The Yoruba Tribe in Nigeria is credited with the origination of “esusus”, commonly referred to as “sou-sous” in the United States. They’re community-based savings clubs, where members contribute an equal amount of money periodically over a “cycle” and gain the right to withdraw the total monthly contributions once per cycle. Esusus can be dated back to the 1770s when the system was used by Oyo traders. In the case where twenty-four community members contribute $100 per month for a twenty-five-month cycle, each month one member gets the right to withdraw $2,400 and use it for whatever purpose they desire. One month of contributions is rewarded to the leader of the esusu for managing the process. This type of fund is effective because members gain access to more capital at once from the collective pool than would otherwise be possible individually.

Sure. Esusus empower and amplify the financial freedom of community members. Still, there are challenges with making these community-led pools work. An “alajo” is the leader of the esusu whose responsibility lies in managing the inflow and outflow of funds. The alajo is typically rewarded by receiving at least one month’s worth of total pool contributions. Since these funding systems usually aren’t very formal, alajos may misguidedly hoard more than a month’s worth of funds. In the worst case, alajos run off with all the money in the esusu. Snakes in the grass. 

There are some real challenges with trusting facilitators in a centralized system. Even community members shouldn’t be trusted. The member who gets the first round of funds has to be trusted the most; they can take their round of funding and dash off before paying the remaining periods of the cycle. Sure, there’s some social risk, but in some cases, the social consequences aren’t harsh enough. You’re forced to rely on the fact that all members are “good people”.

When I sell people on why I think that decentralized autonomous organizations (DAOs) are important, I always use a pretty simple explanation. DAOs enable trustless group-based decision-making. I like to refer to it as a process of entangling the voting and execution layer. In the case of esusus, no matter what arrangement the alajo sold you on, they still can run off with all of your money. DAOs introduce different rules that protect the funds of members.

The Compound Governor smart contract has been the de facto standard for creating on-chain DAOs. The components of the DAO are a governor, a voting token, and a timelock. The governor smart contract allows members to create proposals that are voted on by community members. The standard voting choices are “For”, “Abstain”, or “Against”. Administrators define what percentage of members need to vote at minimum for a proposal to have a “quorum”. A quorum is required to execute the defined action in a proposal. Votes are cast using a voting token, which is similar to a regular token with some added functionality. The token keeps track of the voting power of accounts and which users that tokens are delegated to. Only delegated tokens can be used for casting votes on proposals. Currently, the industry standard for participation or quorum is 4% of governance tokens. 

The voting process has a handful of configurable settings: a voting delay, a voting period, and a timelock delay. The voting delay defines the amount of time between when a proposal is created and when members can actually cast a vote. The voting period is straightforward. The timelock delay brings us to another smart contract that’s commonly a part of on-chain governance. Members should have the right to leave a DAO, if they disagree with a governance decision. The timelock is a component that creates a time delay before a successful proposal can be executed. This time gap lets members leave if they want to. A successful proposal can be “queued” and then executed after the timelock delay passes. 

Now, what’s a proposal? Well, each governance proposal has a set of standard parameters: a description, what function can be executed if the proposal is successful, any values associated with the proposal, and the address of the code that needs to be called on the execute the proposal. This is powerful. When a governance token holder votes, they can see exactly what will happen if the proposal is successful. In the case of an esusu, monthly contributions can be funneled to a zero-interest lending pool, and withdrawals from the pool can be configured to only initiate through governance proposals. This removes the ability for an alajo to secretly steal the funds or even take more than one month’s worth of contributions. If the alajo tries to do something fishy with funds through a governance proposal, community members can vote against the proposal. They wouldn’t be blind-sided since the proposal process is completely transparent.

Thurman uses a similar approach to governance. We’ve created a community-led business line of credit on Ethereum that serves diverse-led small businesses. Members have complete custody over the cryptocurrency they supply to the lending pool and businesses can only borrow through a successful governance proposal that creates a business line of credit associated with their account address. Community members are aware of exactly how much money is lent, at what rate, and at what maturity. Prior to voting, they’re equipped with high-level information about the business that allows them to make an informed voting decision. Thurman as a company can’t play favorites. It’s ultimately up to the community to decide who gets funding. That’s the power of DAOs.

