Network
Launch Date
Consensus
Note
Sepolia
Oct 2021
PoW
Like-for-like representation of Ethereum
Görli
Jan 2019
PoA
Proof-of-Authority
Kiln
Mar 2022
PoS
Post-Merge (for ETH2), shadow fork of the mainnet
Kintsugi
Dec 2021
PoS
DEPRECATED, use Kiln; post-Merge (for ETH2)
Ropsten
Nov 2016
PoW
DEPRECATED, use Sepolia; the Merge to happen on Jun 8, 2022
Rinkeby
Apr 2017
PoA
DEPRECATED, use Görli and Görli Faucet
Kovan
Mar 2017
PoA
DEPRECATED, use Sepolia or Görli
List of active and deprecated Ethereum testnets, including Kintsugi.
Features
Optimistic rollup 
ZK-rollup 
Proof
Uses fraud proofs to prove transaction validity. 
Uses validity (zero-knowledge) proofs to prove transaction validity. 
Capital efficiency
Requires waiting through a 1-week delay (dispute period) before withdrawing funds. 
Users can withdraw funds immediately because validity proofs provide incontrovertible evidence of the authenticity of off-chain transactions. 
Data compression
Publishes full transaction data as calldata to Ethereum Mainnet, which increases rollup costs. 
Doesn't need to publish transaction data on Ethereum because ZK-SNARKs and ZK-STARKs already guarantee the accuracy of the rollup state. 
EVM compatibility
Uses a simulation of the Ethereum Virtual Machine (EVM), which allows it to run arbitrary logic and support smart contracts. 
Doesn't widely support EVM computation, although a few EVM-compatible ZK-rollups have appeared. 
Rollup costs
Reduces costs since it publishes minimal data on Ethereum and doesn't have to post proofs for transactions, except in special circumstances. 
Faces higher overhead from costs involved in generating and verifying proofs for every transaction block. ZK proofs require specialized, expensive hardware to create and have high on-chain verification costs. 
Trust assumptions
Doesn't require a trusted setup. 
Requires a trusted setup to work. 
Liveness requirements
Verifiers are needed to keep tabs on the actual rollup state and the one referenced in the state root to detect fraud. 
Users don't need someone to watch the L2 chain to detect fraud. 
Security properties 
Relies on cryptoeconomic incentives to assure users of rollup security. 
Relies on cryptographic guarantees for security. 
Start building
on Alchemy.
Sign up for free
Start building on Optimism.
Sign up for free
Start building on Arbitrum.
Sign up for free
Start building on Ethereum.
Sign up for free
Start building on Polygon.
Sign up for free
Start building on Starknet.
Sign up for free
Start building on Flow.
Sign up for free
kiln faucet
Get free Kiln ETH.
Start building today
Goerli faucet
Get free Goerli ETH.
Start building today
mumbai faucet
Get free Mumbai Matic.
Start building today
rinkeby faucet
Get free Rinkeby
ETH.
Start building today
Start building on Ethereum.
Get started for free
Start building on Ethereum.
Get started for free
Start building on Flow.
Get started for free
Start building on Polygon.
Get started for free
Start building on Starknet.
Get started for free
Start building on Optimism.
Get started for free
Start building on Solana.
Get started for free
Start building on Solana.
Sign up for beta access
Start building on Solana.
Join the waitlist
Arbitrum logo
Start building on Arbitrum.
Get started for free
DAOs
DAO CREATION GUIDE

Starting a DAO: The Definitive Guide to Creating a web3 Community

Building a new community paradigm
Last Updated:
March 11, 2022

Introduction

What is a DAO?

Put simply, a DAO, or decentralized autonomous organization, is an online community with a shared crypto wallet. DAOs have quickly come to the forefront of the Web3 ecosystem as a result of their implications for organizational structure:

  • All the members of a DAO share a vision, but come to the table with different ideas for how to achieve that vision, and a real stake in the success of the organization.

  • DAOs are borderless and allow for far more decentralization than a traditional LLC, with a flatter hierarchy, self-regulation, and a fundamentally democratic foundation via formalized governance that is enforced on the blockchain.

  • DAOs share a treasury of crypto funds, and can vote for and execute transactions on-chain, rewarding contributions, investing, and purchasing community-owned assets, among other possibilities.
Source: Nichanan Kesonpat

Source: Nichanan Kesonpat

The pioneers of the DAO space envision a future where community-owned and operated organizations will serve as a counterpoint to the traditional corporation model, fulfilling use cases and enabling initiatives that weren’t possible before.

However, it is important to note that decentralization is both a tool and a spectrum, and those looking to build DAOs of their own should carefully consider whether, and how much, to decentralize. The DAO is one of many organizational models meant to harness the powerful set of incentives crypto has created to reduce the negative externalities of older structures—but it comes with its own sets of challenges, and its own potential downsides, especially in the early days of the space. A prospective DAO-creator should weigh their options carefully, and think both about operational efficiency and what organizational structure will best fulfill their vision.
To learn whether a DAO is the right structure for you, read on! 

Start by Joining a DAO: Discovery

Before building a DAO of your own, consider joining and contributing to a few! There’s no better way to understand the challenges of organizational design and community management than to experience a DAO firsthand. If you do end up starting your own DAO, getting a sense of which models, missions, and systems work best will come in handy.

There are a few ways to discover DAOs. DAO Central is an excellent platform to explore some popular players across categories. Snapshot is another great tool to see what proposals the DAO community is voting on. And of course, Twitter is the best way to discover crypto projects small and large.
Join their Discords, engage with their communities, and get a sense of the energy and vibe around their mission. Pay close attention to the way these DAOs onboard users, and what incentives they provide for community buy-in and innovation.

If you’ve done all that, and you’re ready to start a DAO of your own, then let’s dive in!

OK, So You Want to Build a DAO.

You’ve joined a couple of DAOs and gotten a sense for the big players in the space. There’s a community you feel is underserved, you have a vision that hasn’t yet been realized, or there’s something you’d like to do differently from an organization that already exists. How do you go about doing it?
This guide will cover the nitty-gritty of DAO formation from both ideological and practical standpoints, providing a comprehensive overview of the best practices and tooling that you’ll need to get started.

Source: Nichanan Kesonpat

Source: Nichanan Kesonpat

Note: The tools discussed in this guide are only a small cross section of the many projects in the space, many of them with highly specialized use cases—and more appear every week! An excellent resource for the most up-to-date DAO tooling players is a community-owned living document started by Rob Sarrow from Delphi Digital. You can find it here

Vision and Incentive Alignment (the most important part!)

The first step is to gather a core team that shares your vision at a fundamental level. You might disagree on implementation, but the most important part of building a robust, successful organization is having a North Star: call it a fundamental purpose, guiding light, or shared narrative—not too broad and not too specific. This clarifies why you are doing what you are doing. It will serve as a framework for your decision-making going forward and act as a rallying point for the community that forms around your DAO.


The next step is to cement a framework for incentive alignment and community buy-in. The beauty of Web3 is in the fragile balance of game theory: a careful dance of stakeholders who all want different things, held together by complex cryptography.


Consider a blockchain: a market that is encoded for user interaction and value-exchange. It is balanced by miners, who process hash functions for the compensation that comes with the maintenance of the blockchain (pay-for-performance), and end-users, who trade the underlying currency for the decentralization, security, and network-effect it provides. Together, both players maintain the strength and continued growth of the ecosystem.



The system becomes more complex when we consider smart contracts. Because they are grounded in formal logic, and aren’t always measurable or practical, they must be balanced with social contracts: staking mechanisms like reputation.


These social mechanisms are especially important when applied to DAOs: most decentralized organizations today suffer from a free-rider problem, with individual contributors avoiding taking on responsibility and initiative because the DAO’s incentive structure allows for them to benefit from the system without contributing.
As such, the fundamental challenge for any DAO founding team, perhaps more critical than any that comes after, is the challenge of providing value, purpose, and incentive to every member of the organization. As we’ll see, DAOs today address this issue with tools like community events, exclusivity, and social value propositions—but most still suffer from the free-rider problem. It is left as an exercise for the reader to speculate on solutions to this challenge.

