Since the Optimism Collective launched sixteen months ago, Bankless Publishing has been covering that ecosystem, from tokenization and technology to the Law of Chains and the Optimistic Vision. As part of our work, we’re pleased to curate eight of those articles as part of what we’re calling The hOPe Series. These article are available as free, open edition digital collectibles, helping you to curate writings on one of the most impactful ecosystems in web3.

If you are an ardent follower of Optimism Foundation's commitment to Retroactive Public Goods Funding, you are probably already aware that Round 3 — known as RetroPGF 3 — was announced in June 2023. Regardless, read on to learn more about the process, in particular the attention given to ensuring each RetroPGF round builds on the learning from the last.

Adhering to its principle of continuous and iterative governance improvement, the Foundation has constantly evolved the dynamics and process of Retroactive Public Goods Funding through Rounds 1 to 3. This principle is nicely summed up by the Optimism Foundation:

RetroPGF will run frequently and continuously until it becomes the driving funding mechanism behind the entire Optimism Collective economy. This is an iterative process. Each round is an opportunity to observe, learn, and iterate based on the successes and shortcomings of the previous round.

The popularity of the RetroPGF rounds have increased round by round, with some really impactful numbers to showcase:

RetroPGF 1

• 76 projects nominated

• 58 projects received funding

• Median funding received: $14,670

• Funding received by Top 10% of projects: $36,919

RetroPGF 2

• 195 projects nominated

• 195 projects received funding

• Median funding received: 22,825 OP

• Funding received by Top 10% of projects: 140,000 OP

As the popularity of RetroPGF rounds has increased, so has the number of badgeholders — the OP token holders who are selected to vote for funding distribution in each round. For RetroPGF Round 1 there were 24 badgeholders, Round 2 saw 71 participate, and in Round 3 voting badges will be offered to 208 community members. With the growth of each round, there has been a corresponding expansion in expectations about the scrutiny, expertise, and experience that badgeholders will bring to the assessment of each project’s merit.

While RetroPGF as a concept is still in its infancy, there is no doubt that the program itself has merit. Vitalik Buterin wrote a detailed but positive review of RetroPGF 1, which summarized the round as a success, but suggested some improvements such as increasing the diversity of badgeholders.

Following RetroPGF 2, the Optimism Foundation analyzed and published its own detailed report: RetroPGF2: Learnings & Reflections. Some of the interesting findings include:

• There was little difference in grants to projects categorized as "high impact" vs. those categorized as "moderate impact" (similar to Round 1).

• Token allocation spread was much larger in Round 2 than Round 1. In the first round, 58 out of 76 nominated projects received votes, while in the second, all of the nominated 195 projects received votes.

• The types of funded Round 2 projects spread across multiple domains, including infrastructure and education, and projects were also operating in multiple regions and languages. This was an improvement over Round 1, where all 58 projects that received votes for funding were technology projects.

Although RetroPGF 2 extended the positive impact to a larger and more diverse array of projects, it did create significant challenges. These challenges revolved around the nomination process, and the information requested from / provided by project teams — ultimately there was not enough context for badgeholders to make effective decisions from the data collected.

Implementing its principle of continuous learning, the Foundation has introduced enhancements in how RetroPGF-3 will be run, from both the project nomination and evaluation perspectives. A summary of the improvements include:

• Key success criteria for each project nomination category. The idea is to help align badgeholders while still leaving room for interpretation, discussion, and more granular definition.

• Structured project applications to gather better data, and a better voting UX through a custom-built voting application.

• A process for community-sourced recommendations and curation to allow badgeholders to incorporate the research and expertise of the community.

As a start, the categorization of projects at the time of nomination has been made sharper and the intent of RetroPGF-3 has been communicated clearly:

RetroPGF-3 will allocate 30m OP tokens to reward contributions that have supported the development and adoption of Optimism.

Projects can be nominated under four categories, reproduced here from the Optimism documentation:

• OP Stack: Work that enhanced the efficiency, security, resilience, and awareness of the OP Stack.

• Collective Governance: Work that provided impact to governance participants of the Optimism Collective, or helped bring new governance participants into the Collective.

• Developer Ecosystem: Work that provided impact to application developers in the Optimism Collective, or helped bring new developers into the Collective.

