DAO’s have emerged for every kind of purpose you can imagine. Like the way people combined existing business with other use cases to start new businesses (eg Uber for X or AirBnB for Y), people are doing the same with DAO’s. Just combine a DAO with or and you have a new DAO right? Or not. Not everything needs to be a DAO But not so fast. Always ask yourself two questions when starting a DAO: What is the DAO’s web2 equivalent? Are there any centralized parts of the DAO? These two questions could reveal weaknesses in the DAO or that a DAO wasn’t necessary at all. DAO’s vs its web2 equivalent Before starting a DAO, always consider the web2 equivalent of a DAO first (ie how you would build it in a centralized fashion). To give some examples: For crowdfund DAO’s — what if we just started a crowdfund using a GoFundMe instead? For business DAO’s — what if we just made a company with a typical CXX structure instead of having a headless org? For social DAO’s — what if it was just a group chat? For most use cases, it wouldn’t be that bad. Factors to consider include: Slowness — imagine how slow-moving if everything in an organization required a vote. That’s what DAO’s are like. This makes changes hard and rapid innovation difficult. If an organization had more centralized power (eg a CEO or a dictatorship) then the org could move faster. No need for decentralization — most things operate just fine in the web2 version. For crowdfunds, a GoFundMe might work just fine without a DAO. Or for a Twitch stream, the owner SHOULD have ultimate power since they own and create it. In fact without a strong moderator, the community could have too many spammers, leading to a degradation in community quality over time. No recourse for issues — Because DAO’s don’t have a single power responsible, there’s no one to turn to if something goes wrong. For example, for financial DAO’s, what if I accidentally send funds to the wrong person? Or want a refund? Customer service is a big plus of centralized businesses, but DAO’s can’t have that when there is no single person responsible. In fact the responsibility is even more dispersed, because everyone could be anonymous — you might not even know who your fellow DAO members are! The only thing unifying you with others is the automated rules enforced by the smart contract of a DAO. The weakest link of a DAO If all parts of a DAO were decentralized (the communication, treasury management, governance, etc) a DAO would be bullet-proof. But in reality, most DAO’s are a combination of decentralized and centralized parts. A DAO is only as decentralized as its most centralized part. A DAO is only as strong as its weakest (or most centralized) link. It is this centralized part that could be coopted by bad actors. Especially if it is a critical part of the DAO, such as the treasury management, that is centralized, then this might not be much of a DAO to begin with. For example, many DAO’s use multi-sig wallets, requiring several leaders to agree to move the funds. Although it is decentralized in that several people have the power, if this minority decided to collude together, they could siphon off the money from the community treasury in a rug-pull. In this case power was centralized in the signers of the multi-sig wallet, and this centralization presents a risk to the entire DAO. While it is natural for a DAO to start off in some centralized way, they tend to decentralize over time as the leaders cede more power to the collective group as it grows bigger. This is also why the best DAO is one where all parts of the DAO tooling stack is decentralized, so that no one can co-opt any part of it, and hold the rest of the DAO hostage. Sometimes it comes down to a matter of trade-offs. Certain parts of a DAO are more important to be decentralized than others. Handling of funds is always critical to decentralize. Voting is critical to decentralize — what good is it if you vote but a few people count the votes behind closed doors? Communication is not as critical to decentralize since the DAO’s smart contracts can still run without it. Thus things like communication can be outsourced to centralized web2 tools like Twitter or Discord.