The remainder of this guide will focus on tools and best practices that support incentive alignment and encourage participation through meaningful experiences. The best way to build resilient and scalable DAOs is to invest time into creating robust governance systems that enable flexibility in the face of changing circumstances and ensure a symbiotic relationship: the DAO continues to best serve the core community, and vice versa. 

Building a Community Around Your Vision

Once you have your core vision and incentive structure figured out, it’s time to start finding people who resonate with your ideas. The next challenge you’ll face is onboarding. 

1. Getting Everyone in One Place

There are a few ways to provide membership for your DAO. We’ll go into more details later, but you can gate access through NFT or token ownership via a tool like Guild.xyz or Collab.Land, or you can just include anyone who wants to be a part of what you’re building.

Many DAOs start with the latter, building a core community who is passionate about their mission; but of course, there are sometimes problems associated with members having no financial skin in the game—they have no incentive to contribute! Get to know the people who want to be a part of your movement, and find a balance that works for you.

When it comes to online communities, most DAOs use Discord, a social chat tool that allows for the creation of different channels, role assignments, bots, and a number of Web3-native integrations. Discord comes with its own challenges, but it’s currently the best tool out there for online discussion. Twitter is the public face of choice for most DAOs, often even over a website, and a meaningful presence there can help people discover your community. Also worth mentioning for smaller group messaging are Telegram, Signal, and Element.

Important to note here is the idea of Sybil resistance: protection against malicious users who create many pseudonymous identities and use them to gain a disproportionately large influence over a DAO. There are a number of ways to guard against a Sybil attack, and it becomes easier to prevent when you require buy-in, but take the time to understand what solutions work for you. 

2. A Crash Course in Mission-Driven Marketing

For a DAO to build community, it needs to disseminate its mission across the internet, getting people engaged and excited. Write your manifesto, and share it far and wide! Mirror, an on-chain publishing platform (upon which you can also hold auctions of NFTs and other works), is a popular option, with Medium and Substack serving as its Web2 equivalents.

If your DAO is a protocol, and has an open-source codebase or whitepaper, you can host on GitHub or Radicle. Even if you’re not a designer, you should also create a visual identity for your DAO’s brand—Figma is a great tool for this. Once you've built a cohesive brand and voice, share across the board: Twitter, Discord, other social media sites—leverage your network!

3. Other Housekeeping Matters

Every DAO should have a wiki and other tools for knowledge management. As your community grows, you’ll want to document rules/code of conduct, vision, protocols, resources, guides, etc. so that members have easy access to key information. A great example is Developer DAO, an education and impact-focused community that provides comprehensive resources/guides here. Friends with Benefits (FWB), a social DAO, provides another example of a well-structured code of conduct here.
Like Developer DAO, you can use Notion, but also have several other options: GitHub, Portal, GitBook, Roam Research, Obsidian. Lobby is specifically built for Web3-native organizations.

Another important consideration is choosing a chain for your DAO to operate on. Ethereum, Polygon, Solana, and Optimism are the most widely supported chains across the tooling ecosystem, and L2 Ethereum support continues to expand rapidly, enabling cheaper transactions. Most of the on-chain tools in this guide support the aforementioned blockchains. 

Organizational Design

An effective DAO is one that empowers and incentivizes individual members to take on the mantle of leadership, proposing and executing on new ideas, gathering support from the community, and even iterating on core DAO protocols. This is the value proposition of a decentralized organization—people take on responsibilities of their own volition, and from that excitement stems innovation, efficiency, and drive that doesn’t exist in the traditional LLC structure.
It is difficult, however, to reconcile the theoretical benefits of decentralization with the practical challenges that come with running an efficient organization at scale. Put simply, there is a tradeoff between decentralization and efficiency: a successful DAO will be engaged in a constant balancing act.
To meet this challenge, DAOs have begun to adopt systems that facilitate organizational decentralization, but still allow for agility and autonomy within working groups—also known as pods, guilds, and functional committees.

Source: Nichanan Kesonpat

Source: Nichanan Kesonpat

As depicted above, these working groups allow for individuals to take ownership of specific milestones, and enable them to use their domain-specific knowledge effectively.

Leadership of these working groups, and of the larger DAO, is often defined through a process of constrained delegation—token-holders delegate their votes to active contributors who they feel will best advance the interests of the DAO, empowering them with decision-making authority within a specific domain. This process of distributed authority means leaders will always be held accountable—voting delegations can be changed at any time.
Delegation also affords increased flexibility to DAO members—they can either retain voting power, or grant it to someone else (who might be better informed, or be more actively involved in the DAO, or have more time to spend thinking on these decisions). As such, even as power is centralized, the underlying system remains decentralized.

See an example of this system in action with ENS Domains here.

As DAOs grow larger and more cumbersome, another trend that has begun to emerge is the forking of a parent DAO into a smaller DAO with a more niche purpose to maintain decentralization and efficiency. These forked DAOs are known as SubDAOs. They come in many flavors: SubDAOs may or may not create a new version of their parent DAO’s ownership token, maintain a shared treasury, governance structure, vision/code of conduct, Discord channel, or even have the same members. The decision to turn one or more of your working groups into SubDAOs is a complex one, and you can read more here.

Treasury Management

A DAO isn’t a DAO without a treasury—a shared wallet that can be used to send and receive crypto funds on the blockchain. A DAO treasury serves as the lever for action within the organization: making fiat purchases, enabling fundraising and interacting with token/NFT sales, rewarding contributions, and funding grants, projects and investments. Just like across the rest of the Web3 space, a crypto treasury is the most fundamental staking mechanism by which community engagement is incentivized.

The standard for DAO treasury management is a multisignature wallet tied to a treasury committee, which authorizes all transactions. Gnosis Safe is a reliable, lightweight solution for DAOs that don’t have specialized use cases. Multisis is an analytics dashboard built upon Gnosis, allowing for multi-wallet fund tracking, payments, and reporting. If you’re building on Solana, Squads is another powerful multisig option.
Other options to consider include Llama, which allows more complex analytics tools and proposal linkages, and Parcel/MultiSafe, which enable mass payouts in ETH/ERC-20, spending limits, and provide a comprehensive analytics dashboard.

As a DAO’s governance system becomes more complex, various smart contracts can be tied to your wallet, directly executing transactions as a result of a formal voting process. These often come built-in to full-service DAO frameworks, which we’ll discuss later.
Once you’ve got your treasury set up, it’s time to think about funding it. There are several ways to bootstrap your DAO’s funds: 

  • Soliciting sponsorships, investments, and donations from venture capital funds, angel contributors, protocols, startups, and other DAOs in the Web3 space. As the ecosystem around DAOs continue to grow, the wider community is excited to be a part of impactful projects, and if you can build the right strategic partnerships, it’ll serve as a powerful launching point. Tools like JuiceboxDAO, a platform for decentralized fundraising, can help facilitate this process.
  • NFT-gating your DAO. Creating a collection, listing it on OpenSea or Mirror, and allowing prospective users to mint pieces before they’re allowed access to the Discord (via Guild.xyz) can be a useful way to create an exclusive, financially invested community. Projects like ecodao, an environmental-impact focused community, hold multiple drops a year, working with small artists to curate collections and splitting profits between environmental nonprofits, the artists, and the DAO’s treasury. Members who mint an NFT are also given access to exclusive parties and events held around the world. (See how incentives are aligned for everyone involved?)
  • Creating a token for your DAO and requiring that prospective members buy in for access. Tokenomics is a complex topic, and requires careful system design, but we’ll touch on the key ideas below:

Tokenomics

Chris Dixon, general partner at A16Z, highlights the open network design and incentive alignment benefits of crypto tokens on his blog here.

Source: Chris Dixon

Source: Chris Dixon 

Dixon argues that tokens align incentives among network participants, allowing for the financial incentives of owning a token that may potentially increase in value to substitute for the social utility of a network, especially in the early days of a project. By creating and participating in a token economy, users contribute to the growth of the entire community, project, and blockchain upon which it is built. These early adopters help bootstrap the project while also becoming its most outspoken supporters—because they’re invested in its success!

