There are many different DAO models. The cost to set up a DAO is not expensive and there are now more possibilities to set up a DAO on any number of templated platforms and even add any turnkey legal implementation needed, such as an LLC wrapper in Wyoming or Vermont.
Starting out, however, the hardest part of the process is first to understand incentivization for all parties concerned, and thus structure all the rules for token awards, governance, and how other agreements will work. Second, the founding team will need to engage a community that will support the launch of the new organization.
Below is a checklist of questions to answer before you begin, taken from other models.
Use this list to work with your team and community to see what is the best option for your envisioned organization:
What is the Purpose and Goals of your DAO?
You should create a written statement of the Mission and Goals of the DAO that will guide your vision, editing along the way as you gain more sophistication in the conceptual, financial and legal considerations. However, you need a strong guiding light, and that is the mission.
Caution must be exercised in choosing a DAO’s purpose and function. For example, if a DAO is offering a banking or insurance product, regulatory requirements will undoubtedly be trigger regulators
Why is a DAO needed or advantageous at all? If you can’t answer, don’t create a DAO.
What is the incentivization model and what value does centralization provide?
List each type of stakeholder and how they will be engaged.
Is there a unique benefit to using this model?
How much control do the founders require, and will there be a schedule to surrender control as the organization evolves?
What is the structure of the treasury?
The assets held by your DAO should be used to further your organizational goals, so make sure you have an outline of your goals when brainstorming this issue with your team.
Are revenues strictly based on token sales or what other ways can members earn tokens?
How many tokens will be created and on what schedule will they be distributed?
Will the founders hold back tokens and how many?
What will be the ownership and voting rights?
What voting rights will token holders enjoy?
What percentage of token holders are necessary to hold a vote?
What percentage of the vote is required to make a change? For example, the Dao bylaws could require a simple majority of those voting to approve a purchase and a different percentage for a major shift in direction.
How many votes do you anticipate will be required per year and what for? If it’s too many your members may not be able to participate fully.
What is the mechanism for disaffected participants to get their money out if, as it’s known in the DAO world, they “rage quit” over the outcome of a vote?
Are there other rights that token holders will have, such as memberships or access?
What do you anticipate will be the team & administrative requirements?
Who will be on the core team?
Larger DAOs eventually need to hire full-time staff in order to maintain assets, handle administration, and develop protocols, even if fully decentralized. What positions do you anticipate the DAO will need?
Who will be your founding community of token-buyers and token-earners?
You need a community. If you do not have one, you will need a plan to build one. Who are the external stakeholders you will need to involve?
Will you use social media platforms, which ones, and how?
What goes on the website?
Are there other marketing ideas to deploy?
What is the legal structure?
What type of business structure will the DAO deploy (see legal issues)?
What platforms and companies will you contact to explore these options?
What is the risk management plan?
Most DAOs have asset portfolios that largely consist of highly volatile assets. So risk management should be a priority, including smart contract error.
What types of insurance do you need order to limit liability to founders and members?
If one forms a limited liability company such as Wrapped DAO or True DAO and does not respect the laws and requirements that they are subject to (e.g., using the DAO’s funds as one’s personal funds to make purchases unrelated to the DAO’s purposes), a court can disregard the entity in later litigation, i.e. piercing the corporate veil. What is the plan to limit these risks?
Once these DAO’s rules are defined and placed into a white paper, the technical creation of the DAO is the easiest part.