This article is a set theses and condensed learnings about what decentralized autonomous organizations have involved into as of late 2021. This will be helpful for anyone asking questions “what the hell are DAOs?” and “why do people feel so bullish about DAOs?”
DAO is a new organizational form that allows coordination of resources through decentralized credibly neutral mechanisms. DAOs generate public goods similarly to traditional organization such as corporations, NGOs, governments, unions, cooperatives. But DAO is a superior organizational form that allows coordination with less overhead and better alignment of incentives. This is why some of the most amazing products we see today in the world are coming from the DAOs.
DAO exists to coordinate people around the common goal, such as building commercial product, funding and delivering public goods, governing a community or allocating resources.
DAO is a rule-based, distributed, self-improving mechanism. It has a well-defined public process of changing its codebase. It has no single point of failure or control. No person is in charge. The codebase of a DAO can be improved using its own governance methods.
DAO starts with a culture. It takes famous Peter Drucker saying "Culture eats strategy for breakfast" to the extreme.
In pre-Internet era people congregated around common interests (church, corporation, school). Today we can work with anyone globally 24/7 on what matters the most to us. It's not about stable income anymore — it's about professional fulfilment, like-minded community and shared culture. Notice how you feel much more involved with people online who you never met than with your neighbours.
Goal of the corporation is to create profits to its owners, and culture only comes afterward to support this goal. Customers tolerate their data being sold to advertisers, paywalls, monitoring of their online behavior by the 3rd parties for the sake of using a product they need.
Goal of most of the DAOs is to build protocols by aligning interests of contributors, users and investors. All three roles become the same. DAO will only loose if it provides excessive returns to the investors (because it comes at a cost of customer satisfaction and risk of being disrupted or just forked. don’t forget most DAOs build open source).
Typically DAOs have project leaders or "context managers" and a long tail of contributors that can have very varying level of commitment. Leads usually are working full time and have invested time into building context and relationships across the organization. Their primary goal is provide clarity and build infrastructure for contributors to do meaningful work that leads to the common goal.
Correctly designed onboarding process allows anyone to become a contributor and, given enough time and commitment, a leader within the DAO.
Instead of hierarchical management structure DAOs have emergent leadership where the whole system is designed about empowering people to step up and the lead part of the organization.
DAOs are "fractal" organizational. DAO is not a monolithic organization. DAOs typically have lightweight governance tool that controls treasury and key parameters such as multisig signers.
Then most DAOs have multiple workstreams:
Engineering
Product
Community
People operations
Compensation
Marketing
etc.
Projects exist within each workstream. Projects are split into tasks that require a champion / leader who ensures completion and keeps the team accountable. Working groups have ultimate accountability for delivering the project. Web3 organizational tool stack will accommodate fluid participation and ownership.
DAOs can choose to have legal wrappers for compliance and payroll purposes. Many tools help with this: Korporatio, Fairmint.co, Etherize, Otonomous, Otoco
DAOs are democratizing employment. 100 years ago people were looking for stable income, this is why corporations were created. Today people are looking for ways to be empowered to do most meaningful work.
DAOs are democratizing education. It allows to merge education and work, get paid while learning new skills and participate in creation of real products in a public, open environment.
DAOs have the lowest cost to coordinate people globally. With much lower management overhead and legal costs, DAOs are able to coordinate people from around the world. They are natively digital, global, available 24/7.
DAO's function is to empower individual contribution. Ultimately, DAO structure exists to help people lead and achieve results. DAO solves compensation: it enables anyone to become a founder, a shareholder, a board member. It is a truly meritocratic system.
DAOs employ graduated sanctions. Accountability in DAOs are similar to that of the smaller communities or commons. It can be quite strict but its goal is to help communities self-regulate rather than purely assert power.
Pseudonymity enables True Meritocracy. People don't know anything about you (age, nationality, color, name) expect for your contribution to the DAO. This enables real equality and removes discrimination.
DAOs are the workplace of the future. You won’t find 9-to-5 work schedule here. Everyone knows how much others are paid (since all transactions are done in crypto and on the blockchain). Decisions are made publicly and there’s strong pressure to avoid behind-the-curtains politics.