In much the same way, token economies for DAOs enable yet another uniting factor in the complex game theory of incentive alignment.
Although there are many different types of DAOs, a token system works best for those that have a vibrant community and a constant in/outflow from their treasury—for example, DAOs working on products, DeFi protocols, NFT collections/curation, investment, community-owned assets, etc.

The flow of a DAO treasury is as follows: members work on projects, which make money for the DAO treasury. The treasury funds can then be used to compensate project contributors, pay for DAO expenses, external resources, fund grants, investments, new projects, etc. 

Source: Florian Strauf

Source: Florian Strauf


The diagram above depicts the ways a token system can align this financial process with social incentives through governance rights. Tokens provide skin in the game for members that buy into the DAO, act as voting tools by which individuals who are more bought-in can have a more outsized say on proposals, and incentivize members to further the success of the DAO, raising the value of the token. FWB is a great example of these incentive alignments.
Like any other publicly traded security, tokens rely on supply and demand to set their price. When DAOs and other crypto projects use them, the demand for the token is essentially the demand for the community/project.

Supply-side token system design is complex, so if you’re considering one for your DAO, you’ll need to do your research. The genesis supply is the initial supply of tokens you’ll provide, and they can be distributed (airdropped) in many ways—sold, given away to early contributors, auctioned off to the highest bidders, via a “fair token launch” to anyone willing to stake, etc.

Other considerations include whether you want a deflationary or inflationary token economy, are considering token buybacks down the line, whether voting power scales with number of tokens owned or if you plan to implement another system (such as quadratic voting) to limit the power of whales, etc. You could even build a system where the power of token-holders increases or decreases as time passes!

Recently, there have also been proposals for two-pronged tokenomics systems—a token for financial incentives, and another, a “soulbound” token, for reputation/social capital. This system is already being used by BuilderDAO, a Web3 learning platform. Learn more here.
You can also explore some common tokenomics paradigms here.
Note: it is difficult to control the behavior of token systems because they incorporate governance, payments, and incentives all together. If tokenomics isn’t the right system for you, your DAO can also rely entirely on reputation for governance and pay members with stablecoins. We delve into some of those ideas below. 

Learn how StakeDAO, a non-custodial DeFi platform built on Ethereum, partnered with Alchemy to unlock an array of developer tools, scalable infrastructure, and industry-leading reliability.

Governance

There is no mold for DAO governance—every organization handles it differently. It’s important to understand what model works best for the goals you have in mind and the community you hope to build.

We’ve already touched on a few foundational ideas for DAO decision-making, such as distributed authority, constrained voting delegation, and token-driven systems. Here, we’ll expand on these topics, considering the role identity management and organizational efficiency should play in your organization design, and highlighting some of the most useful tools for governance.

Most DAOs today rely on a token-based governance system, for a variety of reasons, including those outlined above. As Sybil resistance improves and new models are developed, the space will expand, but for now, a token governance system is the best choice, with hopes to move beyond it in the future.

Once you’ve set up your token system as discussed above, the first step is delegation. Commonly used by the DAO community are Tally and Boardroom, which allow for members to decide whether they’d like to retain their vote (self-delegation) or delegate it to another community member. Once this process is complete, token-holders can vote on active proposals according to the vote weighting system you’ve chosen for your DAO.

Early DAO frameworks focused on integrating the entire proposal/voting process on-chain, automating the fund transfer and creating a trustless system, but rising gas prices have forced many DAOs to decouple voting from on-chain execution. This process allows for the escalation of proposals using Web2-native signaling tools to capture community sentiment, but ultimately, execution power lies in the hands of the administrators of the multisignature wallet. (As L2s become more stable, this trend may again reverse and shift back toward decentralization.)

For now, the proposal and voting process for most DAOs looks like this:

1. Proposal Submission:

New ideas for projects, initiatives, spending, and changes to DAO structure originate in working groups dedicated to these ideas, and they go through a period of informal discussion, undergoing refinements and iterations along the way. Eventually, an official proposal is submitted to the DAO.
Initial proposal discussions take place in channels on the DAO’s Discord or Telegram.

2. Temperature and Consensus Checks

Because of the constraints described above, the next step in the process is off-chain signal voting, and depending on the size of your DAO, you may not need these, or you may need multiple rounds. Uniswap has a temperature check that assesses interest in the proposal and requires the involvement of 25k $UNI tokens to move forward, then a consensus check that requires 50k tokens to participate.
These signal voting processes are usually conducted via hybrid Web2/3 platforms like Snapshot or Discourse, but can also be conducted via in-chat polling on Discord.

3. On-chain Vote and Execution

Next, the proposal moves to an on-chain vote. You can use tools like Tally, sybil, boardroom, and Compound Governor for this process, but as mentioned above, often the final execution responsibility lies with the signers of the multisig wallet. 

There are a number of emerging governance tools that streamline the process outlined above, and provide checks and balances to ensure execution reflects the goals of the community. Among these is Gnosis SafeSnap, a plugin that utilizes an oracle to verify that a proposed multisig transaction was actually voted for, keeping administrators accountable to the community. Gnosis is making these tools platform-agnostic with Zodiac and its Reality module, allowing for off-chain sentiment from any platform to trigger on-chain execution.

Another developing governance framework is judiciary infrastructure: tools like Kleros, Aragon Court, and Tally SafeGuard allow for working groups to move quickly and execute while still maintaining accountability via independent value and budget checks. These “courts” have the power to revoke transactions or reclaim funds if deemed necessary. 

Contributions, Compensation and Reputation

Once you’ve set up the foundations of your DAO—org structure, governance, treasury—it’s time to start building, and to bring the creativity, drive, and skill set of your community into the fold. This is the contributor journey: empowering the members of your DAO with a sense of ownership, belonging, and contribution to a shared mission. It’s a challenging and constantly evolving process, but there are a few tools that will help you along the way.

1. Educating Your Members

Your DAO’s most valuable asset is the community that comprises it. Anyone who takes the plunge in joining a Web3 native organization so early is already a visionary, and if they choose your DAO, it’s because they resonate with your mission.

DAOs today are filled with founders, engineers, researchers, designers, artists, product managers, students, activists, lawyers, and economists (to name but a few!)—a collection of domain-specific skill sets and talents whose intersection you can’t find anywhere else.

Your responsibility isn’t to teach them how to do their jobs because you can’t be more of an expert than they are when it comes to domain-specific knowledge. Instead, you should be focusing on making sure that everyone has an equal information framework from which ideas can be launched: give each member a detailed overview of how your DAO structure works, and they’ll start proposing ideas on how to improve it. It’s the same idea with vision and goals: lay out a set of metrics and a pathway for success, and iteration will happen itself.

The other thing the space desperately needs, especially if you’re developer-focused and intend to build Web3 native projects, is education about the transition from building in Web2 to Web3. Directing developers to tools and platforms like Buildspace, 101.xyz, Layer3 and Web3 University is the fastest way to get them up to speed and ready to build.

2. Getting Them to Build Things

As you design your contributor journey, it’s important to make sure it is the path of least resistance. Members should have easy access to many different types of projects for a variety of skillsets. Often, DAOs start by making bounties or quests available—bite-sized tasks that can give members a relatively easy way to get involved and be a part of the DAO’s mission. Tools like Yearn, Gitcoin, and Coinvise, as well as RabbitHole, which verifies bounties on-chain, are great ways to enable bounties for your DAO.

To incentivize more impactful, large-scale, and contributor-driven projects, though, you’ll need to build a reputation system. DAO members should be able to trust one another, as well as the organization they’re a part of. Only then, when they feel like part of a community and a larger mission, will they begin to take on true ownership.

While it might be as simple as setting up Discord Roles and rewarding contributors with XP, tools like Govrn, Gitcoin, RabbitHole, and SourceCred are all working on solutions to the reputation problem. As the applications of Proof of Attendance Protocol (POAP) grow, eventually these might be used for reputation management as well.

3. Rewarding Them For It (in more ways than one!)

If DAOs are to be the future of work, they need to be able to compete with the corporate compensation structures that exist today, while also providing a sense of ownership and community, unlike today’s traditional companies.
There are many ways to compensate your members—tools like Sablier and Superfluid allow for direct payments, Roll and disperse.app allow for bulk token distribution, and Gnosis Safe enables grant funding.

