DAO stands for Decentralized Autonomous Organization. Simply put, a DAO is an organization formed by smart contracts where the members (typically token holders) collectively decide how the organization or the product evolves. Example scenarios:
10'000 token holders each deposit crypto into a smart contract and vote on what to purchase with the total.
1 million token holders control a decentralized version of Twitter where token holders propose and vote on feature updates.
A DAO can take the role of carrying out community-driven decisions on when and how to update the code that shapes the organization or product.
SNS stands for Service Nervous System. An SNS is a powerful form of DAO that allows communities to govern smart contracts and decentralized apps (dapps) running on the Internet Computer (ICP) completely on chain. Main things to note about SNS:
A dapp controlled by an SNS DAO is governed by SNS token holders submitting and voting on on-chain proposals. No one developer or group of people controls the dapp, rather the dapp is controlled by voting via tokens.
There can be many SNSs on ICP. A developer can turn their dapp into a DAO by handing the control of their dapp over to an SNS DAO.
DAOs are a growing form of organization for accomplishing goals. For example, in the ETH ecosystem, Uniswap and MakerDAO are popular DAOs with billions of dollars locked in their respective smart contracts. However, ICP is unique in that it can host fully-on chain dapps (frontend, backend application logic, and data), so SNS DAOs are unique in that they can fully control (via voting) every aspect of a dapp, since everything is on-chain. Having fully on-chain DAOs is important because it enables all decisions to execute on the blockchain. This is in contrast to existing DAOs on other blockchains where voting takes place on-chain but the execution of the results are often carried out by developers off-chain. This facilitates true decentralization.
Therefore, SNS DAOs serve as a vehicle to deliver fully decentralized online services that are owned and governed by their communities.
SNS-1 is the first SNS DAO that DFINITY launched on the mainnet to test an SNS decentralization sale with involvement of the ICP community. The SNS-1 test exposed areas of improvement, which are currently being addressed. The SNS-1 dapp is now controlled by the community of token holders who will collectively determine its future. Since SNS-1 was meant as a test, it is unusual among SNSs in that it was launched as a blank canvas without a product or developer team. Future SNSs will likely be derived from established ICP dapps. SNS-1 tokens are available on ICDex.
The ICP community has expressed much interest and enthusiasm for the launch of the SNS technology. OpenChat has already publicly announced their plans to turn their dapp into an SNS DAO in Q1 of 2023. Dapps such as distrikt, Catalyze, Canistore and Nuance are considering creating their own SNSs.
Once you have acquired SNS tokens, you can lock them into SNS neurons and create a proposal or vote on one. Depending on the SNS configuration, users who vote may be rewarded with additional tokens for participating in governance. If you want to get more deeply involved, you can also suggest feature updates through proposals to improve the dapp controlled by the DAO.
Each SNS DAO will have its own unique SNS token. For example, OpenChat will have CHAT tokens when they turn their dapp into an SNS DAO.
There are three main ways of acquiring SNS tokens:
Participate in a decentralization sale: When an SNS launches, it has to go through a decentralization sale. You can participate on the NNS frontend dapp under the Launch Pad tab. During the sale you can buy SNS tokens with ICP.
Purchase tokens on a decentralized exchange (DEX): After a decentralization sale has concluded, liquid tokens will typically be listed on multiple DEXs, where you can buy them using the ICP utility token or other tokens, depending on what token pairs the DEX lists, e.g., also Bitcoin or Ethereum. An SNS token in high demand may have a higher price on a DEX than in its decentralization sale. ICDex already supports SNS tokens.
Airdrops: Besides buying SNS tokens, you can obtain them by receiving airdrops or by engaging with the dapp and thereby earning tokens as reward. In this scenario, tokens are used as an incentive to encourage active engagement with the dapp which helps grow the active user base. Finally, if you already have tokens and participate in governance, you can earn tokens as voting rewards as you would in the NNS.
From the ICP ecosystem's vantage point, the Community Fund aids in bootstrapping the SNS DAO ecosystem, and re-invests in the continued growth of the ecosystem. The Community Fund itself is controlled by a DAO (the NNS).