• End User Experience & Adoption: Work that provided impact to end users in the Optimism Collective, or helped bring new end users into the Collective.

https://community.optimism.io/docs/governance/retropgf-3/

To enhance the voting process and reduce manual data entry for badgeholders, the Foundation opened up a baseline grant amount of 150,000 OP to invite developers who can meet the following strategic objectives:

• Objective 1: Building a frontend that powers the discovery of projects and voting by badgeholders in RetroPGF 3. The frontend will utilize the Ethereum Attestation Service, and a combination of onchain and offchain sources (storage bucket, IPFS, etc.) to read data.

• Objective 2: Hosting and managing the application infrastructure, including backend infrastructure needed to capture and store badgeholder votes.

With voting for RetroPGF 3 scheduled to begin later in 2023, look out for the proposed enhancements to project description / information (through the new Project Signup Form), clearer voting guidelines (which will be shared with OP badgeholders nearer to voting time), and a significantly improved voting UX.

As the Optimism Foundation continues its significant work on Retroactive Public Goods Funding, we can expect the evolution and enhancements to continue from RetroPGF 3 to RetroPGF 4 and so on. This will benefit the whole public goods funding ecosystem, drawing inspiration from the Foundation’s approach to strengthening coverage, recognition, and impact.

Author Bio

Sandeep is a brand and growth strategist with close to two decades of experience. In his web2 consulting work, he has worked with the likes of McKinsey, Prophet and Interbrand.

Editor and Designer Bio

Trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

More In The hOPe Series:

https://banklessdao.mirror.xyz/lERTlV4Wl-Z4hSXifOYTWjQx_Du_5B2iR61Fpzo60iA

https://banklessdao.mirror.xyz/hAasqwY7wqgu-BZHZa-pt5_MRGZNhJCUUy8Sneh6aew

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https://banklessdao.mirror.xyz/Tk4vbkuC8MDbI_qpoxIaT0BLigN0b4YLlrjGIw3LNRw

The Optimism Collective’s RetroPGF Learning Journey

Since the Optimism Collective launched sixteen months ago, Bankless Publishing has been covering that ecosystem, from tokenization and technology to the Law of Chains and the Optimistic Vision. As part of our work, we’re pleased to curate eight of those articles as part of what we’re calling The hOPe Series. These article are available as free, open edition digital collectibles, helping you to curate writings on one of the most impactful ecosystems in web3.

For the past few months, Bankless Publishing and several other teams across BanklessDAO have been working together to inform our audience about the core tenets anchoring the Optimism Collective, such as the Optimistic Vision and the Impact=Profit ethos.

For those who are just getting up to speed, the Collective is the name given to describe Optimism’s ecosystem, including users, contributors, builders, founders, projects, protocols, and capital. It’s not too much of a stretch to say the Collective's ultimate goal isn’t just to figure out how to sustainably fund public goods in web3, but how to solve some of the great coordination problems in fiat space too. Ambitious, of course, but not impossible.

The Collective is guided by the Optimism Foundation, in tandem with the Token and Citizens’ Houses. For more information on the formation of the Collective, you can check out this article I dropped shortly after Optimism tokenized.

The work being done at BanklessDAO is supported by a grant from the Collective, one of a number of initiatives funded to spread awareness of the Optimistic Vision. This is not the first time BanklessDAO projects have received funding for their Optimism-related work. In fact, several content production teams at the DAO have championed Optimism for well over a year, and have received retroactive grants related to that work.

The Collective’s third retroactive public goods round is happening soon and proactive grants are ongoing. Given that we’ve received both retroactive grants and proactive grants, we thought it’d be helpful to provide a brief overview of the Collective's grants programs.

Optimism Has Multiple Grants Funding Mechanisms

In terms of grants, Optimism is best known for retroactive public goods funding — the material manifestation of the Optimistic Vision, embodied by its core thesis: Impact=Profit. This is the idea that those who create value through public goods should be monetarily rewarded for these efforts.

But retroactive grants are not the only funding mechanism used by the Collective. In addition to funding work that has already contributed to the success of the network, the Collective also runs a comprehensive proactive grants program that pre-aligns grantees with various goals as prioritized by the Optimism Foundation.