DAOs can even offer more complex structures similar to employee stock option plans by taking advantage of integrations with the DeFi ecosystem. Learn more here and here.

Determining the value of different types of compensation is another challenge. Some DAOs have “compensation committees” or build governance structures to standardize types of contributions and weight them by what they’re worth. More recently, though, DAOs have been working with tools like SourceCred and Govrn to enable the community to assign these weights. Perhaps the most popular of these community-driven systems is Coordinape, a tool that allows for members of working groups to determine payment for one another, cutting out the possible inaccuracies of a centralized value model.

HR and Benefits is currently an underserved DAO tooling vertical. Currently, the biggest player in the space is Opolis, a platform that supports independent workers in Web3 by providing the security of health, dental, and vision insurance, FSA and HSA, PTO and holidays, retirement plans, and other benefits in partnership with DAOs. Opolis is an employer-agnostic shared services layer, meaning that benefits are attached to the individual worker rather than the DAO they work for, and contributors can work for many different DAOs without losing these benefits. 

Frontend and Analytics

Blockchains are the fundamental protocol layer of Web3. They are complex, highly technical, and very difficult for the average person to understand and work with. In the same way that tools like Alchemy allow developers to build applications on the blockchain, there exist tools for blockchain analytics, a “frontend” that everyone can interact with. These tools include Etherscan, a block explorer that allows for tracking of individual transactions and network traffic, and Dune Analytics, a dashboard creator that enables detailed, customizable analytics for blockchains.

While these tools are useful to all blockchain-users, DAOs often require more specialized frontend tools that provide insight into operations, often with the capability for member engagement/discussion around voting, treasury, and governance.

For now, there aren’t any tools that provide all these services at once, but commonly used by the DAO community are Tally and Boardroom, which provide governance tools like proposal voting for members, voter profiles, and vote delegation information. Voting power information is especially important because it makes visible how ownership and control is aggregated—is it community granted, or is it bought up by the highest bigger?
 
DeepDAO is a DAO database that allows community members to sort and rank communities by treasury size, number of members, and voter participation. It also enables analytics for individual community members, with statistics such as number of DAOs they belong to, proposals/initiatives they’ve brought forward, votes they’ve cast, and tokens they own. This information can help members of individual DAOs decide who they’d like to delegate voting power to, much like the voting history of traditional politicians in a representative democracy.

On Legal and Regulatory Challenges

The DAO as an organizational structure is still in its infancy, and there are very few laws and regulations around it. In an attempt to address this issue, Wyoming has already become the first US state to enact a law designed to slot DAOs into the traditional LLC system to alleviate personal liability. This first bill doesn’t address all possible use-cases, nor does it consider the decentralized nature of DAOs.

While some DAO communities first rose as a way to avoid governmental regulation, the space has become impossible to ignore—sooner or later, it will be fully regulated. In the US, there are even lobbying groups working to make sure that process serves the best interest of builders in the Web3 ecosystem!
Learn more about some challenges surrounding the regulation process here.

In the meantime, though, anyone starting a DAO should do careful due diligence on the legal restrictions in the area their DAO will operate, especially if they hope to invest in securities or ventures, or own physical assets.

In these cases, some DAOs need to work with a partner organization that handles interactions with these assets—an LLC. LinksDAO, a community that raised over $10 million to purchase a golf club for its members to use, must handle the purchase process through a corporation, incorporated and run by the founders of the DAO.

Because of the complex laws surrounding the subject, DAO votes can only serve as suggestions as to how the LLC spends its money. While the LinksDAO leadership is committed to a faithful execution of their community’s wishes, this is really only a patchwork solution for now, relying on the trust placed in a few key individuals rather than a systematic, trustless process that directly translates community intentions to action. A system like this, supported by the necessary legal infrastructure, is what the DAO community envisions, and it is still in the works.

When starting a DAO, it is of the utmost importance that you consult a lawyer and thoroughly educate yourself on the process to avoid running afoul of any regulations in pursuit of your goals.

Choosing a DAO Framework

We’ve covered a number of complex topics so far. You may be asking yourself how much of this you have to build from scratch, or piece together with a patchwork of tools and services.

The good news is that in many cases, there’s an easier solution! Support is expanding for full-service tooling suites, or operating systems, that manage everything you’ll need at once, both on-and-off chain, especially if you have a specific use-case. And even if you don’t, there are a number of category-defining DAOs that you can learn from as you create your own fork.

Source: @Coopahtroopa

Source: @Coopahtroopa

1. Operating Systems

Because no two DAOs are the same, and all have different needs and goals, the best operating systems focus on modularity, flexibility, and extensibility.
Some widely-used frameworks include: 

  • Orca Protocol: a lightweight, modular tool that allows for the creation of pods, or working groups, that act as SubDAOs, with their own membership and governance. Pods can set their own custom rules to determine membership, allowing for more targeted incentives and accountability. 
  • TributeDAO: a framework that enables a modular set of smart contracts, low-cost deployments, and custom extensions.
  • DAOHaus: a full-service tool that allows for the creation/management of a DAO, including treasury, membership, proposals, and individual membership profiles.
  • SyndicateDAO: a framework for investing DAOs, facilitating end-to-end creation and management, including investments in on-chain (tokens, NFTs) and off-chain (startups via a legal entity) assets, legal entity creation, and mirrortables.

If you think your DAO idea might better be served by a more rigid framework, some tools worth exploring are Colony, DAOstack, Aragon, and Moloch.

2. Category-Defining DAOs

As you get ready to launch your DAO, the best place to find inspiration is to see what’s already being done. Let’s take a look at some of the biggest DAO categories and the communities that are building within them!

1. Investing Together

If you’re looking to gather a community to invest in and manage on-chain and off-chain assets, the best way to get started is with SyndicateDAO—this framework will provide everything you need to get started. MetaCartel Ventures is an example of a premier investment DAO that is looking to disrupt venture capital.

2. Raising for a Cause

For more ambitious projects that involve larger, community-run purchases, often for a shared cause, look to DAOs like LinksDAO and ConstitutionDAO for inspiration. They bootstrapped quickly, aligned around a shared mission, and raised many millions of dollars with the intent to purchase a golf club and an original copy of the Constitution, respectively.

When it comes to nonprofit causes, projects like Endaoment and ecodao are building ways to give back, working on creative solutions to align altruistic motivations with sustained community effort.

Grants DAOs, often extensions of larger DAOs, serve more generalist causes, like education, funding, empowering contributors, and more. Some Grants DAOs include MolochDAO, Uniswap Grants, and Aave Grants.

3. Service DAOs

A natural evolution of fundraising DAOs, service DAOs are where both funding and innovation align to build meaningful projects and products for themselves and others, hoping to improve on the LLC model. Some service DAOs include RaidGuild, PartyDAO, MetaFactory, and DXDAO.

4. Protocol DAOs

Protocol DAOs manage the tokenomics backend for crypto networks, building DeFi applications, governance tokens, network mechanics, and token distribution. Some applications of these protocols include liquidity mining, yield farming, fair launches, etc.
The frameworks provided by Protocol DAOs like Maker, Compound, Uniswap, Aave, Yearn, and Sushi allow for any network to issue and manage tokens. 

5. Social and Education DAOs

Social DAOs create incentives through social capital, shared experiences, friendships, and digitally-native communities. Friends with Benefits (FWB), Seed Club, and ProsperDAO are excellent examples.

Education DAOs, on the other hand, are focused on onboarding people to Web3, teaching them about the ecosystem, blockchain and frontend development, and empowering them to become builders in the space. The biggest Education DAOs are Developer DAO and Odyssey DAO

6. Anything You Can Imagine

As you can see, the possibilities are endless. Aside from the above, there are Collector DAOs (PleasrDAO), Media DAOs (Forefront), Lobbying DAOs (Lobby3)—anything and everything you can imagine. Get excited to build something new! 

On the Future of DAOs, Decentralization, and Tooling

We’ve covered a lot, and it might feel overwhelming. But the best thing you can do now is just get started! DAOs as an organizational structure are very young, and they’re constantly evolving. The future of DAOs is being built week by week, and tools are evolving to match the players in the space—no truly mature DAOs exist yet.
Maybe yours will be the first. Focus on building enduring, evolving, antifragile structures: when everything changes, make sure the strength of community is your constant.

