-stake blockchain platform which means that it validates the transactions with a consensus mechanism.It is well-designed with more energy-efficient than Ethereum and makes it a great choice for DAOs that are concerned about the environmental impact of their operations.Cardano is a also a universal platform.

DAO types & success through strategic methods

Investment DAOs

These DAOs are designed to invest in cryptocurrencies and DeFi projects and even with other digital assets.They can be used to combine the resources and make more informed investment decisions. Investment DAOs can be used to build successful DAo by providing a platform for investors to collaborate and share information.They can also help to reduce the risks of investment by combining the resources and spreading out the risk.

Grants DAOs

These DAOs are designed to provide grants to projects that are aligned with their goals.They can be used to support innovation and development in a specific field. Grant DAOs can be used to build a successful DAO by providing a platform for donors to support projects that they believe in.They can also help to find out and support promising projects that may not otherwise get funding.

Social DAOs

These DAOs are designed to bring people together around a common interest or goal.They can be used to build communities and collaborate on projects with sharing resources. Social DAOs can be used to build successful DAO by providing a platform for people to connect and collaborate.They can also help to create a sense of community and belonging.

Protocol DAO

These DAOs are designed to govern and manage a blockchain protocol and they can be used to make decisions about the protocols development and security with the upgrading process. Protocol DAOs can be used to build a successful DAO by providing a platform for stakeholders to participate in the governance of the protocol and they can also help to ensure that the protocol is managed in a transparent and accountable manner.

Media DAOs

These DAOs are developed to create and distribute media content.They can be used to produce independent journalism and create educational content or distribute the environment. Media DAOs can be used to build successful DAO by providing a platform for creators to share their work and connect with an audience.They can also help to ensure that media content is produced in a transparent and clear manner.

Working process of DAO on blockchain 2023?

DAO’s run on blockchain , powered by smart contracts and community votes. Imagine skipping the CEO and letting everyone decide, all fueled by transparent, shared ownership. Let us peek under the hood and see this process of development exactly works.

1.Creation and Smart Contract Deployment

It begins with a group of individuals who share a common goal. They decide to create a DAO, an innovative organizational structure governed by code and distributed across a blockchain. To establish this digital entry, they draft a smart contract, meticulously encoding the DAO’s rules, functions and governance mechanisms. This smart contract is then deployed onto a blockchain, giving birth to the DAO itself.

2.Issue Tokens

When a smart contract is created the DAO will issue tokens to its members and these tokens will also represent the ownership and control of the DAO.This will provide and ensure the members voting rights and other privileges.

3.Proposal Submission

In a DAO’s democratic core, members initiate change and set priorities by submitting proposals through the smart contract. These proposals cover various aspects including finances, project directions and rule amendments. This transparent process keeps the DAO flexible and responsive.

4.Voting and Decision-Making

In a DAO, proposals undergo democratic scrutiny. Members vote based on the number of tokens they hold, ensuring proportional decision-making. Proposals need a predefined quorum and often a majority or supermajority vote to pass, balancing efficiency and consensus.

5.Execution and Transparency

When a proposal gains sufficient support, the DAO’s smart contract automatically executes the designated action or decision. This process is transparent, with every step - proposal, vote and execution - recorded on the blockchain. This creates an immutable, publicity accessible ledger, ensuring accountability and transparency for all participants.

6.Rewards and Governance

Active participation is encouraged and rewarded as the DAO life cycle unfolds. Motivations include tokens, privileges, fostering a thriving community. Governance evolves with members proposing, voting, executing actions shaping the future. Embodies the promise of decentralized autonomous governance on blockchain.

Develop Profitable 2023 DAO, Solve Common Issues

Clear Purpose and Value Proposition

Begin by identifying a compelling purpose and value proposition for your DAO. Determine what problems it will solve or opportunities it will create. Ensuring that your DAO offers something unique and valuable is crucial to attract participants and generate profits.

Careful Tokenomics and Incentives

Craft a well-thought-out tokenomics model. Ensure that your token distribution aligns with your DAO's goals and incentivizes active participation. Use token rewards, governance mechanisms and staking to motivate members to contribute to the organization's growth.

