https://opensea.io/assets/ethereum/0x8eeEcC3B0BE02D53b4457482197C1a1f3F581aF9/9

One indicator that DAOs are still young in their development, is the fact that they are still searching for business models which fit the web3 ethos of decentralized power and transparency. Currently DAOs mainly rely on speculative asset sales and royalties, early-stage private investments, or grants to financially sustain their operations.

That said, there are some DAOs that create monetizable content as a source of revenue, or offer other products or services. What follows are various considerations about how to structure such work arrangements in a decentralized fashion.

One service model being tested by various DAOs is a contractor collective, a guild-like organization of individuals offering services. Whether or not a given service DAO collectively focuses on one job at a time or lets members take on individual contracts, whether or not the DAO imposes some commission or finder’s fee to fund the treasury, whether there are salary-like payroll structures or individual service derive income on a per-contract basis; all of these are subject to vary based on the specialized service in question, the legal considerations thereof, the available tooling, and other quickly evolving factors.

In any case, it is in the interest of the industry to arrive upon certain best practices for how service DAOs can live up to the ‘D’ in DAO, and engineer their business models to embody the decentralized power dynamics afforded by this technology.

One business model which may apply to DAOs is what could be called departmental sovereignty, where a given DAO is divided into departments or guild-like containers which each enjoy some degree of financial and operational independence. This could also be considered in terms of separation of powers, with the goal being to prevent the ossification of top-down bureaucracy.

It should be said, at the risk of sounding obvious, that some degree of hierarchy and centralization is practical and necessary, in order to provide a basic sense of direction and accountability. But as an organization tends more toward centralized hierarchy, said risk of bureaucratic ossification arguably increases. One potential middle ground is to establish multiple equipotent “peaks” of centralized power, one for each department or guild.

It’s long been argued that democratic governance is more feasible at lower population levels. This notion can also apply to member governance within a DAO, namely that it is arguably easier for contributors to check the power of managers within the confines of a particular department, than it is within the larger confines of a multi-department organization.

That is to say, perhaps DAOs will find it useful to engineer their hierarchies less in the supradepartmental executive style of traditional companies, and more in the style of a confederation of pseudo-sovereign departments.

One may reasonably point out that departments need to work together in order to deliver the DAO’s primary service or product, and that such cooperation would not be feasible if each department head was following their own singular direction. Here, the function played by executives who oversee and manage across multiple departments, can perhaps still be addressed in a manner which confers less of a degree of total centralization.

Perhaps the department heads can meet among themselves to decide their respective budgetary appropriations. Perhaps the decisions there reached by department heads could instead be reached by department-wide votes, in order for all DAO contributors to have a say in budgetary matters. Perhaps departmental budgetary plans, after appropriations are settled, could likewise be voted upon, so that department leaders could be subject to a minimum viable accountability.

This notion of minimum viable accountability may be worth elaborating, as it may help us arrive upon a decentralized work arrangement which still affords the necessary coordination between departments so as to avoid budgetary inefficiencies.

Accountability measures, when not carefully designed and implemented, can be excessive. If the multisig signatories of the marketing department had to get approval from the other departments for every expense, burnout would quickly seize upon any momentum the marketing department had, as too great a portion of their efforts would then be spent defending the minutiae of their expenses.

Instead, a given department may have its initial budgetary constraints, i.e. the constraints of its financial sovereignty, approved by other departments, and minimum viable oversight may still be achieved. Whether or not this collective self-oversight is best occasioned by a quarterly plenum or by some more frequent cadence, is unclear to me and may vary from DAO to DAO, perhaps even from department to department.