The larger your community grows, the harder it becomes to make everyone happy—trying to get people to align on decisions will always cause polarization. So instead of trying to make everyone happy, focus on your North Star, and start simple. Think about how you’d like to see your DAO evolve long-term, and what the lifespan of the project might be.

DAOs today are trying to solve society’s toughest problems with a model that has no real playbook. Leading a DAO means finding a careful balance between speed, efficiency, transparency, and decentralized, delegated governance.

To find that balance, you’ll need to keep trying new things, even if they keep failing. Be open with your community and have conversations about ideas that you might disagree with. Your role as a creator is to build the first version of a framework, and then step back. Allow for projects and new voices to grow and thrive, letting your community decentralize. Build in public, and share your strategies, wins, and losses.
Don’t wait for the playbook to be written. Set your own precedent.

Learn how Pentonium, a decentralized freelancing platform, is partnering with Alchemy to build their dApp and grow their DAO-structured, peer-to-peer work community.

This piece was informed and inspired by conversations with Cooper Sherwin from LinksDAO, Rahat Chawdhury  from DeveloperDAO, and David Phelps from ecodao, as well as articles written by Anisha Sunkerneni, Nichanan Kesonpat, Cooper Turley, Florian Strauf, Chris Dixon, Vitalik Buterin, and many others. 


DAO CREATION GUIDE

Starting a DAO: The Definitive Guide to Creating a web3 Community

Building a new community paradigm

Introduction

What is a DAO?

Put simply, a DAO, or decentralized autonomous organization, is an online community with a shared crypto wallet. DAOs have quickly come to the forefront of the Web3 ecosystem as a result of their implications for organizational structure:

  • All the members of a DAO share a vision, but come to the table with different ideas for how to achieve that vision, and a real stake in the success of the organization.

  • DAOs are borderless and allow for far more decentralization than a traditional LLC, with a flatter hierarchy, self-regulation, and a fundamentally democratic foundation via formalized governance that is enforced on the blockchain.

  • DAOs share a treasury of crypto funds, and can vote for and execute transactions on-chain, rewarding contributions, investing, and purchasing community-owned assets, among other possibilities.
Source: Nichanan Kesonpat

Source: Nichanan Kesonpat

The pioneers of the DAO space envision a future where community-owned and operated organizations will serve as a counterpoint to the traditional corporation model, fulfilling use cases and enabling initiatives that weren’t possible before.

However, it is important to note that decentralization is both a tool and a spectrum, and those looking to build DAOs of their own should carefully consider whether, and how much, to decentralize. The DAO is one of many organizational models meant to harness the powerful set of incentives crypto has created to reduce the negative externalities of older structures—but it comes with its own sets of challenges, and its own potential downsides, especially in the early days of the space. A prospective DAO-creator should weigh their options carefully, and think both about operational efficiency and what organizational structure will best fulfill their vision.
To learn whether a DAO is the right structure for you, read on! 

Start by Joining a DAO: Discovery

Before building a DAO of your own, consider joining and contributing to a few! There’s no better way to understand the challenges of organizational design and community management than to experience a DAO firsthand. If you do end up starting your own DAO, getting a sense of which models, missions, and systems work best will come in handy.

There are a few ways to discover DAOs. DAO Central is an excellent platform to explore some popular players across categories. Snapshot is another great tool to see what proposals the DAO community is voting on. And of course, Twitter is the best way to discover crypto projects small and large.
Join their Discords, engage with their communities, and get a sense of the energy and vibe around their mission. Pay close attention to the way these DAOs onboard users, and what incentives they provide for community buy-in and innovation.

If you’ve done all that, and you’re ready to start a DAO of your own, then let’s dive in!

OK, So You Want to Build a DAO.

You’ve joined a couple of DAOs and gotten a sense for the big players in the space. There’s a community you feel is underserved, you have a vision that hasn’t yet been realized, or there’s something you’d like to do differently from an organization that already exists. How do you go about doing it?
This guide will cover the nitty-gritty of DAO formation from both ideological and practical standpoints, providing a comprehensive overview of the best practices and tooling that you’ll need to get started.

Source: Nichanan Kesonpat

Source: Nichanan Kesonpat

Note: The tools discussed in this guide are only a small cross section of the many projects in the space, many of them with highly specialized use cases—and more appear every week! An excellent resource for the most up-to-date DAO tooling players is a community-owned living document started by Rob Sarrow from Delphi Digital. You can find it here

Vision and Incentive Alignment (the most important part!)

The first step is to gather a core team that shares your vision at a fundamental level. You might disagree on implementation, but the most important part of building a robust, successful organization is having a North Star: call it a fundamental purpose, guiding light, or shared narrative—not too broad and not too specific. This clarifies why you are doing what you are doing. It will serve as a framework for your decision-making going forward and act as a rallying point for the community that forms around your DAO.


The next step is to cement a framework for incentive alignment and community buy-in. The beauty of Web3 is in the fragile balance of game theory: a careful dance of stakeholders who all want different things, held together by complex cryptography.


Consider a blockchain: a market that is encoded for user interaction and value-exchange. It is balanced by miners, who process hash functions for the compensation that comes with the maintenance of the blockchain (pay-for-performance), and end-users, who trade the underlying currency for the decentralization, security, and network-effect it provides. Together, both players maintain the strength and continued growth of the ecosystem.



The system becomes more complex when we consider smart contracts. Because they are grounded in formal logic, and aren’t always measurable or practical, they must be balanced with social contracts: staking mechanisms like reputation.


These social mechanisms are especially important when applied to DAOs: most decentralized organizations today suffer from a free-rider problem, with individual contributors avoiding taking on responsibility and initiative because the DAO’s incentive structure allows for them to benefit from the system without contributing.
As such, the fundamental challenge for any DAO founding team, perhaps more critical than any that comes after, is the challenge of providing value, purpose, and incentive to every member of the organization. As we’ll see, DAOs today address this issue with tools like community events, exclusivity, and social value propositions—but most still suffer from the free-rider problem. It is left as an exercise for the reader to speculate on solutions to this challenge.

The remainder of this guide will focus on tools and best practices that support incentive alignment and encourage participation through meaningful experiences. The best way to build resilient and scalable DAOs is to invest time into creating robust governance systems that enable flexibility in the face of changing circumstances and ensure a symbiotic relationship: the DAO continues to best serve the core community, and vice versa. 

Building a Community Around Your Vision

Once you have your core vision and incentive structure figured out, it’s time to start finding people who resonate with your ideas. The next challenge you’ll face is onboarding. 

1. Getting Everyone in One Place

There are a few ways to provide membership for your DAO. We’ll go into more details later, but you can gate access through NFT or token ownership via a tool like Guild.xyz or Collab.Land, or you can just include anyone who wants to be a part of what you’re building.

Many DAOs start with the latter, building a core community who is passionate about their mission; but of course, there are sometimes problems associated with members having no financial skin in the game—they have no incentive to contribute! Get to know the people who want to be a part of your movement, and find a balance that works for you.

When it comes to online communities, most DAOs use Discord, a social chat tool that allows for the creation of different channels, role assignments, bots, and a number of Web3-native integrations. Discord comes with its own challenges, but it’s currently the best tool out there for online discussion. Twitter is the public face of choice for most DAOs, often even over a website, and a meaningful presence there can help people discover your community. Also worth mentioning for smaller group messaging are Telegram, Signal, and Element.

Important to note here is the idea of Sybil resistance: protection against malicious users who create many pseudonymous identities and use them to gain a disproportionately large influence over a DAO. There are a number of ways to guard against a Sybil attack, and it becomes easier to prevent when you require buy-in, but take the time to understand what solutions work for you. 

2. A Crash Course in Mission-Driven Marketing

For a DAO to build community, it needs to disseminate its mission across the internet, getting people engaged and excited. Write your manifesto, and share it far and wide! Mirror, an on-chain publishing platform (upon which you can also hold auctions of NFTs and other works), is a popular option, with Medium and Substack serving as its Web2 equivalents.

