August 13, 2021

How to create your own DAO with Aragon

Overview

Blockchain provides us with the power of decentralization. Decentralization means the transfer of power to users/members rather than having a single centralized authority governing everything; it enables various use cases in finance, governance, voting, fundraising, etc. Today we will learn about one such fantastic application of decentralization through DAOs. By the end of this guide, you should better understand what a DAO is and how to create your own.

Prerequisites:
  • An Ethereum node.
  • MetaMask.
  • Some Rinkeby test ETH.

What is a DAO?

For decades the Principal-agent problem has been one of the biggest problems with traditional organizations. This problem occurs when an individual or entity makes decisions in their interest against moral principles, and these decisions affect the other stakeholders. For example, when an individual or entity has significant shares amongst the board, they become automatically more powerful than other members. Digital currencies are decentralized and cannot be controlled by a single entity; inspired by this emerged the concept of DAO, which stands for Decentralized Autonomous Organization, an organization governed by a set of rules written in smart contracts. This organization is controlled by its participating members.

All of the financial records, decisions, and any decision-making factors are transparent in a DAO because all of its actions are recorded on the blockchain. DAOs are generally created to form an organization of like-minded folks; there is no CEO, no boss, all the decisions are governed by the group's approval. DAOs have a treasury that is inaccessible to anyone without the permission of the group.

Let us see some differences between traditional organizations and DAOs.



Traditional organizations:
  • Has a hierarchical structure.
  • A change can be made by an individual or entity based on authority.
  • Voting is conducted internally and manually.
  • Is typically private and centralized.

DAOs:
  • Does not follow any hierarchy and is fully democratized.
  • Voting from the group members is required to approve a change.
  • Voting is conducted automatically without the intervention of any central authority. 
  • Is transparent to the public and decentralized.

Membership/participation
Now that we have a basic understanding of DAOs let us see how memberships are modeled in them. Different membership models usually determine how voting works in a DAO and its outcomes. Two types of popular membership models are token-based and share-based memberships.

- Token-based memberships.
These types of memberships are used to govern broadly decentralized protocols and are fully permissionless. Tokens are distributed through liquidity or permissionless decentralized exchanges. Holding these tokens grant members the right to vote.

- Share-based memberships.
These types of memberships are used to govern human-involved efforts like charity, fundraising, investments, etc. This is a more closed type of permissioned DAO, where members are allowed voting rights based on their shares which are usually offered in exchange for some tokens or proof of work.

We will create our very own DAO using Aragon and MetaMask to approve transactions.

What is Aragon?

Aragon is an Ethereum dApp that makes it really easy to launch a DAO; the open-source project is led by the foundation team Aragon one.

Booting an Ethereum node and setting up Metamask

We will deploy our DAO on the Rinkeby Testnet and use a QuickNode Rinkeby Node for faster transactions. You can get a free trial Rinkeby Node from QuickNode and set it up in MetaMask.



Now we will need some test ETH to make transactions. Head over to the Rinkeby faucet, follow the instructions and get yourself some test ETH.

Creating our own DAO

Head over to the Aragon dApp and follow these steps:

Step 1: Select your QuickNode Rinkeby Node in your MetaMask wallet (You should have test ETH in your wallet at this point, at least 0.2 test ETH is needed to proceed).

Step 2: Click on the ‘Connect account’ button and select ‘MetaMask’ and approve the request from MetaMask.

Step 3: Select ‘Ethereum Testnet (Rinkeby)’.

Step 4: Click on ‘Create an organization’.


Now select a template for your organization; we are using the ‘Company’ template in this example.


Select the template and click on ‘Use this template’, then enter the name of your DAO.


Now set the following.

Support percentage: This is the percentage of tokens required to approve the voting in favor of a yes; for example, if the support percentage is set to 50%, more than 50% votes from the overall votes have to be yes to get the proposal passed.

Minimum approval percentage: This is the percentage of yes votes required to approve the proposal from the remaining pool of tokens.

Vote duration: This is the duration within which the participating members can vote.

Set up these values according to your will, or refer to the image below for example values. Go to the next step to set up the token.


Enter a desired name and symbol for your token. Then enter the token holders/members of DAO and allocate tokens to them. Review information and hit ‘Launch your organization’.

At this point, the MetaMask window will pop up for transaction approval, confirm the transaction (2 in total), and you should be good to go.

Note: Don't select the speed-up option in MetaMask during the transaction processing, and do not refresh the window.

Once both the transactions are confirmed, you should be presented with a window similar to this:


Click on get started, and now let us create our first proposal question to begin the voting process.

Click on ‘Voting’ from the left menu and then click on ‘New vote’, create a new proposal question, and open it for voting (this will be counted as a transaction as it is a write operation).

Once the proposal is live, members can vote yes or no, and the voting window will be open for the time duration set in the earlier steps. In our case, it is 14 days

Conclusion

Congratulations on being sovereign and creating your decentralized autonomous organization. In this guide, we learned about DAOs, the difference between traditional organizations and DAOs, how to set up a node in MetaMask, and how to get test ETH; last but definitely not least, we learned how to create a DAO on Aragon and how to vote in a DAO.

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