Smart Contract Security

One of the most critical aspects is smart contract security. Engage professional auditors to thoroughly review and secure your DAO's smart contracts. Vulnerabilities can lead to devastating financial losses and erode trust.

Legal and Regulatory Compliance

Incorporate legal considerations into your DAO's structure. Consult with experts to navigate evolving regulatory frameworks in the blockchain space. Compliance is essential to avoid legal hurdles that could threaten profitability.

Community Building and Engagement

A strong and engaged community is the backbone of a profitable DAO. Foster open communication channels, educate members and actively engage them in decision-making. Cultivate a sense of ownership and shared vision.

Diversified Revenue Streams

To ensure profitability, diversify your revenue streams. Explore options like yield farming, liquidity provision, NFTs or partnerships. Adapt to changing market conditions and explore new opportunities.

Risk Management and Insurance

Acknowledge and mitigate risks. Consider insurance options to protect against unforeseen events like smart contract exploits or hacks. Smart risk management can safeguard your profitability.

Ongoing Adaptation and Innovation

The blockchain space evolves rapidly. Stay updated with the latest trends and technologies. Be ready to adapt your DAO's strategies and offerings to remain competitive and profitable.

Transparency and Accountability

Maintain transparency in your DAO's operations. Utilize blockchain's transparency features to build trust among members and stakeholders. Accountability is key to long-term profitability.

Learn from Failures and Successes

Learn from the experiences of other DAOs, both successes and failures. Analyze what works and what doesn't in the dynamic blockchain landscape and apply those lessons to your own DAO.

Key functions of community members in DAO 2023?

Governance

Community members participate in the governance of the DAO by voting on proposals and submitting new proposals. This includes proposals related to the DAO's goals, rules, funding and operations.

1. Community building

Community members help to build and grow the DAO by attracting new members, creating content and participating in discussions. This is essential for the DAO to be successful, as the community is responsible for making decisions and driving the DAO forward.

2. Development

Community members can contribute to the development of the DAO by writing code, designing new features and testing the DAO's software. This is especially important for DAOs that are building their own products or services.

3. Marketing

Community members can help to market the DAO by creating social media posts, writing blog articles and attending industry events. This is important for the DAO to attract new members, partners and investors.

4. Support

Community members can provide support to other members by answering questions, troubleshooting problems and offering advice. This is important for creating a positive and supportive community environment.

Ready to empower your community and revolutionize governance? Start building your DAO today and harness the power of decentralized decision-making!

Cost factors for 2023 Blockchain DAO

1. Deployment costs

The cost of deploying a DAO on a blockchain network will vary depending on the network and the complexity of the DAO. However, it is important to note that deployment costs can be significant, especially for new and complex DAOs.

2. Gas fees

When performing transactions on a blockchain network, users need to pay gas fees. Gas fees are paid to miners or validators who process and secure transactions on the network. The cost of gas fees will vary depending on the network and the congestion on the network.

3. Smart contract development costs

Smart contracts are the code that powers DAOs. Developing smart contracts can be complex and expensive, especially for complex DAOs.

4. Auditing costs

It is important to have smart contracts audited by a qualified security firm to identify and fix any potential vulnerabilities. Auditing costs can be significant, especially for complex DAOs

5. Marketing and community building costs

Building a strong and engaged community is essential for the success of any DAO. This can be a costly and time-consuming process.

6. Ongoing maintenance and support costs

DAOs need ongoing maintenance and support to ensure that they are running smoothly and securely. This can include costs associated with software updates, security monitoring and customer support.

Specific advantages of building a useful DAO on blockchain?

Transparency

DAOs are transparent because all of their transactions and records are publicly visible on the blockchain. This makes it easy for members to track the DAO's finances and ensure that decisions are being made in a fair and transparent manner.

Decentralization

DAOs are decentralized, meaning that they are not controlled by any single entity. This makes them more resilient to censorship and corruption.

Efficiency

DAOs can be more efficient than traditional organizations because they can automate many tasks using smart contracts. This can save time and money.

Democracy

DAOs are democratic, meaning that all members have a say in how the DAO is governed. This can help to ensure that the DAO is aligned with the goals and values of its members.

