Applying DAO tools to create and operate an investment DAO

Key insights

• The article gives an example of using DAO tools to create and operate an investment DAO.
• DAO tools have a big role to play in creating a transparent organization where any member can know and participate in the organization’s decisions.
• This is extremely suitable for the crypto market and it is highly likely that if the crypto market develops, the DAO segment will also grow.
• However, DAO tools cannot help with every problem and still require other skills to build and operate a DAO.

In the context of centralized organizations facing many problems with transparency and abuse of power, more and more users want to establish or join a DAO that is suitable for them. DAO tools are indispensable if you want to create and operate a DAO. The article gives examples and comments on the application of DAO tools to create and operate an investment DAO.

Correct understanding of DAO

KNIFE (Decentralized Autonomous Organization) is a decentralized autonomous organization. Thanks to the application of blockchain technology, DAO allows members to easily access and verify the recommendations and actions of the organization and they can participate in the decisions of the DAO.

To make the process of creating and operating a DAO easier, many DAO tools have been developed.

While the current DAO tools are very diverse in functionality, as a user, using the right tools is better than trying to use a lot of tools to build and operate a DAO.

See also Synthesis of DAO tools.

Blockchain in general and DAO in particular is not a miracle that solves all problems. Before starting to implement a DAO one should clarify the advantages they can bring and the disadvantages of implementation. What makes a DAO different from working in a traditional team or organization is that you have easy access to the DAO’s plans.

Even if you are not at the top of the organization and have little influence over the decision of the DAO, transparency will help us to leave the organization at any time and ensure our own interests. . This will help prevent events like FTX, Three Arrows Capital, Genesis from happening, causing great damage to the participants.

Below the author will analyze an example of creating and operating an investment DAO from the very beginning until many members.

How to Create and Operate an Investment DAO

overview

• Purpose: DAO focuses on investing and generating profits from the market.
• DAO Size: Starts from 10 people and expands to 1,000 members.

Start with a small group

Starting from a small number of less than 10 members, this is a group that works with passion and has known each other for a long time. Initially the group has little activity, usually if there is an investment opportunity in the market, they will notify you on chat groups like Telegram or Discordthose who are interested can use their own money to buy.

However, the problem gradually arises, Ethereum has high transaction fees, especially when the network is congested, self-playing will cost more. In addition, there are many potential opportunities but the cost of capital is as high as PFP NFT, run nodehold a minimum amount of tokens to stake,… If the capital can be divided equally among the members, the profit and risk ratio can be distributed more reasonably.

Therefore, the need to establish a common fund of the group appears, usually the fund holder is the most reputable and experienced person in the group. Ask for a favor blockchain, anyone can track the fund’s transaction history and know the related movements. The amount of money put into the fund of members is flexible depending on ability, activities and investment information are managed in quite simple apps such as Google Excel, Notion, Miro,…

At this time, the cohesion of the organization is mainly based on trust and members will be directly responsible for the risks from the investment.

Such an implementation is highly dependent on the fund holder and causes many problems because it is impossible to be sure whether they have bad behavior with the fund or not. And whether their decision is supported by other members.

Applying DAO tools is very suitable for the above situation.

To increase the fund’s security, the team can use the tools of Gnosis Safe. Gnosis Safe allows to store assets under a multi-signature mechanism (multi-sìg), whereby instead of being managed by one person, the fund will be managed by many people, only when the majority approves the transaction will be approved. Gnosis Safe’s products are used in most of today’s DAOs.

For example, if a fund has 3 members contributing money, it must be approved by 2 members before it can use assets in the fund.

To make all decisions transparent and the proponent can consult with members of the organization, they can use the Snapshot tool. Snapshot is a platform that allows DAO members to make proposals, vote (vote) and discuss DAO-related proposals.

One note is Snapshot and Gnosis Safe are two separate tools, which means that even if the members of the organization disagree with the use of the funds, the Gnosis Safe wallet can still be deployed if the majority of the fund managers approve. Therefore, members’ assets are still at risk, but they can know the bad behavior of the organization and take measures to protect their interests. Gnosis is developing a tool to link voting to wallets, which means that only when the proposal is approved in the voting applications will the fund’s transaction be approved.

Besides Snapshot and Gnosis Safe as the most direct tools, readers can refer to similar tools in the summary of DAO tools. There are already many tools that provide frameworks for users to make it easier to create a DAO such as Colony, Aragon, Syndicate, etc. However, their limitations are lack of flexibility and users have to accept UI/ Available UX of the project.

