In the last few years, I’ve seen more and more communities experiment with a new way to finance local projects: DAOs (Decentralized Autonomous Organizations). Instead of asking a bank for a loan, residents, entrepreneurs, and local associations use a DAO to pool funds, vote on which projects to support, and track spending transparently on the blockchain.
In this article, I’ll explain in clear, practical terms how to use a DAO to finance local projects without going through banks, what tools you can rely on, the legal and technical risks you should be aware of, and concrete steps to launch your own community DAO.
What is a DAO and why does it matter for local projects?
A DAO is a type of online organization governed by rules written into smart contracts on a blockchain. Instead of a central authority (like a bank manager or a board of directors), the rules and decisions are enforced by code and by token holders who vote.
In practice, a DAO for local projects works like a digital cooperative or association with:
- A shared treasury (usually in crypto assets such as ETH, USDC, or a stablecoin)
- Clear rules on how funds can be spent, encoded in smart contracts
- Voting rights tied to tokens or membership units held by participants
- Transparent accounting because all transactions are recorded on a public blockchain
For local communities, this model is interesting for several reasons:
- No need for bank approval: you don’t depend on credit scoring, collateral, or traditional risk models.
- Global access to capital: anyone in the world can support a local project if they believe in it.
- Real-time transparency: residents can verify how each euro or dollar is used.
- Community empowerment: decisions are collectively owned, not controlled by a small group.
For example, a neighborhood could create a DAO to fund a community garden, a co-working space, or solar panels on public buildings, instead of waiting for a bank loan or slow municipal budgets.
How a local funding DAO usually works
To make this concrete, I’ll walk through a typical workflow for using a DAO to finance local projects:
- Step 1: Define the scope and mission – The community agrees on what types of local initiatives it wants to fund (e.g., cultural events, green infrastructure, social enterprises).
- Step 2: Create the DAO and its governance rules – A smart contract is deployed that defines how tokens are distributed, how proposals are submitted, and how voting works.
- Step 3: Raise capital – Participants contribute funds (crypto or sometimes fiat converted to crypto) in exchange for DAO tokens or membership rights.
- Step 4: Submit project proposals – Local entrepreneurs or associations submit structured proposals asking for funding from the DAO treasury.
- Step 5: Community voting – Token holders vote on which proposals to approve. If a proposal passes the threshold, funds are released according to predefined conditions.
- Step 6: Execution and reporting – Project teams use the funds, report progress, and key milestones can trigger additional funding tranches.
This entire lifecycle is managed without a bank, relying instead on a combination of blockchain infrastructure, governance platforms, and community norms.
Tools and platforms to launch a local funding DAO
Creating a DAO used to require custom smart contract development. Today, I can set up a basic DAO using no-code or low-code tools. Here are some of the most practical options:
- Aragon – A platform for creating DAOs on Ethereum and other chains. It lets you define roles, permissions, and voting rules through a user interface.
- DAOstack / Alchemy – Focused on governance and proposal management, useful for complex decision-making structures.
- Gnosis Safe + Snapshot – Gnosis Safe manages the treasury as a multi-signature wallet, while Snapshot allows gasless off-chain voting that is still verifiable.
- Arbitrum, Polygon, or other L2s – Using a layer-2 network reduces transaction fees, which is crucial for smaller local projects with limited budgets.
If I wanted to start a DAO for my city’s local businesses, I would likely use:
- A Gnosis Safe to hold the treasury.
- Snapshot for voting based on tokens or NFT memberships.
- A low-fee blockchain like Polygon to avoid high gas costs on Ethereum mainnet.
Funding models: how money actually flows
A key question is: how do I structure the financial side so that the community DAO can sustainably finance projects without a bank?
There are several models you can use, sometimes in combination.
- Grants model: The DAO gives non-repayable funds to projects that meet certain social or environmental goals. In this case, contributors act more like donors or patrons than investors.
- Revenue-sharing model: The DAO funds a local project (for example, a café, a shared workspace, or a solar farm) in exchange for a percentage of future revenues. Smart contracts can automate revenue distribution.
- Tokenized equity or profit rights: Local projects issue tokens representing a claim on future profits or equity-like rights. The DAO purchases these tokens and may later resell them.
- Community lending model: The DAO offers loans to local projects at pre-agreed rates and conditions, potentially lower than banks, with repayment terms defined by smart contracts.
For instance, a DAO could invest 50,000 USDC in a local solar mini-grid co-op. The co-op signs a revenue-sharing agreement: 20% of net revenues flow back to the DAO treasury for 10 years, distributed proportionally to token holders. Payments are made automatically every month via smart contracts that read data from energy meters through oracles.
Case study: DAO funding a neighborhood coworking space
Imagine I live in a mid-sized town where many freelancers and small startups lack affordable, flexible workspace. Instead of asking a bank for a loan, the community creates a “CoworkDAO” to finance the launch of a neighborhood coworking hub.
Here is how it could work step by step:
- Community formation: 120 local residents and entrepreneurs join an online forum and agree to explore a DAO solution. They define a mission: “Fund and manage a community-owned coworking space.”
- Initial capital raise: Each member contributes between $200 and $2,000 in stablecoins (like USDC) or by card payment converted to crypto through a partner platform. They receive CoworkDAO tokens proportionally to their contribution.