Accessibility

DAOs are accessible to anyone with an internet connection. This means that people from all over the world can participate in DAOs, regardless of their location or background.

The tokenomics of the DAO

Token Creation

Decide the total supply of tokens: Determine the maximum number of tokens that will ever exist in the DAO. Allocate an initial portion of tokens to early contributors, founders, investors or other stakeholders. This distribution can vary based on the DAO's goals and funding model.

Utility

Token utility is a fundamental consideration. Define how these tokens will be used within the DAO ecosystem. Tokens can serve various functions, including voting on proposals, participating in governance decisions, accessing services or products offered by the DAO or earning rewards for active participation.

Voting Power

A critical aspect of tokenomics is deciding how many tokens are required to cast a vote in the DAO's governance processes. Often, voting power is proportional to the number of tokens held by a member, giving larger token holders more influence over decision-making.

Incentives

Effective tokenomics should incentivize active participation within the DAO. Consider creating mechanisms that reward members for contributing to the organization's growth. These incentives might include token rewards, staking opportunities or revenue-sharing arrangements.

Token Burning

Token burning involves the deliberate and permanent removal of tokens from circulation. Define conditions under which tokens can be burned. This strategy can help control token supply and potentially increase the value of the remaining tokens.

Treasury Management

Establishing a treasury management strategy is vital. Decide the deliberate and permanent removal of tokens from circulation. Define conditions under which tokens can be burned. This strategy can help control token supply and potentially increase the value of the remaining tokens. ** Governance** Token-based governance is a cornerstone of many DAOs. Determine how token holders can participate in decision-making processes. This can encompass voting on proposals, electing representatives or engaging in on-chain referendums. ** Economic Model** Choose an economic model that aligns with the DAO's goals and sustainability. Decide whether the DAO will employ an inflationary model, continuously minting new tokens or a deflationary model, gradually reducing token supply over time. You can read this post of DAO Tokenomics for more information.

How will DAO raise funds ?

Initial Token Sale (ITO)

DAOs can initiate their funding through an ITO or ICO, offering their native tokens to investors in exchange for capital. This approach provides a significant upfront infusion of funds.

Staking and Token Locking

DAOs ensure liquidity and commitment by requiring members to stake or lock up tokens as collateral. These locked tokens can be strategically utilized to enhance the DAO's financial stability.

Revenue Sharing

DAOs generate income through activities like service provision, application management or asset handling. These earnings are distributed to token holders as dividends or rewards, incentivizing ongoing participation.

Community Crowdfunding

DAOs often turn to their own community for support through crowdfunding campaigns. Community members contribute funds in exchange for tokens or rewards, fostering a sense of ownership and active involvement.

Grants and Donations

Securing funding through grants and donations from individuals organizations or philanthropic entities that align with their mission is a common approach for DAOs. These funds support research, development and community initiatives.

Decentralized Finance (DeFi) Protocols

Participating in DeFi protocols by providing liquidity or collateral allows DAOs to earn interest, rewards or fees, leveraging DeFi's financial tools for income generation.

Different methods of crowdfunding

a. Rewards-Based Crowdfunding

In rewards-based crowdfunding, backers contribute money to a project or campaign in exchange for non-financial rewards. These rewards can vary widely, from early access to a product, special merchandise or personalized thank-you notes. Platforms like Kickstarter and Indiegogo are known for rewards-based crowdfunding.

b. Equity Crowdfunding

Equity crowdfunding allows backers to invest in a company or project in exchange for equity or ownership shares. Instead of receiving rewards, investors become shareholders and have a potential stake in the project's success. Equity crowdfunding is regulated and often used for startup and early-stage company funding.

c. Debt Crowdfunding (Peer-to-Peer Lending)

In debt crowdfunding, individuals or businesses borrow money from a crowd of lenders, typically with the promise of repaying the principal amount plus interest. This method is also known as peer-to-peer lending and is used for personal loans, business financing and real estate investments.

d. Donation-Based Crowdfunding

Donation-based crowdfunding involves raising funds for charitable or personal causes without offering any financial returns or rewards to backers. People contribute out of goodwill to support a cause, such as medical expenses, disaster relief or community projects. Platforms like GoFundMe and JustGiving specialize in donation-based crowdfunding.