If your DAO is a protocol, and has an open-source codebase or whitepaper, you can host on GitHub or Radicle. Even if you’re not a designer, you should also create a visual identity for your DAO’s brand—Figma is a great tool for this. Once you've built a cohesive brand and voice, share across the board: Twitter, Discord, other social media sites—leverage your network!

3. Other Housekeeping Matters

Every DAO should have a wiki and other tools for knowledge management. As your community grows, you’ll want to document rules/code of conduct, vision, protocols, resources, guides, etc. so that members have easy access to key information. A great example is Developer DAO, an education and impact-focused community that provides comprehensive resources/guides here. Friends with Benefits (FWB), a social DAO, provides another example of a well-structured code of conduct here.
Like Developer DAO, you can use Notion, but also have several other options: GitHub, Portal, GitBook, Roam Research, Obsidian. Lobby is specifically built for Web3-native organizations.

Another important consideration is choosing a chain for your DAO to operate on. Ethereum, Polygon, Solana, and Optimism are the most widely supported chains across the tooling ecosystem, and L2 Ethereum support continues to expand rapidly, enabling cheaper transactions. Most of the on-chain tools in this guide support the aforementioned blockchains. 

Organizational Design

An effective DAO is one that empowers and incentivizes individual members to take on the mantle of leadership, proposing and executing on new ideas, gathering support from the community, and even iterating on core DAO protocols. This is the value proposition of a decentralized organization—people take on responsibilities of their own volition, and from that excitement stems innovation, efficiency, and drive that doesn’t exist in the traditional LLC structure.
It is difficult, however, to reconcile the theoretical benefits of decentralization with the practical challenges that come with running an efficient organization at scale. Put simply, there is a tradeoff between decentralization and efficiency: a successful DAO will be engaged in a constant balancing act.
To meet this challenge, DAOs have begun to adopt systems that facilitate organizational decentralization, but still allow for agility and autonomy within working groups—also known as pods, guilds, and functional committees.

Source: Nichanan Kesonpat

Source: Nichanan Kesonpat

As depicted above, these working groups allow for individuals to take ownership of specific milestones, and enable them to use their domain-specific knowledge effectively.

Leadership of these working groups, and of the larger DAO, is often defined through a process of constrained delegation—token-holders delegate their votes to active contributors who they feel will best advance the interests of the DAO, empowering them with decision-making authority within a specific domain. This process of distributed authority means leaders will always be held accountable—voting delegations can be changed at any time.
Delegation also affords increased flexibility to DAO members—they can either retain voting power, or grant it to someone else (who might be better informed, or be more actively involved in the DAO, or have more time to spend thinking on these decisions). As such, even as power is centralized, the underlying system remains decentralized.

See an example of this system in action with ENS Domains here.

As DAOs grow larger and more cumbersome, another trend that has begun to emerge is the forking of a parent DAO into a smaller DAO with a more niche purpose to maintain decentralization and efficiency. These forked DAOs are known as SubDAOs. They come in many flavors: SubDAOs may or may not create a new version of their parent DAO’s ownership token, maintain a shared treasury, governance structure, vision/code of conduct, Discord channel, or even have the same members. The decision to turn one or more of your working groups into SubDAOs is a complex one, and you can read more here.

Treasury Management

A DAO isn’t a DAO without a treasury—a shared wallet that can be used to send and receive crypto funds on the blockchain. A DAO treasury serves as the lever for action within the organization: making fiat purchases, enabling fundraising and interacting with token/NFT sales, rewarding contributions, and funding grants, projects and investments. Just like across the rest of the Web3 space, a crypto treasury is the most fundamental staking mechanism by which community engagement is incentivized.

The standard for DAO treasury management is a multisignature wallet tied to a treasury committee, which authorizes all transactions. Gnosis Safe is a reliable, lightweight solution for DAOs that don’t have specialized use cases. Multisis is an analytics dashboard built upon Gnosis, allowing for multi-wallet fund tracking, payments, and reporting. If you’re building on Solana, Squads is another powerful multisig option.
Other options to consider include Llama, which allows more complex analytics tools and proposal linkages, and Parcel/MultiSafe, which enable mass payouts in ETH/ERC-20, spending limits, and provide a comprehensive analytics dashboard.

As a DAO’s governance system becomes more complex, various smart contracts can be tied to your wallet, directly executing transactions as a result of a formal voting process. These often come built-in to full-service DAO frameworks, which we’ll discuss later.
Once you’ve got your treasury set up, it’s time to think about funding it. There are several ways to bootstrap your DAO’s funds: 

  • Soliciting sponsorships, investments, and donations from venture capital funds, angel contributors, protocols, startups, and other DAOs in the Web3 space. As the ecosystem around DAOs continue to grow, the wider community is excited to be a part of impactful projects, and if you can build the right strategic partnerships, it’ll serve as a powerful launching point. Tools like JuiceboxDAO, a platform for decentralized fundraising, can help facilitate this process.
  • NFT-gating your DAO. Creating a collection, listing it on OpenSea or Mirror, and allowing prospective users to mint pieces before they’re allowed access to the Discord (via Guild.xyz) can be a useful way to create an exclusive, financially invested community. Projects like ecodao, an environmental-impact focused community, hold multiple drops a year, working with small artists to curate collections and splitting profits between environmental nonprofits, the artists, and the DAO’s treasury. Members who mint an NFT are also given access to exclusive parties and events held around the world. (See how incentives are aligned for everyone involved?)
  • Creating a token for your DAO and requiring that prospective members buy in for access. Tokenomics is a complex topic, and requires careful system design, but we’ll touch on the key ideas below:

Tokenomics

Chris Dixon, general partner at A16Z, highlights the open network design and incentive alignment benefits of crypto tokens on his blog here.

Source: Chris Dixon

Source: Chris Dixon 

Dixon argues that tokens align incentives among network participants, allowing for the financial incentives of owning a token that may potentially increase in value to substitute for the social utility of a network, especially in the early days of a project. By creating and participating in a token economy, users contribute to the growth of the entire community, project, and blockchain upon which it is built. These early adopters help bootstrap the project while also becoming its most outspoken supporters—because they’re invested in its success!

In much the same way, token economies for DAOs enable yet another uniting factor in the complex game theory of incentive alignment.
Although there are many different types of DAOs, a token system works best for those that have a vibrant community and a constant in/outflow from their treasury—for example, DAOs working on products, DeFi protocols, NFT collections/curation, investment, community-owned assets, etc.

The flow of a DAO treasury is as follows: members work on projects, which make money for the DAO treasury. The treasury funds can then be used to compensate project contributors, pay for DAO expenses, external resources, fund grants, investments, new projects, etc. 

Source: Florian Strauf

Source: Florian Strauf


The diagram above depicts the ways a token system can align this financial process with social incentives through governance rights. Tokens provide skin in the game for members that buy into the DAO, act as voting tools by which individuals who are more bought-in can have a more outsized say on proposals, and incentivize members to further the success of the DAO, raising the value of the token. FWB is a great example of these incentive alignments.
Like any other publicly traded security, tokens rely on supply and demand to set their price. When DAOs and other crypto projects use them, the demand for the token is essentially the demand for the community/project.

Supply-side token system design is complex, so if you’re considering one for your DAO, you’ll need to do your research. The genesis supply is the initial supply of tokens you’ll provide, and they can be distributed (airdropped) in many ways—sold, given away to early contributors, auctioned off to the highest bidders, via a “fair token launch” to anyone willing to stake, etc.

Other considerations include whether you want a deflationary or inflationary token economy, are considering token buybacks down the line, whether voting power scales with number of tokens owned or if you plan to implement another system (such as quadratic voting) to limit the power of whales, etc. You could even build a system where the power of token-holders increases or decreases as time passes!

Recently, there have also been proposals for two-pronged tokenomics systems—a token for financial incentives, and another, a “soulbound” token, for reputation/social capital. This system is already being used by BuilderDAO, a Web3 learning platform. Learn more here.
You can also explore some common tokenomics paradigms here.
Note: it is difficult to control the behavior of token systems because they incorporate governance, payments, and incentives all together. If tokenomics isn’t the right system for you, your DAO can also rely entirely on reputation for governance and pay members with stablecoins. We delve into some of those ideas below. 