Fundamentally, DAO is about ownership. DAOs give participants significant equity, power and ability to manifest the best of their potential, not just responsibilities as it is happening in corporations.
Obviously, power can and will be misused (as it is in corps and govs today). DAOs, unlike centralized organizations, give participants autonomy to coordinate or withdraw at any moment. (to learn more read on "rage quit" in MolochDAO). As with any public blockchain, DAO participation:
is based on self-interest, voluntary permisionless participation;
is steered into the future using incentives compatibility (mechanism design and game theoretic models generally);
its value and previous decisions are protected by public key cryptography.
DAOs create their own monetary policies. Once DAO tokens are issued they are immediately publicly traded. However, unlike a public company, DAO has full control over the monetary system: it can issue currency, use it to create value and spread this value back to its contributors.
Note that today governments are the top-1 funders of public goods. They typically issue money through debt to fund creation of public goods and expect future revenues to cover the investments. DAOs replicate this model but in a much more granular and efficient manner.
DAOs can have a business model but don't have to. Some DAOs are focused on achieving certain public benefits, others choose to maximize returns to their investors in a form of token appreciation or dividends. As with many traditional organizations, the right approach is probably in the middle where organizations can generate a positive impact while ensuring sustainability and growth.
Top-20 DAOs have ~$13B in their treasuries. This is not counting TVL of their products.
DAOs create open source products or protocols. Thanks to composability of OSS and web3 protocols, nature of competition in DAOs is different. You don’t compete by building exact stack of your rivals and try to extract more value from customers. Instead, you can build on top existing protocols. For example, when building decentralized social network you focus on one aspect (e.g. social graph) and leverage the rest of the infrastructure (e.g. data storage, decentralized identity, wallets).
Most DAO business models are token-based and employ circular crypto economy. Tokens give ability to programmatically split revenues between dozens of protocols. Costs of DAO-to-DAO contracts are negligible: they are automated, don’t have compliance or transaction costs, are always and forever auditable, permissionless (I don’t need your permission to use and pay for using your protocol).
DAOs are inevitable. Decentralized products can’t be built by the centralized corporations as products reflect organizational structure.
Areas where we use traditional corporations are just a subset of what a DAO can do. Let's examine concrete examples of the successful DAOs. For more detailed overview you can read this great article.
Ephemeral DAO
"Emergent, ephemeral swarms ready to tackle one problem and dissipate" [src]
DAOs can persist in time or can be assembled to just complete one task, such as organizing an event, launching a protocol, investing in a product or piece of art, writing a book or even buying an NBA team.
Social DAOs
Many DAOs exist in a form of a social club. This is a closed community of like-minded individuals where you need to own an NFT or a token to become part of it.
For example, Collab.land allows communities to restrict discord/telegram access to members who hold a certain amount of a particular token
Service DAOs
There's DAO for any group of professionals and freelancers, from designers and coders to lawyers. DAOs can specialize on a very specific task such as user research or code audit.
Governance DAOs
Governance tools allow communities to influence operations and budget via proposals and voting: Boardroom, Tally, Snapshot, Orca, Policy Kit, MetaGov, Paladin
Grants DAOs
One of the first actually scalable use cases for DAOs was giving grants to fund OSS development, contribution to existing protocols and other non-for-profit work. Examples include DAOHaus, Gitcoin, Meta Gamma Delta, DxD.
Investment DAOs
Metacartel, LAO and many other DAOs operate as a for-profit investment vehicles that allow to pool resources and invest into (mostly web3) projects.
Collectors DAOs
Curate, pool resources, purchase and hold physical collector items and NFTs.
Education DAOs
Some DAOs are exclusively focused on education, which can be free, paid or learn2earn.
DAO Operating System
As DAOs are growing, there's a need for tooling that simplifies spinning up and management of a DAO. Today we see dozens of services to help with this.
Protocol DAOs
Majority of DAOs today are only used to govern the development of a protocol through voting. This somewhat limits the functionality but it already has proven to be very effective in community-led decision making for multi-milion dollar deals and initiatives.
A lot of ideas here are inspired by the speakers at #MCON2021
If you’re looking to join a DAO — be it a silent observer or active paid contributor — you can stop by Deep Skills Discord channel and say hello. We would love to provide more guidance :)
This article is a set theses and condensed learnings about what decentralized autonomous organizations have involved into as of late 2021. This will be helpful for anyone asking questions “what the hell are DAOs?” and “why do people feel so bullish about DAOs?”