Solving the problem of transparency and asset security, the group officially became an investment DAO.

Extend

Everything went smoothly and the members made a lot of money from the market. To increase the profit rate and influence they started thinking about expanding the DAO.

The current purpose of the DAO is to recruit more qualified members. These members can be researchers with a lot of experience in areas where the DAO does not have an advantage, or they can be data analysts (Data Analysis) so that the DAO can strengthen its investment thesis, or have can be programmers, … In general, the DAO will hire more members in line with its expansion orientation.

To find members, DAOs can use existing relationships or post and search on Web3 job search sites. The author has compiled a number of Twitter of Web3 job search sites in the article summarizing the DAO tool. Readers can refer here.

Once a new member has been found, communication and management will still be done on the applications in use. Communication applications such as Telegram, Discord, … or task and resource management applications such as Notion, Miro, Trello, … can meet most of today’s needs.

Suggestions for monthly salary or benefits were discussed on Snapshot. If recruiting new members requires a salary (many people join just to have access to investment opportunities and do not need salary), now instead of looking for an accountant to pay salaries and bookkeeping, we just need to use asset streaming tools.

Asset streaming is a tool that allows automatic deployment and execution of cash flows at the same time over time on-chain without the user having to interact too much. Money from the payer will be sent to the recipient every second, every minute… depending on the settings. This gives the recipient more flexibility in how the funds are used and helps reduce the burden of payments. Besides, thanks to blockchain, the payment amount will always be transparent to members.

Outstanding applications of Asset Streaming can be mentioned as Sablier on Ethereum, Superfluid on Polygon or StreamFlow on Solana.

As the number of people in the DAO increases, the decentralization of membership needs attention, the top contributors and the first DAO participants should have greater authority. At this point, the DAO can issue a discussion token and distribute it to its members. With an investment DAO, each member’s share of tokens will correspond to the percentage of revenue they receive and the right to decide in each DAO proposal.

There are now many video tutorials on how to create tokens and there are many tools to help create tokens that do not require programming experience such as: Cointool, Tokenmaker,…

Up to this step you have basically successfully created a decentralized investment fund (Ventures DAO) similar to BitDAO, TheLao, MetaCartel Ventures,… Depending on the size and scale that the DAO wants to develop, DAO can flexibly apply tools to achieve the desired effect.

If top members have difficulty managing the DAO, they can use tools that help visualize and analyze member behavior. This tool branch is still in the development stage and not many projects have products. A few notable names include Sobol and Beyond.

In addition to recruiting more quality members with good expertise, DAO can also expand into community development to increase influence. With knowledge and experience, community development is not difficult. Applications like Telegram, Discord, Twitter are suitable platforms for large user files.

DAO can earn additional revenue in many different ways when there is a large enough community. If they want to be able to raise capital for DAO tokens, members who own certain tokens will enjoy the benefits of DAO such as joining a hidden Discord group, sharing profits, participating in investment opportunities, …

There are many tools to help verify membership eligibility completely automatically such as: GuildXyz, 101,…

At this time, the size of the DAO will grow very quickly and the number of members can reach thousands to tens of thousands.

The reverse side of the DAO

Above is an example of creating and operating an investment DAO. In addition to investment DAOs, there are many DAOs with different purposes that we often see such as DAOs of DeFi projects to discuss and decide on the development direction of the project. Another example is the DAO Guilds like Yield Guild Games, GuildFi,… for the purpose of promoting and profiting from GameFi.

Depending on the purpose of establishing a DAO, the application of appropriate DAO tools will vary. However, the key thing that distinguishes a DAO from a normal group or organization is the transparency of information and anyone can contribute to the overall development direction.

Given the above nature, we can see that DAO is more suitable for crypto market than the traditional market. The fact that everything is so clear and everyone can access the organization’s suggestions and actions creates problems related to information security and many other disadvantages. Contrary to the transparent nature of blockchain, DAO has become the norm for most DeFi projects and many other areas in general.

DAO tools are a major contributor to the creation of DAOs. However, they are not all-powerful. Creating and operating an organization whether in the crypto market or the traditional market still requires skills related to governance and interpersonal skills. How DAO can encourage its members to contribute and how to distribute benefits equally among members,… will be difficult problems that DAO needs to overcome in order to develop.

Epilogue

DAO tools have a big role to play in creating a transparent organization where any member can know and participate in the organization’s decisions. This is extremely suitable for the crypto market and it is highly likely that if the crypto market develops, the DAO segment will also grow. However, DAO tools cannot help with every problem and still require other skills to build and operate a DAO.