This time flew by so fast. Although this is the last official update for the DAOpunks Cohort 2, this will not be the end of updates for the project. This is a slow solutions project with lots of interest no matter where I go in the web 3 space. A tremendous Thanks from Gaia Dadabit and myself to the DAOpunks community and the Cohort Program for helping folks step off the corporat-race track.

Just so folks know they can always check into our Telegram Group and catch up on funding or research updates.  https://t.me/+YMIRDmoRp71iNzA0 I wanted to leave the Cohort with some of the raw research questions and discussions that we are currently working on and have recently updated based off of the discussions from the Twitter Space an with various online discussion groups.

A little about this Project Unit that Gaia and I are a part of:

Author: Gaia Dadabit
Editor: Ernest of Gaia

RnDAO Rewards and Compensation Unit set to create a map and a language so we can think, discuss and communicate better on everything rewards, compensation and incentives for DAOs and internet native organisations. 

The deliverable of this project unit is a public good guidebook that tackles the primitives of this new language for value creation and value capture. We also expect sections on designing considerations for different contexts. The funding and delivery cycle is executed iteratively in phases according to resources available. 

Anti-patterns in rewards and Compensation - programming with Incentives:

When we talk about rewards and compensation, one of the motivations for having them is always mentioned, the incentive. The language we use for things gets jumbled as we sometimes use rewards and incentives interchangeably. However, rewards do not always carry the intention of creating a desired behaviour as an incentive would mean. Incentive carries the intention and aims of a future behaviour where rewards might only mean simply a recognition of the past behaviour. 

There is a grey area in DAOs where anti-patterns emerge around incentives especially when things are not transparent and communicated. DAOs often nudge behaviours by making individuals think they are getting back something of value or the promise of one day having a token of value. Token prices however are extremely volatile. Often the tokens you receive for things do not have the expected value.

Often we incentivise folks to speculate on their labour and the value of governance. But, when it comes to ownership, ownership in the decision making process does not have the same psychological value as ownership of property or equity. It is common that the individual expecting monetary value receives instead is left holding a bag of poor decisions instead. Are we incentivising the right behaviours? What are we not saying out loud? And when does it become an anti-pattern? 

It does not have to be that way!

A reward that is not met is a punishment:

When a reward was expected, but not fulfilled it becomes a punishment. And sometimes unintentionally we end up punishing new members when we want to reward them.

The ways we can end up in this situation are below:

• We do not know or are not sure

• We communicate vaguely.

• Common negligence in the cacophony of internet native organisations and communities.

It does not need to be like this.

• Put rewards, compensation and incentives into your onboarding. If you ever had a discord and a “start here” section perhaps that is where it is. When it is a service or business it makes so much sense however not every DAO or internet-native organisation is a business. Perhaps it is a tokenized community you vibe together, people volunteer or even need payment from members. Clear expressions of a community's rewards, compensation, and incentives are a must.  

• We also need a language to talk about rewards and compensation as simple and similar as possible.

What to do when you have no resources to compensate? Early Stage organisations.

We are thinking of early-stage DAOs, early-stage ventures, and initiatives. Many ventures, and project initiatives start with an idea and execute before the funds. This is also a common practice so they can create signals that they are investable, similar to traditional entrepreneurship. Entrepreneurship holds risks and people take those risks for future returns. The funding might come later in the process, Or it might never come and when you put in your time and energy it does not mean you will be compensated.

With permissionless DAOs and Perhaps in Web3, risk is less obvious, because we can journey into and join many of these organisations with the click of a button and not necessarily have the full context. The stakeholders can step in and not understand the risk they are taking when things are at an early stage. Or we only focused on token risks, rather than adoption and market fit risks. Because Web3 still has a lot of curious and excited people volunteering to learn, the pressure on these organisations is not too high as there are many free passionate hands.

How do we make it sustainable, how do we make a culture of entrepreneurship and compensation?

And how do you compensate given the speculative environment and risk of not fitting into the market?

There are solutions.

• The risk recognised needs to be highlighted to the new joiners. being transparent about what the future holds

• The accounting also can include future returns; future revenue or future equity whether it is through tokens or traditional contracts

• It is possible to set a contribution accounting to future returns for more dynamic and fractional contributions.

• There might be a blend of rewards and compensation in the case of minimal funding, where the take back includes future returns and current funds.

Delegates to the new stakeholders in web3 organisations - Why are they doing it?

A new stakeholder has been emerging for DAOs. The delegates. Those members can vote for other members, with a delegation of governance power by the ones who hold it. There are even professional delegates; those individuals or organisations make this an identity and a process of informing others, doing due diligence and research, going through proposals and transparently reporting their choices and reasons.

Not to go through the pros and cons and the future of the delegators, we want to acknowledge the efforts and solutions of rewarding and compensating these delegates. The MakerDAO has been a pioneer and created a formula compensating the selected delegates from the treasury with performance metrics that depend on voting governance accrual, and how engaged they are. 

The dynamics of delegate compensation are super interesting as there are game dynamics related that could stifle or improve delegation. We plan to tackle some examples and potential design considerations for rewards and compensation for the delegates.

Delegate or Representative systems also have to account for and address the Principal–agent problem. https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem We hope to look more into this as well. 

Thanks again for following this journey, feel free to send us any leads on grants, reach out to provide grants, or even help us dive deep into the research and help facilitate more public discussion on these topics.

Gaia Dadabit & Ernest of Gaia!!