DAO is a new organizational form that allows coordination of resources through decentralized credibly neutral mechanisms. DAOs generate public goods similarly to traditional organization such as corporations, NGOs, governments, unions, cooperatives. But DAO is a superior organizational form that allows coordination with less overhead and better alignment of incentives. This is why some of the most amazing products we see today in the world are coming from the DAOs.
DAO exists to coordinate people around the common goal, such as building commercial product, funding and delivering public goods, governing a community or allocating resources.
DAO is a rule-based, distributed, self-improving mechanism. It has a well-defined public process of changing its codebase. It has no single point of failure or control. No person is in charge. The codebase of a DAO can be improved using its own governance methods.
DAO starts with a culture. It takes famous Peter Drucker saying "Culture eats strategy for breakfast" to the extreme.
In pre-Internet era people congregated around common interests (church, corporation, school). Today we can work with anyone globally 24/7 on what matters the most to us. It's not about stable income anymore — it's about professional fulfilment, like-minded community and shared culture. Notice how you feel much more involved with people online who you never met than with your neighbours.
Goal of the corporation is to create profits to its owners, and culture only comes afterward to support this goal. Customers tolerate their data being sold to advertisers, paywalls, monitoring of their online behavior by the 3rd parties for the sake of using a product they need.
Goal of most of the DAOs is to build protocols by aligning interests of contributors, users and investors. All three roles become the same. DAO will only loose if it provides excessive returns to the investors (because it comes at a cost of customer satisfaction and risk of being disrupted or just forked. don’t forget most DAOs build open source).
Typically DAOs have project leaders or "context managers" and a long tail of contributors that can have very varying level of commitment. Leads usually are working full time and have invested time into building context and relationships across the organization. Their primary goal is provide clarity and build infrastructure for contributors to do meaningful work that leads to the common goal.
Correctly designed onboarding process allows anyone to become a contributor and, given enough time and commitment, a leader within the DAO.
Instead of hierarchical management structure DAOs have emergent leadership where the whole system is designed about empowering people to step up and the lead part of the organization.
DAOs are "fractal" organizational. DAO is not a monolithic organization. DAOs typically have lightweight governance tool that controls treasury and key parameters such as multisig signers.
Then most DAOs have multiple workstreams:
Engineering
Product
Community
People operations
Compensation
Marketing
etc.
Projects exist within each workstream. Projects are split into tasks that require a champion / leader who ensures completion and keeps the team accountable. Working groups have ultimate accountability for delivering the project. Web3 organizational tool stack will accommodate fluid participation and ownership.
DAOs can choose to have legal wrappers for compliance and payroll purposes. Many tools help with this: Korporatio, Fairmint.co, Etherize, Otonomous, Otoco
DAOs are democratizing employment. 100 years ago people were looking for stable income, this is why corporations were created. Today people are looking for ways to be empowered to do most meaningful work.
DAOs are democratizing education. It allows to merge education and work, get paid while learning new skills and participate in creation of real products in a public, open environment.
DAOs have the lowest cost to coordinate people globally. With much lower management overhead and legal costs, DAOs are able to coordinate people from around the world. They are natively digital, global, available 24/7.
DAO's function is to empower individual contribution. Ultimately, DAO structure exists to help people lead and achieve results. DAO solves compensation: it enables anyone to become a founder, a shareholder, a board member. It is a truly meritocratic system.
DAOs employ graduated sanctions. Accountability in DAOs are similar to that of the smaller communities or commons. It can be quite strict but its goal is to help communities self-regulate rather than purely assert power.
Pseudonymity enables True Meritocracy. People don't know anything about you (age, nationality, color, name) expect for your contribution to the DAO. This enables real equality and removes discrimination.
DAOs are the workplace of the future. You won’t find 9-to-5 work schedule here. Everyone knows how much others are paid (since all transactions are done in crypto and on the blockchain). Decisions are made publicly and there’s strong pressure to avoid behind-the-curtains politics.
