A DAO is a decentralized autonomous organization. A big group of words for crypto newbies. In my experience in the DAO sector I have learned that DAOs are not clearly defined. Each group has a different notion of what a DAO is. The most accepted definition I have seen recently is “a group chat with a bank account”. This definition is terrible. One of the major issues we see in Web3 innovation is overabundance of ideas. Many of these ideas are futile and under the current definition of DAO, the tech is useless. There are many group chat bank accounts and none of them need to be on-chain. For example, a college student messaging his parents for grocery money is a group chat with a bank account, but definitely not a DAO.
In this series of articles I am going to define a few of my personal qualms with DAOs and then provide some solutions. I am not claiming that these are the only solutions to these problems. In fact, if I have learned anything over the past few years of working in Web3 it would be that tech solutions are always multi-faceted and there is always room for creativity and improvement.
There are three issues that I find pressing with DAO technology. The first is utility. There are no defined sets of uses for DAOs and currently the largest use of DAO is just to add it to your NFT collection’s name. Second, centralization. In order for a DAO to actually be decentralized it cannot use or maintain any sort of centralized database. Third, token standard. A token standard is a template for a token and it also standardizes the creation of the token.
DAO utility. In order to discover the true utility of DAOs we need to take a look at the past. The most famous DAO is most likely Maker Dao. Maker is responsible for the well known stablecoin DAI. Dai is easy to generate, access, and use. Users generate Dai by depositing collateral assets into Maker Vaults within the Maker Protocol. Maker is imo the best example of a corporate DAO. They use governance tokens (GTs) to enable something called scientific governance. What this means is that members of Maker’s board/dao make a ton of high level decisions governing the risk of running a stablecoin. This all sounds fantastic right? A pegged crypto that is collateralized and managed by a DAO is clearly the future of finance. However, Maker’s utility falls into a subclass of DAO that I call Management DAO. As of 2022 there are four types of major DAOs and I’ll rank them in order of utility/popularity.
Management DAOs
Fundraising DAOs
Treasury DAOs
Community DAOs
Management DAOs are like Maker. The organization's main purpose is to take the full governance responsibility off of a small group’s shoulders and distribute it to a larger group of members. In return, the company/org is more democratic. This does not mean that if an organization is managed by a DAO it is managed by a democracy. It does mean that an organization run by a DAO is a weighted democracy. A weighted democracy is a system in which the users who hold more value have a larger say or weight. Most modern democracies are weighted due to the fact that members of the democracy with access to more capital can generally sway or try to sway an outcome of a vote. However, in crypto this weighted democracy is much more apparent. The usual outcome vote is determined by the members who hold the most GTs.
A fundraising DAO acts like a financial fund. Members raise money for their org in order to purchase some asset(s). Currently, there are some major fundraising DAOs like Proof Collective, MetaCartel, Constitution DAO, and Stacker Ventures just to name a few. These organizations have clearly defined assets that they are targeting to acquire. These assets make up the company's vision and work to invite users and their capital to the DAO.
Treasury DAOs are pools of assets that take votes in order to distribute assets. A common treasury dao is a multisig. A multisig is a crypto wallet that takes a certain amount of votes in order to move assets from the account. This is where I make the first edit to the definition of DAO as a group chat with a bank account. Instead a DAO can be defined loosely as a group chat with a multisig. This measure gives every member a share in the wallet without giving a sole member ownership, effectively decentralizing the assets under management.
Community DAOs are token gated communities. For example, a discord group that requires a particular token to join. The main notion of a community DAO is that the token provides access to a network. This is the loosest form of DAO, and honestly I hesitated to add it. Since there is almost nothing decentralized about this org type other than the fact that you can purchase access in a decentralized manner. Community DAOs are blasphemous. They utilize no autonomy, the middle letter of DAO. Often these orgs use the term DAO as a marketing tool and do not possess the ethos of other stronger subclasses. All in all, they should just call themselves private chats.
Under each of these categories lay many specific and use case based groups. I am likely missing many interesting companies that blur the lines of these of categories. If you know of one please tweet at me (twitter link below). My personal goal is to create a decentralized future that allows the smallest fish to grow to become large. Crypto is a pure form of capitalism and often it can alienate new and potential users.
DAOs are open to all. They are a budding ecosystem of new and emerging minds and technologies. The barrier of entry is low to join a smaller org. I urge you to find a group you can relate to and become a pillar of their ecosystem.