To increase departmental sovereignty within a service DAO, or any DAO with a business, may bring benefits of what could be called modular plasticity, or the ability for the pieces of a whole to transform and evolve with a greater degree of independence than one may expect from a traditional corporate hierarchy. To reconcile this with the practical imperatives of interdepartmental coordination is a proper challenge.

https://opensea.io/assets/ethereum/0x8eeEcC3B0BE02D53b4457482197C1a1f3F581aF9/9

One indicator that DAOs are still young in their development, is the fact that they are still searching for business models which fit the web3 ethos of decentralized power and transparency. Currently DAOs mainly rely on speculative asset sales and royalties, early-stage private investments, or grants to financially sustain their operations.

That said, there are some DAOs that create monetizable content as a source of revenue, or offer other products or services. What follows are various considerations about how to structure such work arrangements in a decentralized fashion.

One service model being tested by various DAOs is a contractor collective, a guild-like organization of individuals offering services. Whether or not a given service DAO collectively focuses on one job at a time or lets members take on individual contracts, whether or not the DAO imposes some commission or finder’s fee to fund the treasury, whether there are salary-like payroll structures or individual service derive income on a per-contract basis; all of these are subject to vary based on the specialized service in question, the legal considerations thereof, the available tooling, and other quickly evolving factors.

In any case, it is in the interest of the industry to arrive upon certain best practices for how service DAOs can live up to the ‘D’ in DAO, and engineer their business models to embody the decentralized power dynamics afforded by this technology.

One business model which may apply to DAOs is what could be called departmental sovereignty, where a given DAO is divided into departments or guild-like containers which each enjoy some degree of financial and operational independence. This could also be considered in terms of separation of powers, with the goal being to prevent the ossification of top-down bureaucracy.

It should be said, at the risk of sounding obvious, that some degree of hierarchy and centralization is practical and necessary, in order to provide a basic sense of direction and accountability. But as an organization tends more toward centralized hierarchy, said risk of bureaucratic ossification arguably increases. One potential middle ground is to establish multiple equipotent “peaks” of centralized power, one for each department or guild.

It’s long been argued that democratic governance is more feasible at lower population levels. This notion can also apply to member governance within a DAO, namely that it is arguably easier for contributors to check the power of managers within the confines of a particular department, than it is within the larger confines of a multi-department organization.

That is to say, perhaps DAOs will find it useful to engineer their hierarchies less in the supradepartmental executive style of traditional companies, and more in the style of a confederation of pseudo-sovereign departments.

One may reasonably point out that departments need to work together in order to deliver the DAO’s primary service or product, and that such cooperation would not be feasible if each department head was following their own singular direction. Here, the function played by executives who oversee and manage across multiple departments, can perhaps still be addressed in a manner which confers less of a degree of total centralization.

Perhaps the department heads can meet among themselves to decide their respective budgetary appropriations. Perhaps the decisions there reached by department heads could instead be reached by department-wide votes, in order for all DAO contributors to have a say in budgetary matters. Perhaps departmental budgetary plans, after appropriations are settled, could likewise be voted upon, so that department leaders could be subject to a minimum viable accountability.

This notion of minimum viable accountability may be worth elaborating, as it may help us arrive upon a decentralized work arrangement which still affords the necessary coordination between departments so as to avoid budgetary inefficiencies.

Accountability measures, when not carefully designed and implemented, can be excessive. If the multisig signatories of the marketing department had to get approval from the other departments for every expense, burnout would quickly seize upon any momentum the marketing department had, as too great a portion of their efforts would then be spent defending the minutiae of their expenses.

Instead, a given department may have its initial budgetary constraints, i.e. the constraints of its financial sovereignty, approved by other departments, and minimum viable oversight may still be achieved. Whether or not this collective self-oversight is best occasioned by a quarterly plenum or by some more frequent cadence, is unclear to me and may vary from DAO to DAO, perhaps even from department to department.

To increase departmental sovereignty within a service DAO, or any DAO with a business, may bring benefits of what could be called modular plasticity, or the ability for the pieces of a whole to transform and evolve with a greater degree of independence than one may expect from a traditional corporate hierarchy. To reconcile this with the practical imperatives of interdepartmental coordination is a proper challenge.