How to run a DAO

Launching a DAO is just the first step. Running it effectively, in a healthy and community-centric way, requires preparation and active management of its governance, community, and treasury. This means having knowledge of common pitfalls as well as best practices. We've tried to gather the necessary information in this page.

Note that other guides exist online, which you can take inspiration from:

How to build, manage, and grow your DAO community | Aragon Resource Librarywww.aragon.org

Launching a DAO: the 3 Stages and Legal Works for DAO Projectswww.legalnodes.com

How to Create a DAO: A Simple 6-Step Processwww.wearedevelopers.com

Before You Start

Launching a DAO is exciting, but rushing into it without preparation can lead to decision deadlocks, voter apathy, or even security risks. Before deploying your DAO smart contracts, make sure you’ve addressed a few key questions.

What's the DAO's Purpose?

Begin by crafting a concise "mission statement" for your DAO. This means defining its purpose in one or two sentences. For example, "The XYZ DAO will manage the treasury of the XYZ Fan Token project, funding community initiatives and granting rewards to supporters."

Next, define the scope of the DAO: what the DAO can and cannot decide on. This could includes areas such as token supply changes, budget allocations, potential partnerships, etc.

Finally, define the longevity of your DAO. Is it short-term (tied to a specific event), or designed to be permanent?

How will the Community Work?

Once you’ve defined the purpose of your DAO, the next step is to decide how decisions will actually be made. This is called a "governance", and it's the backbone of your organization. Poorly-designed governance rules can quickly lead to community stagnation or conflicts.

Start by choosing a membership and voting model: the simplest is 1 token = 1 vote, though this risks dominating by "whales" (those who own a large amount of tokens). Alternatives like "quadratic voting" (fairer for small holders) or "delegated voting" (members entrust votes to active representatives) can help balance power. You'll need to explore options.

Next, set quorum and thresholds so that proposals can’t pass with too little participation. For example, you can require a minimum turnout and decide whether proposals pass by simple majority or "supermajority". Finally, design a clear proposal process: from drafting, to community discussion, to on-chain voting. This ensures legitimacy and transparency.

What About the Tokenomics?

A cryptocurrency project's tokenomics (token+economics) explains the design and distribution of its native digital tokens.

Here is Chiliz' own tokenomics for the CHZ token explained, for instance:

Tokenomics

In case of a DAO's tokenomics, it should ensure that governance or Fan Tokens are fairly distributed so that participation isn’t dominated by a few holders. Think about incentives: Whether voting, proposing, or contributing should be rewarded to keep members engaged.

Plan for the DAO’s treasury funding as well, whether through token sales, allocations, or fees.

Above all, avoid concentration of power: a DAO where most tokens sit idle in a handful of wallets isn’t truly decentralized.

Other Aspects to Explore

Beyond governance and tokenomics, there are two areas often overlooked when launching a DAO: technical readiness and legal awareness.

On the technical side, always test your setup on Spicy Testnet before moving to Chiliz Mainnet, and ensure critical actions like treasury transfers use secure multisig wallets. Good key management (ideally with hardware wallets) is essential to protect DAO admins and signers.

On the legal side, DAOs operate in a gray zone that varies by jurisdiction. Some countries treat them as partnerships or unincorporated associations, while token issuance may trigger securities or financial regulations. Even if your DAO aims to stay lightweight, it’s wise to publish a simple risk disclosure or charter so members know the boundaries and responsibilities.

Taking time to address these "non-governance" aspects upfront reduces both technical risks and regulatory surprises.

The Core of a DAO

Even in a decentralized structure, a certain leadership is critical for a DAO's health and sustainability. Leadership does not mean to have a single leader, but responsibilities to be distributed among active contributors.

Governance Launch

As a project founder, your aim in creating a DAO is to give your community full autonomy and decentralization. However, this is unfeasible in early development stages, as many concepts require testing. To maintain flexibility and enable rapid iteration, manual intervention in smart contract operation is necessary.

Early manual interventions could be for instance:

• In case of low participation, you might need to adjust quorum, voting periods, or proposal rules.

• In case of poorly-framed proposals, you might need to manually executing or relaunching stalled proposals.

