DAO NFTs: What They Are and How They Work?

David Akilo
By David Akilo
Marcel Deer
Edited by Marcel Deer

Published June 6, 2022.

NFTs spelled out on four cards hung on a string with pegs

A DAO NFT platform leverages the concept of NFTs and DAOs to create decentralized community-run organizations capable of making changes to existing rules and policies on the platform. These DAOs are usually originally NFT collections before integrating the DAO model into the operation.

To become a member of these types of DAOs, one will need to own their native NFT, which will serve as a membership card and allow the user to vote on community proposals.

Unlike regular NFT collections where the creators are fully in charge of the project, DAO-enabled NFT platforms give this power of ownership and control to the community of holders of their NFTs.

These DAOs aim for democratization by redistributing the voting power of control amongst members or holders of their NFTs. The practicality of this approach ensures that every member can issue changes, give reviews, and generally play an active role in the community's future.

How Do They Work?

DAO NFT platforms function like regular DAOs. The only difference is that there is usually no native token; instead, we have native NFTs. As a decentralized autonomous organization (DAO), NFT-powered DAOs operate autonomously through a regulated set of rules embedded in algorithmic programs or smart contracts.

Smart contracts govern the DAO, and, in combination with blockchain technology, they allow DAOs are transparent and autonomous because they use open-source blockchains that anyone can visit and inspect their code and record all financial transactions.

NFT-powered DAOs mint NFTs and provide them to those willing to join the organization. Members that own more of the DAO's NFTs will also have greater voting power; this provides members of the DAO with an incentive to purchase and hold its NFTs.

Are DAOs Profitable?

DAOs generate funds through recurring investments from users. In the case of NFT-powered, they generate funds when members purchase NFTs. Different DAOs have different mechanisms for obtaining profits. Some DAOs operate as venture capital firms and use their community funds to invest in upcoming crypto, NFT, or other DeFi projects. If these projects become successful, they share the profits with the community members.

A DAO can only be as profitable as designed. The projects they invest in, the proposals put forward by the community, and the financial savviness of those initially in charge of the DAO all play a role in determining how profitable a DAO is. In the end, the profitability of a DAO rests on the investment capabilities and visionary ideas put forward by its community.

Although DAOs are not a recent concept in the blockchain ecosystem, their primary use case is practical—they unite a group of investors to push toward a common objective. This utility provides real-world merit since it simplifies the process of starting companies and removes a lot of bureaucracy. Anyone can create a DAO, build a unique selling point around the organization, attract investors by offering them membership and a chance to vote on its future, and introduce a profit-sharing mechanism.

Despite this, there are still advantages and disadvantages of a DAO. DAOs have only recently been striving to make a comeback following the unfortunate hack of Genesis DAO. The space is still mostly unregulated and evolving, so eventually, most of the demerits should become a thing of the past.

How to Create an NFT DAO

Creating an NFT DAO should begin with designing and minting an NFT collection. This is the primary idea behind an NFT DAO—a decentralized organization that leverages NFTs to give users membership and other perks.

The technical aspect will involve coding and implementing the DAOs design. You will also need to figure out how NFTs factor into membership access and voting capabilities. For instance, will 1 NFT = 1 vote? DAO creators need to understand and develop a workable structure for the proper functioning of the DAO. You can take a look at the guide to start a DAO for more details.

Aside from NFT integration, other technical details involve creating and deploying the DAO's smart contracts. The smart contract must be beta tested to ensure it runs smoothly and is absent of bugs or exploitable loopholes. Then, you can deploy the project on a blockchain network.

After creating smart contracts for the NFT DAO, the DAO must choose an indirect means of funding for the smooth running of the protocol governance. In this case, the DAO's NFTs will be minted and sold to raise money.

How to Invest in DAO

If you're looking to invest in DAO project, you can get started by following the steps below:

  • Make a fiat deposit via an e-wallet transfer or bank transfer on a decentralized exchange of your choice
  • Change the fiat currencies to BUSD, USDT, or ETH (for NFTs)
  • For regular DAOs, you can access their platform, connect your wallet and deposit the right cryptocurrency for membership
  • For NFT DAOs, you will need to buy their native NFTs on a marketplace like OpenSea
  • You can invest in a DAO by purchasing and holding their native tokens or becoming part of their community and earning from their revenue sharing startegy