Understanding DAOs

If you have made it to Upstream, you probably have heard about or are interested in DAOs.

In this guide, we will explore what are DAOs, the benefits of DAOs, and things you should know before starting a DAO.

What is a DAO?

A DAO, or "Decentralized Autonomous Organization", is an organization represented by rules encoded as a smart contract that is written on a blockchain network. This allows the creation of organizations where decision-making, financial, and governance rules are written in code.

Upstream combines this technology with a simple user interface to provide an inituitive and full toolkit to manage your DAO.

Using the acronym, you can remember that DAOs are:

• Decentralized: DAOs are not controlled by a single entity or a centralized institution but are governed by a network of individuals.

• Autonomous: DAOs operate automatically and independently. Once the rules are established in the blockchain, they can operate without human intervention unless the rules are changed.

• An Organization: DAOs, like traditional organizations, are collective entities that serve a specific purpose. They can range from investment groups to charity organizations, or any other type of collective endeavor.

Below are some DAOs examples and their missions:

• UkraineDAO - Fundraising for the Ukrainian government and NGOs.

• LinksDAO - Raised money to buy a golf course.

• KlimaDAO - Using crypto to combat climate change.

What are the benefits of a DAO?

There are some unique benefits that DAOs bring versus traditional communities:

Shared Community Ownership

A great way to align incentives is to turn community members into owners of the community. This way, when members contribute to the community, they participate in the upside of their efforts. Aligning community members around the group’s mission creates a sense of shared skin in the game. In a DAO, tokens represent ownership in the community and are often proportional to a community member's voting power.

Higher Community Engagement

In a world of nearly unlimited choice when it comes to how we spend our time, a community leader might be worried about engaging and retaining their communities. By aligning incentives through shared ownership, you increase community member accountability and engagement.

Continuous Community Feedback

One of the great things about DAOs, is that all decisions are made by the community, for the community. Because decisions are made by majority vote on proposals, and any community member can make a proposal, you can be certain that you’re getting accurate feedback on what community members actually want to do. Community-made proposals ensure that all voices are given the opportunity to be heard. This also produces better outcomes for the community, as it provides the opportunity for a greater variety of ideas than one person could come up with alone.

Increased Community Funding

In addition to time, community leaders can end up investing a lot of their own ($$$) resources to sustain their community or have to raise outside funds to do so. There are several ways to structure membership to a DAO, with one way involving members contributing funds into the shared community wallet once they are accepted to the community. By having community members contribute into the shared wallet, you’ll have a central source of funds to be working from. No more scraping together sponsorship dollars, or trying to get people to Venmo you after an event. When your community votes on what activities they want to do, you’ll be able to immediately take action because you have the funding to do so.

Greater Opportunities to Reward Contributors

If you want to provide an opportunity for community members to get involved and be rewarded for their contributions, a great way to make community members feel seen is by rewarding them with DAO tokens. You can recognize and reward top community contributors who are attending events, inviting new members, helping plan events, and any way that adds positive value to the community.

Things to consider before starting a DAO

DAOs are an exciting way to organize members and take community action. Several key considerations should be taken into account before starting a DAO:

• Identify Mission: Defining the mission or goal of the DAO is crucial. It gives direction to the entire organization and helps align the members' efforts.

• Form a Founding Team: Assembling a team of passionate and knowledgeable individuals is important for the successful launch and operation of a DAO.

• Understand Legal Requirements: Depending on your DAO, additional legal structures may require to be put in place before launching. It's good practice to get legal advice when setting up your DAO.

• Define Roles and Responsibilities: The roles and responsibilities of members should be defined clearly to ensure smooth functioning.