The Yoruba Tribe in Nigeria is credited with the origination of “esusus”, commonly referred to as “sou-sous” in the United States. They’re community-based savings clubs, where members contribute an equal amount of money periodically over a “cycle” and gain the right to withdraw the total monthly contributions once per cycle. Esusus can be dated back to the 1770s when the system was used by Oyo traders. In the case where twenty-four community members contribute $100 per month for a twenty-five-month cycle, each month one member gets the right to withdraw $2,400 and use it for whatever purpose they desire. One month of contributions is rewarded to the leader of the esusu for managing the process. This type of fund is effective because members gain access to more capital at once from the collective pool than would otherwise be possible individually.

Sure. Esusus empower and amplify the financial freedom of community members. Still, there are challenges with making these community-led pools work. An “alajo” is the leader of the esusu whose responsibility lies in managing the inflow and outflow of funds. The alajo is typically rewarded by receiving at least one month’s worth of total pool contributions. Since these funding systems usually aren’t very formal, alajos may misguidedly hoard more than a month’s worth of funds. In the worst case, alajos run off with all the money in the esusu. Snakes in the grass. 

There are some real challenges with trusting facilitators in a centralized system. Even community members shouldn’t be trusted. The member who gets the first round of funds has to be trusted the most; they can take their round of funding and dash off before paying the remaining periods of the cycle. Sure, there’s some social risk, but in some cases, the social consequences aren’t harsh enough. You’re forced to rely on the fact that all members are “good people”.

When I sell people on why I think that decentralized autonomous organizations (DAOs) are important, I always use a pretty simple explanation. DAOs enable trustless group-based decision-making. I like to refer to it as a process of entangling the voting and execution layer. In the case of esusus, no matter what arrangement the alajo sold you on, they still can run off with all of your money. DAOs introduce different rules that protect the funds of members.

The Compound Governor smart contract has been the de facto standard for creating on-chain DAOs. The components of the DAO are a governor, a voting token, and a timelock. The governor smart contract allows members to create proposals that are voted on by community members. The standard voting choices are “For”, “Abstain”, or “Against”. Administrators define what percentage of members need to vote at minimum for a proposal to have a “quorum”. A quorum is required to execute the defined action in a proposal. Votes are cast using a voting token, which is similar to a regular token with some added functionality. The token keeps track of the voting power of accounts and which users that tokens are delegated to. Only delegated tokens can be used for casting votes on proposals. Currently, the industry standard for participation or quorum is 4% of governance tokens. 

The voting process has a handful of configurable settings: a voting delay, a voting period, and a timelock delay. The voting delay defines the amount of time between when a proposal is created and when members can actually cast a vote. The voting period is straightforward. The timelock delay brings us to another smart contract that’s commonly a part of on-chain governance. Members should have the right to leave a DAO, if they disagree with a governance decision. The timelock is a component that creates a time delay before a successful proposal can be executed. This time gap lets members leave if they want to. A successful proposal can be “queued” and then executed after the timelock delay passes. 

Now, what’s a proposal? Well, each governance proposal has a set of standard parameters: a description, what function can be executed if the proposal is successful, any values associated with the proposal, and the address of the code that needs to be called on the execute the proposal. This is powerful. When a governance token holder votes, they can see exactly what will happen if the proposal is successful. In the case of an esusu, monthly contributions can be funneled to a zero-interest lending pool, and withdrawals from the pool can be configured to only initiate through governance proposals. This removes the ability for an alajo to secretly steal the funds or even take more than one month’s worth of contributions. If the alajo tries to do something fishy with funds through a governance proposal, community members can vote against the proposal. They wouldn’t be blind-sided since the proposal process is completely transparent.

Thurman uses a similar approach to governance. We’ve created a community-led business line of credit on Ethereum that serves diverse-led small businesses. Members have complete custody over the cryptocurrency they supply to the lending pool and businesses can only borrow through a successful governance proposal that creates a business line of credit associated with their account address. Community members are aware of exactly how much money is lent, at what rate, and at what maturity. Prior to voting, they’re equipped with high-level information about the business that allows them to make an informed voting decision. Thurman as a company can’t play favorites. It’s ultimately up to the community to decide who gets funding. That’s the power of DAOs.