Fundamentally, DAO is about ownership. DAOs give participants significant equity, power and ability to manifest the best of their potential, not just responsibilities as it is happening in corporations.
Obviously, power can and will be misused (as it is in corps and govs today). DAOs, unlike centralized organizations, give participants autonomy to coordinate or withdraw at any moment. (to learn more read on "rage quit" in MolochDAO). As with any public blockchain, DAO participation:
is based on self-interest, voluntary permisionless participation;
is steered into the future using incentives compatibility (mechanism design and game theoretic models generally);
its value and previous decisions are protected by public key cryptography.
DAOs create their own monetary policies. Once DAO tokens are issued they are immediately publicly traded. However, unlike a public company, DAO has full control over the monetary system: it can issue currency, use it to create value and spread this value back to its contributors.
Note that today governments are the top-1 funders of public goods. They typically issue money through debt to fund creation of public goods and expect future revenues to cover the investments. DAOs replicate this model but in a much more granular and efficient manner.
DAOs can have a business model but don't have to. Some DAOs are focused on achieving certain public benefits, others choose to maximize returns to their investors in a form of token appreciation or dividends. As with many traditional organizations, the right approach is probably in the middle where organizations can generate a positive impact while ensuring sustainability and growth.
Top-20 DAOs have ~$13B in their treasuries. This is not counting TVL of their products.
DAOs create open source products or protocols. Thanks to composability of OSS and web3 protocols, nature of competition in DAOs is different. You don’t compete by building exact stack of your rivals and try to extract more value from customers. Instead, you can build on top existing protocols. For example, when building decentralized social network you focus on one aspect (e.g. social graph) and leverage the rest of the infrastructure (e.g. data storage, decentralized identity, wallets).
Most DAO business models are token-based and employ circular crypto economy. Tokens give ability to programmatically split revenues between dozens of protocols. Costs of DAO-to-DAO contracts are negligible: they are automated, don’t have compliance or transaction costs, are always and forever auditable, permissionless (I don’t need your permission to use and pay for using your protocol).
DAOs are inevitable. Decentralized products can’t be built by the centralized corporations as products reflect organizational structure.
Areas where we use traditional corporations are just a subset of what a DAO can do. Let's examine concrete examples of the successful DAOs. For more detailed overview you can read this great article.
Ephemeral DAO
"Emergent, ephemeral swarms ready to tackle one problem and dissipate" [src]
DAOs can persist in time or can be assembled to just complete one task, such as organizing an event, launching a protocol, investing in a product or piece of art, writing a book or even buying an NBA team.
Social DAOs
Many DAOs exist in a form of a social club. This is a closed community of like-minded individuals where you need to own an NFT or a token to become part of it.
For example, Collab.land allows communities to restrict discord/telegram access to members who hold a certain amount of a particular token
Service DAOs
There's DAO for any group of professionals and freelancers, from designers and coders to lawyers. DAOs can specialize on a very specific task such as user research or code audit.
Governance DAOs
Governance tools allow communities to influence operations and budget via proposals and voting: Boardroom, Tally, Snapshot, Orca, Policy Kit, MetaGov, Paladin
Grants DAOs
One of the first actually scalable use cases for DAOs was giving grants to fund OSS development, contribution to existing protocols and other non-for-profit work. Examples include DAOHaus, Gitcoin, Meta Gamma Delta, DxD.
Investment DAOs
Metacartel, LAO and many other DAOs operate as a for-profit investment vehicles that allow to pool resources and invest into (mostly web3) projects.
Collectors DAOs
Curate, pool resources, purchase and hold physical collector items and NFTs.
Education DAOs
Some DAOs are exclusively focused on education, which can be free, paid or learn2earn.
DAO Operating System
As DAOs are growing, there's a need for tooling that simplifies spinning up and management of a DAO. Today we see dozens of services to help with this.
Protocol DAOs
Majority of DAOs today are only used to govern the development of a protocol through voting. This somewhat limits the functionality but it already has proven to be very effective in community-led decision making for multi-milion dollar deals and initiatives.
A lot of ideas here are inspired by the speakers at #MCON2021
If you’re looking to join a DAO — be it a silent observer or active paid contributor — you can stop by Deep Skills Discord channel and say hello. We would love to provide more guidance :)
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