From a user's vantage point, the Community Fund is a way for people who stake ICP in the NNS to use their maturity to fund future SNSs, which results in higher diversification. As the NNS decides how the Community Fund is distributed, those participating in it can leverage the broader community's "wisdom of crowds" to decide which SNS tokens to acquire.
You can find out more about the community fund here.
A decentralization sale is the process by which an SNS DAO becomes decentralized and where users can purchase SNS tokens by participating. After the sale, each participant receives a basket of neurons holding SNS tokens. It is one of multiple ways one can get SNS tokens for a particular SNS DAO.
A decentralization sale is run entirely on chain. The sale is initiated by the NNS. Through this approach, every aspect of the sale, from its initiation to execution, is completely decentralized and not controlled by any centralized entity. Even the decision to create the SNS and its token is made by the NNS (a DAO) and not the developer in order to avoid undesirable legal implications for the developer who wants to decentralize their app.
A decentralization sale follows a list of configurable parameters:
The amount of SNS tokens to be sold
The amount of ICP a decentralization sale must receive to be successful. If the goal is not reached, participants get their ICP refunded and the sale fails.
Minimum and maximum commitment of ICP per participant
If the decentralization sale is successful, you will receive a basket of neurons that hold your SNS tokens. The basket may contain multiple neurons with different dissolve delays, depending on the SNS configuration. You can use your tokens to participate in governance or, once neurons have dissolved, sell the liquid tokens on an exchange.
The number of SNS tokens you receive, and the price paid for each token, depends on the amount of ICP raised during the sale. The more ICP raised, the fewer SNS tokens you receive.
You can participate in the decentralization sale in the NNS frontend dapp, which requires ICP utility tokens. ICP tokens can be exchanged for the SNS tokens during the decentralization sale. If you don’t have ICP, you can buy some from any of the exchanges listed here.
Follow these steps to participate in a decentralization sale:
1. Go to the NNS frontend dapp and click on the “Launch Pad” in the sidebar to see all ongoing SNS decentralization sales.
2. Select the SNS Sale you’re interested in under “Current Launches” and click on the box.
3. Click on “Participate”.
4. Type in the amount of ICP you want to participate with or click “max”, then click “Execute”.
5. You will be prompted to review your participation. If you see the correct amount of ICP, select the checkbox and click “Execute”.
6. On the last screen, you should see the amount of ICP you entered for participation. You can repeat this process if you wish to contribute more.
Once the sale ends and is successful, you receive SNS tokens. The number of SNS tokens you receive, and the price paid for each token, depends on the amount of ICP raised during the sale as well as the amount of ICP spent. The more ICP raised, the fewer SNS tokens you receive.
If the set goals of the decentralization sale are not reached, participants will be refunded. The duration of a sale is configurable and thus, depends on the configuration of each individual SNS. A sale can only start after a 4 to 8-day NNS voting period (unless 51% majority is reached sooner) on the original proposal that initiates the launch the SNS.
Is it possible to transfer SNS tokens to another person?#
Yes. SNS tokens are ICRC-1 tokens and can be transferred between any Internet Computer-based wallets that support ICRC-1, including your NNS wallet. Note that each SNS has its own ICRC-1-compliant ledger for keeping track of its tokens.
When receiving your SNS tokens in the form of neurons, the neurons may have dissolve delays, meaning your tokens may not be liquid, i.e. transferable immediately. Rather these tokens become liquid (transferable) in weeks, months, or years’ time, depending on the dissolve delay of the respective neuron.
Is it possible to sell SNS tokens to another person?#
Yes. Because tokens can be sent to other people, they can likewise be sent to exchanges and thus swapped for other tokens. The easiest way to sell SNS tokens is through a decentralized exchange (DEX) that lists the token. You can exchange SNS tokens for other tokens, depending on the token pairs available on any DEX.
Likewise, you can acquire SNS tokens on a DEX in exchange for other tokens.