Blockchain basics: how to start a DAO

Posted on | by Bas Grasmayer

My recent writing has focused on the community dynamics of blockchain-based ‘Decentralized Autonomous Organisations’ (DAOs). I’ve explored:

In this article I will attempt to explain some of the more technical aspects in clear terms for people with little to no experience with these topics. I’ll be diving into the steps outlined in a tweet by Jess Sloss of Seed Club, a DAO that builds and invests in communities.

There’s a comment section below. If anything is unclear or could be worded better: let me know either with a question or by spelling things out more clearly yourself.

How to bootstrap a DAO

People familiar with English-language startup terminology will be familiar with the term bootstrapping: to start something using nothing but your own funds (or in some cases: zero funds). Continue reading to learn how a DAO might do that.

You can’t have a DAO without a great community. I won’t go into that for this piece, but recommend reading How to grow decentralized communities by pet3rpan (before you click out of this website, consider joining the newsletter, so we can reach you in case you get lost in a rabbit hole ;-)).

📥 Drop an NFT or series (on chain revenue)

I think by now, for many people, non-fungible tokens or NFTs have become synonymous with auctionable digital artworks. This is not incorrect, but it’s a little bit like saying MP3s are music, while actually it’s a technology that has lots of uses in terms of audio encryption. A slightly better way of thinking about NFTs is as collectibles.

Non-fungible tokens allow for tracking ownership, as well as functionality like ‘splits‘ which are commonly used to make sure the original author gets money (in the form of cryptocurrency) every time their NFT is resold. This is done through smart contracts: little computer programs linked to a blockchain database that run whenever certain actions are performed or conditions are met.

Although the most publicised use case is 1 NFT of a unique artwork being sold, there are also countless examples of collectibles where 10 people can buy NFTs that represent identical artworks (e.g. this NFT by musician Sevdaliza). The former case would be described as a 1/1 and the latter as a 10/10 run, like a collectible. A series could be a set of NFTs, like a bunch of 1/1s, multiple 10/10s, or any mix like a 1/1 and a 5/5 drop.

This creates on-chain revenue: value stored on the blockchain that the DAO will use to let the community participate and distribute ownership. That revenue is stored in cryptocurrency.

A recent music-related example of a DAO that funded itself with an NFT sale is Songcamp. With the on-chain revenue, it could afford to cover the fees associated with ‘minting’ (creating) an NFT for the participating artists in its first songwriting batch.

🎁 Give NFTs to dope people (on chain community)

On chain community means that you have a way to track, via blockchain, who are the people in your community. Since tokens like NFTs allow people to see who owns them, it’s an easy way to trace ownership back to a DAO (the link between the DAO and the recipient is forever recorded).

  • Step 1: create an address for your DAO on a blockchain by setting up a wallet which allows for transactions and storage.
  • Step 2: create NFTs with that address.
  • Step 3: send the NFTs to addresses of people you want to add to your community.

Now there is a link between your address and theirs, through the NFT. You can see this happening in the above screenshot, but strip away the interface of the auction house and you get something like this.

Here you can see the transfer of a token from one address to another, here indicated as club.eth, which is the same @club from the Zora auction house screenshot and actually also the Seed Club referred to at the start of this post.

A community or service can let you sign in using your wallet (e.g. Metamask) which is a little bit like the type of ‘Single Sign-On’ you’re used to around the web from Google, Facebook, and Twitter. It can then check your wallet for any NFTs or other tokens (I’ll get into this) and grant you special privileges, ranging from simple access to more advanced features.

I was recently lucky enough to get voted into Mirror, a kind of crypto version of Medium, but way more interesting (thanks for the votes!). To participate in the vote, you have to connect your wallet. If you win, Mirror transfers an access token to your wallet. On Twitter that looks like this:

On Etherscan, a tool to read about transactions on the Ethereum blockchain, the above looks like this:

Here you can see 1 address sending 10 tokens to 10 addresses through the execution of 1 smart contract (you can read the code of that contract here). Bonus points if you can figure out which address I hold. 😉

Overwhelming? No worries, the user experience is easier than setting up an internet connection or email in the 90s. In the end you just need a browser extension like Metamask’s to log in to Mirror and when it sees you hold the correct token it presents you this simple interface for creating your account:

🛫 Launch Snapshot + token gated Discord (gov. infra)

To set up the DAOs ‘governance infrastructure’, you can use a tool like Snapshot to let people submit and vote on proposals, plus you create a community for token holders (I’ve described token gating in the previous paragraphs). The latter is commonly done through Discord.

Here’s an example of a proposal for CabinDAO: a community that is creating a cabin residency program for select creators.

Here the community (or DAO) is voting on a linked proposal. It’s essentially deciding to commit a certain amount of funds (15 ETH) and community tokens to the program.

There’s a list of voters – 15 in total. They’re shown as addresses on the Ethereum blockchain and since Jon Gold has registered his name through ENS, I can recognize him and search for him elsewhere. For example, I can see he used his $WRITE token to join Mirror a few months ago. The votes are ranked by the number of community tokens someone holds (the bottom 13 are cut off). I haven’t looked into exactly how CabinDAO has distributed tokens so far, but usually they’re awarded to early community members and rewarded for participation, contribution, or in exchange for things (or cryptocurrency).

🪂 Airdrop ERC-20 tokens (governance to the ppl)

I’ve explained non-fungible tokens already, but haven’t gone into detail about other types of tokens.

ERC-20 is basically the technical standard for token implementation on smart contracts on the Ethereum blockchain. Remember Mirror awarding 10 people with tokens to join their service? It happened in 1 transaction through the execution of a smart contract.

While no two NFTs are alike (and commonly use the ERC-721 standard), ERC-20 tokens are fungible, meaning that they can be interchanged with one another. In simple terms, if I send you 1 $WRITE token mentioned above and you send me 1 $WRITE token, we end up with the same in the end. Trading NFTs would typically leave us with two distinct items.

Through your community’s smart contract, these tokens can give you voting rights or participation rights in a DAO, e.g. access to a Discord server or the ability to vote on proposals on Snapshot or similar.

This is where you might award the buyers of the NFTs with a certain number of tokens created uniquely for your community through aforementioned smart contract, e.g. if it were for my newsletter’s community, I might call them $MUSICX tokens. You’d also give early community members and other supporters some tokens in your community. This incentivises them to get active and start participating in the governance.

This process of distributing tokens among your community is called ‘airdropping’. Now, there’s just one thing remaining:

Use ETH / Tokens to go do cool shit

Like the Friends With Benefits DAO, you could let people buy their way in through exchanging a cryptocurrency (ETH) for tokens ($FWB). This means as a DAO, you have a certain liquidity from token sales. So as a community, you can use tokens to incentivize certain actions (e.g. creating a residence program for artists in a cabin) and you can use ETH to cover certain costs, from renting the cabin, to infrastructure, to perhaps paying a few developers to build your website.

That’s it. All of the above is using the Ethereum blockchain, but there are other blockchains out there that support similar functionality.

Go organise your community and if you’d like to invite me – send me a token at basgras.eth or a tweet @basgras.