• For safety reasons, the DAO's treasury might be held in a founder-controlled multisig for a while.

• etc.

Community Engagement

At the core of any DAO is its community. When setting up a DAO for your project, there are key community activities that you should have a plan for:

• Onboarding: Create clear instructions for new members on how to acquire your project's tokens, participate in discussions, and vote on proposals.

• Communication: Maintain active communication channels (e.g., Discord, Telegram, or a online forum like Discourse) to discuss proposals, announce voting periods, and share results transparently

• Culture: Foster a collaborative and constructive environment where members feel empowered to contribute.

Governance Management

This involves managing the lifecycle of proposals, which are the primary mechanism for making decisions.

• Proposal Pipeline: Establish a clear process for a proposal, from an initial idea discussed in the community to a formal on-chain vote.

• Clarity and Standards: Ensure that proposals submitted for a vote are clear, well-defined, and contain all necessary information for members to make an informed decision.

• Parameter Reviews: Periodically, the DAO should review its own governance parameters (e.g., vote duration, quorum thresholds) and propose adjustments if necessary.

Treasury Oversight

The DAO's treasury is meant to be its collective resource. Prudent management is essential for long-term success.

You will need:

• Transparency: Provide regular, easy-to-understand reports on the state of the treasury, including income and expenditures, to the DAO's community. All transactions are public on the Chiliz Scan explorer, but summarizing them is helpful.

• Budgeting: Propose operational budgets for initiatives, contributor rewards, and other recurring expenses.

• Security: Ensure treasury funds are secured, typically through a multi-signature (multisig) wallet controlled by trusted community members or the DAO itself, requiring multiple approvals for transactions.

DAO Best Practices

Strong governance is the engine of a successful DAO. Follow these best practices to ensure your decision-making process is robust and effective.

Crafting High-Quality Proposals

A well-crafted governance proposal is essential and must include a clear title, a concise abstract, and a detailed motivation outlining the problem or opportunity.

The proposal should also feature a comprehensive specification with technical details, costs, and timelines, a strong rationale for the chosen solution, and measurable expected outcomes.

Failed that, you could lose the trust of your community

Encouraging Voter Participation

Voter apathy is the death-knell of a DAO. It's up to leadership to combat it.

Here are proven strategies:

• Ensure ample discussion time for proposals, allowing for a "temperature check" before an on-chain vote.

• Use all communication channels (X.com, Telegram, Discord, etc.) to clearly announce new proposals and their voting deadlines.

• Make complex technical proposals more accessible, with summaries and explainers for all members.

You could also consider small voting incentives to help encourage participation. This idea should be approached with great care.

Managing Contributor Rewards

The DAO's valuable asset (besides its treasury) is its active contributors. A formal system to reward them ensures that the DAO's work gets done.

There are two main funding mechanisms that can be used for the DAO's members and projects:

• Bounties can be used to fund specific, one-off tasks.

• Grants can support larger, member-led projects that align with the DAO's mission.

Additionally, contributor stipends can provide recurring payments to individuals or groups performing essential, ongoing functions, with all such payments requiring approval via a governance vote.

DAO Common Pitfalls

This table serves as a summary of all that we described so far.

Pitfall	Description	Mitigation Strategy
Voter Apathy	Consistently low turnout on proposals, which can stall decision-making and lead to governance by a small minority.	Implement strong communication practices. Simplify proposals and ensure members understand the impact of their vote. Ensure quorum levels are realistic.
Poor Proposal Quality	Vague or incomplete proposals are put to a vote, leading to confusion, wasted treasury funds, or unintended consequences.	Enforce a standardized proposal template. Require a community discussion and feedback period before any on-chain vote.
Whale Domination	A small number of token holders (whales) have enough voting power to control the outcome of every vote, defeating decentralization.	Encourage wide token distribution from the start. Consider governance models like quadratic voting (if supported) that reduce the power of large holders.
Operational Security Risks	DAO members are targeted by phishing scams, or treasury funds are compromised through poor private key management.	Educate members on security best practices. Use a multisig for treasury management. Never ask members for their private keys.