Learn how StakeDAO, a non-custodial DeFi platform built on Ethereum, partnered with Alchemy to unlock an array of developer tools, scalable infrastructure, and industry-leading reliability.

Governance

There is no mold for DAO governance—every organization handles it differently. It’s important to understand what model works best for the goals you have in mind and the community you hope to build.

We’ve already touched on a few foundational ideas for DAO decision-making, such as distributed authority, constrained voting delegation, and token-driven systems. Here, we’ll expand on these topics, considering the role identity management and organizational efficiency should play in your organization design, and highlighting some of the most useful tools for governance.

Most DAOs today rely on a token-based governance system, for a variety of reasons, including those outlined above. As Sybil resistance improves and new models are developed, the space will expand, but for now, a token governance system is the best choice, with hopes to move beyond it in the future.

Once you’ve set up your token system as discussed above, the first step is delegation. Commonly used by the DAO community are Tally and Boardroom, which allow for members to decide whether they’d like to retain their vote (self-delegation) or delegate it to another community member. Once this process is complete, token-holders can vote on active proposals according to the vote weighting system you’ve chosen for your DAO.

Early DAO frameworks focused on integrating the entire proposal/voting process on-chain, automating the fund transfer and creating a trustless system, but rising gas prices have forced many DAOs to decouple voting from on-chain execution. This process allows for the escalation of proposals using Web2-native signaling tools to capture community sentiment, but ultimately, execution power lies in the hands of the administrators of the multisignature wallet. (As L2s become more stable, this trend may again reverse and shift back toward decentralization.)

For now, the proposal and voting process for most DAOs looks like this:

1. Proposal Submission:

New ideas for projects, initiatives, spending, and changes to DAO structure originate in working groups dedicated to these ideas, and they go through a period of informal discussion, undergoing refinements and iterations along the way. Eventually, an official proposal is submitted to the DAO.
Initial proposal discussions take place in channels on the DAO’s Discord or Telegram.

2. Temperature and Consensus Checks

Because of the constraints described above, the next step in the process is off-chain signal voting, and depending on the size of your DAO, you may not need these, or you may need multiple rounds. Uniswap has a temperature check that assesses interest in the proposal and requires the involvement of 25k $UNI tokens to move forward, then a consensus check that requires 50k tokens to participate.
These signal voting processes are usually conducted via hybrid Web2/3 platforms like Snapshot or Discourse, but can also be conducted via in-chat polling on Discord.

3. On-chain Vote and Execution

Next, the proposal moves to an on-chain vote. You can use tools like Tally, sybil, boardroom, and Compound Governor for this process, but as mentioned above, often the final execution responsibility lies with the signers of the multisig wallet. 

There are a number of emerging governance tools that streamline the process outlined above, and provide checks and balances to ensure execution reflects the goals of the community. Among these is Gnosis SafeSnap, a plugin that utilizes an oracle to verify that a proposed multisig transaction was actually voted for, keeping administrators accountable to the community. Gnosis is making these tools platform-agnostic with Zodiac and its Reality module, allowing for off-chain sentiment from any platform to trigger on-chain execution.

Another developing governance framework is judiciary infrastructure: tools like Kleros, Aragon Court, and Tally SafeGuard allow for working groups to move quickly and execute while still maintaining accountability via independent value and budget checks. These “courts” have the power to revoke transactions or reclaim funds if deemed necessary. 

Contributions, Compensation and Reputation

Once you’ve set up the foundations of your DAO—org structure, governance, treasury—it’s time to start building, and to bring the creativity, drive, and skill set of your community into the fold. This is the contributor journey: empowering the members of your DAO with a sense of ownership, belonging, and contribution to a shared mission. It’s a challenging and constantly evolving process, but there are a few tools that will help you along the way.

1. Educating Your Members

Your DAO’s most valuable asset is the community that comprises it. Anyone who takes the plunge in joining a Web3 native organization so early is already a visionary, and if they choose your DAO, it’s because they resonate with your mission.

DAOs today are filled with founders, engineers, researchers, designers, artists, product managers, students, activists, lawyers, and economists (to name but a few!)—a collection of domain-specific skill sets and talents whose intersection you can’t find anywhere else.

Your responsibility isn’t to teach them how to do their jobs because you can’t be more of an expert than they are when it comes to domain-specific knowledge. Instead, you should be focusing on making sure that everyone has an equal information framework from which ideas can be launched: give each member a detailed overview of how your DAO structure works, and they’ll start proposing ideas on how to improve it. It’s the same idea with vision and goals: lay out a set of metrics and a pathway for success, and iteration will happen itself.

The other thing the space desperately needs, especially if you’re developer-focused and intend to build Web3 native projects, is education about the transition from building in Web2 to Web3. Directing developers to tools and platforms like Buildspace, 101.xyz, Layer3 and Web3 University is the fastest way to get them up to speed and ready to build.

2. Getting Them to Build Things

As you design your contributor journey, it’s important to make sure it is the path of least resistance. Members should have easy access to many different types of projects for a variety of skillsets. Often, DAOs start by making bounties or quests available—bite-sized tasks that can give members a relatively easy way to get involved and be a part of the DAO’s mission. Tools like Yearn, Gitcoin, and Coinvise, as well as RabbitHole, which verifies bounties on-chain, are great ways to enable bounties for your DAO.

To incentivize more impactful, large-scale, and contributor-driven projects, though, you’ll need to build a reputation system. DAO members should be able to trust one another, as well as the organization they’re a part of. Only then, when they feel like part of a community and a larger mission, will they begin to take on true ownership.

While it might be as simple as setting up Discord Roles and rewarding contributors with XP, tools like Govrn, Gitcoin, RabbitHole, and SourceCred are all working on solutions to the reputation problem. As the applications of Proof of Attendance Protocol (POAP) grow, eventually these might be used for reputation management as well.

3. Rewarding Them For It (in more ways than one!)

If DAOs are to be the future of work, they need to be able to compete with the corporate compensation structures that exist today, while also providing a sense of ownership and community, unlike today’s traditional companies.
There are many ways to compensate your members—tools like Sablier and Superfluid allow for direct payments, Roll and disperse.app allow for bulk token distribution, and Gnosis Safe enables grant funding.

DAOs can even offer more complex structures similar to employee stock option plans by taking advantage of integrations with the DeFi ecosystem. Learn more here and here.

Determining the value of different types of compensation is another challenge. Some DAOs have “compensation committees” or build governance structures to standardize types of contributions and weight them by what they’re worth. More recently, though, DAOs have been working with tools like SourceCred and Govrn to enable the community to assign these weights. Perhaps the most popular of these community-driven systems is Coordinape, a tool that allows for members of working groups to determine payment for one another, cutting out the possible inaccuracies of a centralized value model.

HR and Benefits is currently an underserved DAO tooling vertical. Currently, the biggest player in the space is Opolis, a platform that supports independent workers in Web3 by providing the security of health, dental, and vision insurance, FSA and HSA, PTO and holidays, retirement plans, and other benefits in partnership with DAOs. Opolis is an employer-agnostic shared services layer, meaning that benefits are attached to the individual worker rather than the DAO they work for, and contributors can work for many different DAOs without losing these benefits. 

Frontend and Analytics

Blockchains are the fundamental protocol layer of Web3. They are complex, highly technical, and very difficult for the average person to understand and work with. In the same way that tools like Alchemy allow developers to build applications on the blockchain, there exist tools for blockchain analytics, a “frontend” that everyone can interact with. These tools include Etherscan, a block explorer that allows for tracking of individual transactions and network traffic, and Dune Analytics, a dashboard creator that enables detailed, customizable analytics for blockchains.

While these tools are useful to all blockchain-users, DAOs often require more specialized frontend tools that provide insight into operations, often with the capability for member engagement/discussion around voting, treasury, and governance.

For now, there aren’t any tools that provide all these services at once, but commonly used by the DAO community are Tally and Boardroom, which provide governance tools like proposal voting for members, voter profiles, and vote delegation information. Voting power information is especially important because it makes visible how ownership and control is aggregated—is it community granted, or is it bought up by the highest bigger?
 