- Governance rules:
- Each token gives one vote.
- To approve a project-related proposal, at least 20% of tokens must participate, and 60% must vote “yes”.
- Spending above $10,000 requires a higher quorum and multi-signature approval from elected stewards.
- Proposal and vote: A local team proposes to rent a 300 m² space, renovate it, and operate it under a cooperative model. They request $60,000 from the DAO treasury, with a commitment to share 30% of annual net profits back to the DAO.
- Smart contract agreement: The DAO and the project team sign a digitally enforceable agreement. A portion of revenues is automatically sent to the CoworkDAO treasury each month.
- Ongoing participation: Members not only funded the space but also decide collectively on pricing, opening hours, events, and reinvestment priorities via regular proposals and votes.
This example illustrates that a DAO is not just a funding vehicle; it is a governance tool that keeps the project accountable to its community.
Legal, tax and regulatory considerations
Before launching a local funding DAO, I always recommend taking legal advice in your jurisdiction. Regulations are evolving quickly, and there is no one-size-fits-all model. However, there are common themes to consider:
- Legal wrapper: Many DAOs create a legal entity (such as a cooperative, foundation, association, or LLC) to interface with the traditional system (leases, employment contracts, taxes). The DAO then controls this entity.
- Securities laws: If DAO tokens represent a right to profits or are sold with an expectation of financial return, they may be considered securities. This can trigger strict regulatory requirements.
- Tax implications:
- Contributions to the DAO may be considered investments or donations.
- Revenue distributions to token holders may be taxed as income, dividends, or capital gains.
- The DAO treasury may owe corporate or entity-level taxes depending on structure.
- KYC/AML: Some jurisdictions require identity checks for participants, especially if you raise significant amounts or interact with fiat on-ramps.
Ignoring these aspects can create serious risks for organizers and participants, so I treat legal and tax alignment as a non-negotiable part of DAO design.
Key risks and how to mitigate them
Using a DAO does not magically remove risk; it simply changes its nature. When I design or join a local funding DAO, I pay attention to several risk areas:
- Smart contract vulnerabilities: Bugs in the code can lead to loss of funds. To mitigate this:
- Use audited and battle-tested DAO frameworks when possible.
- Limit the number of custom features in the first version.
- Start with small sums and progressively increase exposure.
- Governance capture: A few large token holders could dominate decisions. To reduce this risk:
- Consider quadratic voting or one-person-one-vote for some decisions.
- Set maximum voting power thresholds for any single address.
- Encourage wide distribution of tokens, especially in the local community.
- Volatility and currency risk: Crypto asset prices can be highly volatile. For local projects, I usually:
- Hold most of the treasury in stablecoins pegged to a major currency.
- Use hedging strategies if necessary for long-term commitments.
- Operational complexity: Many residents may not be familiar with wallets, private keys, or crypto basics. To address this:
- Use user-friendly wallets (including social login or custodial solutions for some users).
- Organize workshops to explain how to use the DAO tools safely.
- Provide clear, step-by-step guides in local languages.
Data and early evidence from DAO experiments
Even though the space is young, some numbers help understand the potential scale. According to data aggregated by DeepDAO, total DAO treasuries surpassed $30 billion at various peaks between 2021 and 2023, with thousands of active participants across major DAOs. While most of this activity is currently focused on DeFi and Web3 infrastructure, a growing share involves real-world assets and local or impact-driven initiatives.
For example, several “ReFi” (Regenerative Finance) DAOs have raised millions to fund reforestation, carbon credits, and community-led environmental projects. This suggests that a well-designed local DAO could realistically raise hundreds of thousands of dollars in a mid-sized city, especially if it can attract both local and global supporters.
Practical roadmap to create your own local funding DAO
If you want to apply these ideas to your own situation, I recommend the following pragmatic roadmap:
- Clarify your mission:
- Define the type of local projects you want to fund (social, cultural, environmental, entrepreneurial).
- Write a one-page manifesto that explains why you are using a DAO instead of a bank.
- Build a core team:
- Gather 5–10 committed people with complementary skills (tech, legal, community organizing, finance).
- Align expectations on time commitment and decision-making culture.
- Engage your community early:
- Host online and in-person meetings to explain the concept.
- Collect feedback on what governance model people find fair and understandable.
- Choose your tech stack:
- Select a blockchain with low fees (Polygon, Arbitrum, Optimism, etc.).
- Use a treasury tool like Gnosis Safe and a voting tool like Snapshot or Aragon.
- Design a simple governance model first:
- Start with straightforward rules: quorum threshold, voting period, spending limits.
- Allow for future upgrades as the community learns.
- Secure legal and tax advice:
- Identify a suitable legal wrapper (association, cooperative, foundation, etc.).
- Clarify the tax treatment of contributions and revenue distributions.
- Launch a pilot project:
- Instead of funding many projects at once, pick one or two pilot initiatives.
- Document every step and share results transparently with the community.
- Iterate and scale:
- After the pilot, survey participants on what worked and what didn’t.
- Adjust governance, communication, and financial models before scaling up.
By following these steps, I can progressively build a DAO that not only bypasses banks for local project financing but also strengthens democratic participation, transparency, and long-term community ownership. The technology is already mature enough to experiment; the real challenge lies in designing fair governance and building trust, one local project at a time.