e. Real Estate Crowdfunding

Real estate crowdfunding enables investors to pool their funds to invest in real estate projects, such as residential or commercial properties, without the need for substantial capital. Investors may receive rental income or a share of the property's profits.

f. Royalty Crowdfunding

Royalty crowdfunding is a relatively new method where backers invest in a project in exchange for a share of future royalties or revenue generated by that project. It is commonly used in the entertainment and creative industries.

g. Regulated Crowdfunding (Crowdinvesting)

Regulated crowdfunding refers to equity or debt crowdfunding conducted under specific regulatory frameworks, such as the Jumpstart Our Business Startups (JOBS) Act in the United States. These regulations provide legal structures for fundraising and investor protections.

h. Initial Coin Offerings (ICOs)

ICOs and token sales involve raising funds for blockchain-based projects by selling digital tokens or cryptocurrencies to investors. These tokens often represent utility or ownership rights within the project's ecosystem.

i. Security Token Offerings (STOs)

STOs are similar to ICOs but involve the sale of tokens that represent ownership in real-world assets or securities. STOs are subject to regulatory compliance and offer more investor protections,.For expert guidance on creating STOs,explore our STO Development Services.

j. Revenue Sharing Crowdfunding

In revenue-sharing crowdfunding, backers invest in a project in exchange for a portion of future revenue or profits. This method is common in sectors like entertainment, where backers receive a share of earnings from films or music.

Also Read: Build DeFi Apps Using Account Abstraction ERC 4337

Community vital for DAO success-how to address issues?

Governance and Decision-Making

The community actively participates in DAO governance. Members propose, discuss and vote on initiatives, ensuring decisions align with collective will. This democratic approach leads to well-informed choices and effective problem-solving.

Problem Identification

The community's diverse perspectives help identify potential issues or bottlenecks within the organization. This collective awareness enables timely intervention and proactive problem-solving, enhancing the DAO's adaptability.

Collaboration and Expertise Sharing

Members contribute their skills and knowledge, fostering collaboration and expertise sharing. This diverse skill set allows for innovative solutions to technical, strategic and operational challenges.

Accountability and Transparency

A strong community promotes accountability and transparency. Members hold each other and the organization accountable, ensuring issues are addressed promptly and transparently.

Feedback Mechanisms

Open channels for feedback enable members to voice concerns and suggestions. Constructive feedback helps identify problems and improve governance and user experience.

Emotional Investment

Community members are emotionally invested in the DAO's success, driving their active contributions. This emotional connection fosters a sense of ownership and commitment.

Scalability and Adaptability

A robust community is adaptable and scalable, allowing the DAO to address new challenges and seize emerging opportunities. This collective intelligence ensures agility and resilience.

Public Relations and Outreach

The community serves as the DAO's public face, interacting with external stakeholders. A positive and engaged community attracts partners and collaborators, addressing challenges related to growth and adoption.

Conclusion

In conclusion, building a DAO on the blockchain in 2023 is both a promising and challenging endeavor. This step-by-step tutorial has provided a comprehensive roadmap for creating a decentralized autonomous organization that can truly harness the power of blockchain technology. It all begins with a clear vision and purpose for your DAO, defining what problems it will address or services it will offer.

Selecting the appropriate blockchain platform, developing a secure smart contract and fostering an engaged community are foundational steps that underpin the success of your DAO. These elements are crucial in ensuring that your DAO's governance, decision-making and operations align with its mission and goals. Additionally, prioritizing security from the outset and complying with legal regulations are essential aspects to safeguard your DAO's integrity.

Ultimately, a well-constructed DAO has the potential to revolutionize traditional organizational structures, offering transparency, decentralization and community-driven decision-making. As the blockchain ecosystem continues to evolve, DAOs represent a pioneering frontier where innovation and collaboration can flourish. Embracing the principles outlined in this tutorial, you can embark on the journey of building a DAO that not only thrives in 2023 but also contributes to the ongoing transformation of the digital landscape.

The Author

Mohtajj

Founder | CTO

About Author

Mohtajj is into the creation of revolutionary products in Web3 and the Blockchain world.

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