DeepDAO is a DAO database that allows community members to sort and rank communities by treasury size, number of members, and voter participation. It also enables analytics for individual community members, with statistics such as number of DAOs they belong to, proposals/initiatives they’ve brought forward, votes they’ve cast, and tokens they own. This information can help members of individual DAOs decide who they’d like to delegate voting power to, much like the voting history of traditional politicians in a representative democracy.

On Legal and Regulatory Challenges

The DAO as an organizational structure is still in its infancy, and there are very few laws and regulations around it. In an attempt to address this issue, Wyoming has already become the first US state to enact a law designed to slot DAOs into the traditional LLC system to alleviate personal liability. This first bill doesn’t address all possible use-cases, nor does it consider the decentralized nature of DAOs.

While some DAO communities first rose as a way to avoid governmental regulation, the space has become impossible to ignore—sooner or later, it will be fully regulated. In the US, there are even lobbying groups working to make sure that process serves the best interest of builders in the Web3 ecosystem!
Learn more about some challenges surrounding the regulation process here.

In the meantime, though, anyone starting a DAO should do careful due diligence on the legal restrictions in the area their DAO will operate, especially if they hope to invest in securities or ventures, or own physical assets.

In these cases, some DAOs need to work with a partner organization that handles interactions with these assets—an LLC. LinksDAO, a community that raised over $10 million to purchase a golf club for its members to use, must handle the purchase process through a corporation, incorporated and run by the founders of the DAO.

Because of the complex laws surrounding the subject, DAO votes can only serve as suggestions as to how the LLC spends its money. While the LinksDAO leadership is committed to a faithful execution of their community’s wishes, this is really only a patchwork solution for now, relying on the trust placed in a few key individuals rather than a systematic, trustless process that directly translates community intentions to action. A system like this, supported by the necessary legal infrastructure, is what the DAO community envisions, and it is still in the works.

When starting a DAO, it is of the utmost importance that you consult a lawyer and thoroughly educate yourself on the process to avoid running afoul of any regulations in pursuit of your goals.

Choosing a DAO Framework

We’ve covered a number of complex topics so far. You may be asking yourself how much of this you have to build from scratch, or piece together with a patchwork of tools and services.

The good news is that in many cases, there’s an easier solution! Support is expanding for full-service tooling suites, or operating systems, that manage everything you’ll need at once, both on-and-off chain, especially if you have a specific use-case. And even if you don’t, there are a number of category-defining DAOs that you can learn from as you create your own fork.

Source: @Coopahtroopa

Source: @Coopahtroopa

1. Operating Systems

Because no two DAOs are the same, and all have different needs and goals, the best operating systems focus on modularity, flexibility, and extensibility.
Some widely-used frameworks include: 

  • Orca Protocol: a lightweight, modular tool that allows for the creation of pods, or working groups, that act as SubDAOs, with their own membership and governance. Pods can set their own custom rules to determine membership, allowing for more targeted incentives and accountability. 
  • TributeDAO: a framework that enables a modular set of smart contracts, low-cost deployments, and custom extensions.
  • DAOHaus: a full-service tool that allows for the creation/management of a DAO, including treasury, membership, proposals, and individual membership profiles.
  • SyndicateDAO: a framework for investing DAOs, facilitating end-to-end creation and management, including investments in on-chain (tokens, NFTs) and off-chain (startups via a legal entity) assets, legal entity creation, and mirrortables.

If you think your DAO idea might better be served by a more rigid framework, some tools worth exploring are Colony, DAOstack, Aragon, and Moloch.

2. Category-Defining DAOs

As you get ready to launch your DAO, the best place to find inspiration is to see what’s already being done. Let’s take a look at some of the biggest DAO categories and the communities that are building within them!

1. Investing Together

If you’re looking to gather a community to invest in and manage on-chain and off-chain assets, the best way to get started is with SyndicateDAO—this framework will provide everything you need to get started. MetaCartel Ventures is an example of a premier investment DAO that is looking to disrupt venture capital.

2. Raising for a Cause

For more ambitious projects that involve larger, community-run purchases, often for a shared cause, look to DAOs like LinksDAO and ConstitutionDAO for inspiration. They bootstrapped quickly, aligned around a shared mission, and raised many millions of dollars with the intent to purchase a golf club and an original copy of the Constitution, respectively.

When it comes to nonprofit causes, projects like Endaoment and ecodao are building ways to give back, working on creative solutions to align altruistic motivations with sustained community effort.

Grants DAOs, often extensions of larger DAOs, serve more generalist causes, like education, funding, empowering contributors, and more. Some Grants DAOs include MolochDAO, Uniswap Grants, and Aave Grants.

3. Service DAOs

A natural evolution of fundraising DAOs, service DAOs are where both funding and innovation align to build meaningful projects and products for themselves and others, hoping to improve on the LLC model. Some service DAOs include RaidGuild, PartyDAO, MetaFactory, and DXDAO.

4. Protocol DAOs

Protocol DAOs manage the tokenomics backend for crypto networks, building DeFi applications, governance tokens, network mechanics, and token distribution. Some applications of these protocols include liquidity mining, yield farming, fair launches, etc.
The frameworks provided by Protocol DAOs like Maker, Compound, Uniswap, Aave, Yearn, and Sushi allow for any network to issue and manage tokens. 

5. Social and Education DAOs

Social DAOs create incentives through social capital, shared experiences, friendships, and digitally-native communities. Friends with Benefits (FWB), Seed Club, and ProsperDAO are excellent examples.

Education DAOs, on the other hand, are focused on onboarding people to Web3, teaching them about the ecosystem, blockchain and frontend development, and empowering them to become builders in the space. The biggest Education DAOs are Developer DAO and Odyssey DAO

6. Anything You Can Imagine

As you can see, the possibilities are endless. Aside from the above, there are Collector DAOs (PleasrDAO), Media DAOs (Forefront), Lobbying DAOs (Lobby3)—anything and everything you can imagine. Get excited to build something new! 

On the Future of DAOs, Decentralization, and Tooling

We’ve covered a lot, and it might feel overwhelming. But the best thing you can do now is just get started! DAOs as an organizational structure are very young, and they’re constantly evolving. The future of DAOs is being built week by week, and tools are evolving to match the players in the space—no truly mature DAOs exist yet.
Maybe yours will be the first. Focus on building enduring, evolving, antifragile structures: when everything changes, make sure the strength of community is your constant.

The larger your community grows, the harder it becomes to make everyone happy—trying to get people to align on decisions will always cause polarization. So instead of trying to make everyone happy, focus on your North Star, and start simple. Think about how you’d like to see your DAO evolve long-term, and what the lifespan of the project might be.

DAOs today are trying to solve society’s toughest problems with a model that has no real playbook. Leading a DAO means finding a careful balance between speed, efficiency, transparency, and decentralized, delegated governance.

To find that balance, you’ll need to keep trying new things, even if they keep failing. Be open with your community and have conversations about ideas that you might disagree with. Your role as a creator is to build the first version of a framework, and then step back. Allow for projects and new voices to grow and thrive, letting your community decentralize. Build in public, and share your strategies, wins, and losses.
Don’t wait for the playbook to be written. Set your own precedent.

Learn how Pentonium, a decentralized freelancing platform, is partnering with Alchemy to build their dApp and grow their DAO-structured, peer-to-peer work community.

This piece was informed and inspired by conversations with Cooper Sherwin from LinksDAO, Rahat Chawdhury  from DeveloperDAO, and David Phelps from ecodao, as well as articles written by Anisha Sunkerneni, Nichanan Kesonpat, Cooper Turley, Florian Strauf, Chris Dixon, Vitalik Buterin, and many others. 


ALCHEMY SUPERNODE - ETHEREUM NODE API

Scale to any size, without any errors

Alchemy Supernode finally makes it possible to scale blockchain applications without all the headaches. Plus, our legendary support will guide you every step of the way.

Get started for free
Supernode footer
ALCHEMY SUPERNODE - ETHEREUM NODE API

Scale to any size, without any errors

Alchemy Supernode finally makes it possible to scale blockchain applications without all the headaches. Plus, our legendary support will guide you every step of the way.

Get started for free
Supernode footer