Building a decentralized autonomous organization is risky.
When you work with an independent community, decision-making is faster, but such autonomy leaves space for misunderstandings, too. Some contributors might not have the same values as you do, and they might try to take advantage of the DAO for their own benefit.
How do you start a DAO and make it work?
Sergej Kunz, Co-founder of 1inch Network, shares his experience creating a great product in the blockchain field and turning it into a DAO. He talks about the lessons he learned regarding safety, communication, task-prioritization, and alignment.
This blog post was written based on episode 70 of the Level-up Engineering podcast hosted by Karolina Toth.
This post covers:
DAO stands for Decentralized Autonomous Organization. If you start a DAO, you’ll have instant governance within your organization. Decision making will be faster and easier, because it doesn’t require direct human hierarchical management.
People who participate in the DAO receive governance tokens for their contribution. These tokens enable them to make decisions about the organization’s future by voting or creating proposals. It’s still in an experimental phase, but some organizations have already started to implement it.
We’re an open organization. Anyone can join and become a core contributor. You can join as an individual contributor or as part of a team, and you can build something that can be integrated into the network.
Everyone who uses our services got 1inch tokens from the foundation to participate in the DAO. Participating in the DAO means voting for specific settings in the protocols.
With this system, we tried to eliminate long, overcrowded meetings. We wanted to get things done quickly and efficiently. It’s easier to decide something by taking a vote on it.
Our first step was to determine a specific value for the liquidity pools. Then we introduced a treasury—a multisignature wallet owned by the whole DAO. The organization earns and collects money as a community. All the money from our revenue stream is in this treasury.
Then the community decides what to do with the money together as well. Some ideas come from the core contributor team. They propose it on the forum, and if the proposal goes through, it gets deployed. Sometimes, proposals have a financial reward attached to them. If the network needs something to be built, and someone implements it, they can get money.
We participated in 17 hackathons, and built something different each time. We built 1inch to solve a huge problem in decentralized finance: we aggregated multiple liquidity sources in order to reduce the price impact for exchanging tokens on Ethereum blockchain.
It became famous because we solved a problem with it. When you build something that solves a problem, people will use it, because it helps.
We built our project over two nights, and we didn’t sleep at all. We went through the hackathon, and pitched our idea to everyone. Someone said that this is going to be the next big thing. A few days later, we recognized that people started using 1inch. They did swaps, because they got better rates there than on other platforms.
In the beginning, we were working on this project during the night, and had our regular jobs during the day. We weren’t funded for a year.
Luckily, we got some support from the community through Bitcoin grants, so we had some money to pay others to participate in this project. We started to build a contributor community to work on 1inch.
A year later, we had 2-3 people helping us, and we were able to raise the first financial round from a lead investor and some other good investors. They gave us money, so we were able to build on it.
We came to the point where questions arose which we couldn’t answer on our own. We had a lot of protocols and settings in place, but we didn’t have the right expertise to add more. Our idea was to reach out to experts who would potentially be interested in improving 1inch with us, and we invited them to join our community.
We had a great network thanks to all the hackathons, so it was easy to build an active community. The foundation distributed the tokens among the community members, so they can directly participate in 1inch. The members started voting on the settings and the protocol layer. We needed their expertise to improve our protocols, so inviting them to participate helped a lot.
From the development point of view, starting a DAO wasn’t a lot of work.
Development is still in progress. We want to improve 1inch constantly, and a lot of ideas come from the community. For example, they work on projects like enabling users to sign transactions from their wallets via snapshot, or reducing the locking period.
Make sure that everything you release is safe. A lot of hacks happen because people release codes without auditing it, or pay less attention to auditing it.
We try to organize as many audits as possible. Before the latest release, we had 10 audits. It’s a lot, and it’s an expensive process, but we need to ensure that everything built by the core contributors is fully secure and well-audited.
It’s okay to make mistakes. Just make sure that you spot them before you put the code into production.
We made the mistake of trying to work with people who weren’t as committed as we were. They wanted to stay in the project as core contributors because it was profitable for them. For us, it was never about the money; it was about building a great product.
We also had situations where people were trying to participate as core contributors, but they didn’t put in the effort. We wasted a lot of energy, time, and money on them. It wasn’t that surprising, because people change, especially when they get a lot of money.
If people only stay for the money and they aren’t passionate about the project, it makes no sense to work with them. All our core contributors work on this project with us because it’s changing the world. If you’re here for personal gains only, no one will want to work with you in this community.
Our organization works similarly to other famous DAOs, like Uniswap or Compound. Anyone can participate, even without owning governance tokens. As long as someone is active on our forums, and they help others with their experience in DeFi and DAOs, the foundation rewards them.
You can ask the foundation to get integrated into a team, or you can be a single contributor as well. As a single contributor, you can also ask to be accepted into one of the labs which work on their own product. The foundation accepts lab projects based on what’s profitable and what improves the network.
When it comes to decision making, there are some limitations. First, you need a specific amount of governance tokens to create a proposal. You also need to get other people’s support from the community to pass the proposal to governance.
We have a lot of different proposals for 1inch Network right now. We’re planning a new approach for executing swaps. We already have a highly efficient execution process, but we’d like to introduce an additional protection layer for all the people who are using swaps.
If someone is contributing through the labs, but the labs don’t want to work with them anymore, they can decide to remove that person. This can happen if someone doesn’t keep their deadlines, or if they abuse the system for personal gain.
The person removed from the labs can still ask the foundation to let them contribute as an independent contributor, but if other contributors don’t like working with them, and they clearly abuse the network, it doesn’t make sense to keep them.
We have different teams, like the mobile wallet teams, the app team, the informational services team, the algorithm team, the microservices, and the backend. Each team has its own set of ceremonies for communication, and I keep in touch with all of them, to keep them aligned.
We also have our core contributor calls, and we try to organize a core contributor event once a year. We’re already 120 people, so this time, it’s going to be a huge event. As for our communication channels for the community, we use Twitter, Discord, Telegram, and our forum.
Every team should be aligned to a shared goal. We have discussed a global strategic direction, and we are working towards that.
The teams communicate with each other, but they also have autonomy to solve certain problems by themselves. We are aligned and in sync, so we can work efficiently.
Sometimes, it’s difficult to stay aligned. Some teams are working differently from others; they don’t communicate with other teams, and that causes issues. I have calls with every team; it’s my responsibility to help them get in-sync and understand these pain points.
I also inform teams about what other teams are up to, and I encourage them to help each other if they need it. Some issues are urgent, and we cannot move forward unless we fix them.
If I started a DAO now, I wouldn’t change anything, because I don’t think that there’s a best way to do it. Every way is unique, including ours. I don’t think any other company implemented everything exactly the way we did.
It was a learning experience for us to start a DAO this way. The only reason why I would consider choosing another way is because I’ve already experienced one method, and I would like to try a new one.
Build something in your own way, and keep building. If you fail, stand up, and do it again. Eventually, you’ll reach your goals if you are persistent.
Look at us: we participated in 17 hackathons, and only one project, 1inch Network, became popular. But if we gave up after the first hackathon, we would’ve never made it here.
Sergej has been a software architect for 18 years. He worked in several startups before starting 1inch Network with co-founder Anton Bukov 2 years ago.
He’d been traveling around the world participating in hackathons for a long time, and created 1inch Network in one of them. He realized the importance of working on a meaningful product during that period.
He’s passionate about innovation, meeting new people, and creating positive changes in the world.
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About the author:
Dorottya Csikai is a content marketer at Coding Sans. She has experience in journalism, interviews, management and content marketing. She researches, writes and edits posts for the Engineering Leader's blog.