In fact, there are four kinds of Collective Grants (discussed further below), but the most radical of these is called Collective Intents. This governance experiment by the Optimism Foundation is underway. In fact, it’s under Intent 3: Spread Awareness of the Optimistic Vision, that BanklessDAO (an Alliance) has sought and received support to create a Global Campaign to Spread the Optimistic Vision (the Mission).

Guide to Season 4: As a Collective

Guide to Season 4: As a Collective We'd like to start by recognizing the incredible contributions of our delegates in Season 3: Retroactive Delegate Rewards Season 3: Retroactive rewards in recognition of the important contributions of top active delegates over the past Season.

https://gov.optimism.io

Taken together, the two strands of the Optimism grants program create a model that both rewards those for the great work they’ve done to move the mission of the Collective forward, and incentivizes those within the Collective to contribute expertise to key priorities. Along the way, we all get to participate in a grand experimental playground to learn how best to collectively govern not only individuals and small teams, but large organizations and ecosystems.

Retroactive Public Goods Funding Is Impact=Profit

To understand how Optimism thinks about grant funding, you must internalize Impact=Profit, which simply means people who contribute value to the collective good (impact) should receive funding (profit) in proportion to the significance of their work.

We’ve written at some length about Optimism’s belief in retroactive public goods funding (RetroPGF) on Bankless Publishing and in the Layer 2 Review, but we’ve spent less time discussing how the process actually works. We’ll use RetroPGF Round 2 as an example, but let’s start at a high level.

Optimism has identified three core components of RetroPGF:

• Impact scoping: what should the Collective fund? How is it defined and decided on?

• Impact scoring: how does the Citizens’ House evaluate impact? What units, process, or tools do we use?

• Impact settlement: how does voting work?

The Optimism Foundation currently defines both the scope of the RetroPGF round and how voting works, but over time it plans to cede that authority to the Collective. For now, the Citizens’ House allocates OP tokens within the confines prescribed by the Foundation, but as part of that process, it works on impact scoring. In fact, as part of the debrief on RetroPGF Round 2, the Collective released an article titled RetroPGF2: Learnings & Reflections — a 20,000 word ‘summary’ of what was learned. As you can imagine, it’s dense with detail but also very accessible. The TL;DR is that Optimism identified four main challenges to work on during RetroPGF Round 3:

• How can the Collective gather more high quality data that serves as a “proof of impact” for the evaluation and voting by badgeholders? What structured data could help badgeholders make less impressionistic evaluations?

• How can impact evaluation scale to represent not just the individual experience and impression of badgeholders, but the evaluation of all observed impact within the collective?

• How do we provide better mental models and definitions for impact evaluation? How can we support badgeholders to more effectively collaborate? How do we communicate the core mechanics of retro funding in a way that preserves badgeholder agency?

• How can the Collective provide a better voting experience to Badgeholders? How can the Optimism community create tooling that improves the RetroPGF system for all types of participants?

This is iterative governance in action, which is what makes the work being done at Optimism so exciting.

How RetroPGF Rounds Are Run

Let’s take RetroPGF Round 2 as an example. The round was first announced via a Mirror post which sketched out the rough contours of the program. There were six parts to the process:

1. Citizens’ House badgeholders are selected according to predefined criteria. For RPGF Round 3, those who wish to express interest in becoming a badgeholder can signal their intent on this Forum post (like I did!).

2. Applications open, at which time anyone can nominate a person or project for RetroPGF. Self nomination is also allowed, and as we saw in Round 2, necessary — as many of the ecosystem’s most important public goods projects didn’t receive a nomination from a third party.

3. Nominated people and projects must create a profile detailing information about their project, its impact, and the team.

4. Badgeholders review and vote on the nominated projects who created a profile, results are announced, and selected projects rejoice!

5. Projects who wish to receive the RetroPGF grants must complete a KYC process to receive the OP tokens.

6. The Collective does a thorough debrief and analysis, as seen in the RetroPGF Round 2 Learning & Reflections.

RetroPGF Round 2 saw 10 million OP tokens distributed to 195 projects. For RetroPGF Round 3, the Collective is going to distribute 30 million OP tokens across four categories: the OP Stack; Collective Governance; Developer Ecosystem; and End User Experience & Adoption.

https://optimism.mirror.xyz/oVnEz7LrfeOTC7H6xCXb5dMZ8Rc4dSkD2KfgG5W9cCw

Although the exact dates of RetroPGF Round 3 are yet to be announced, you can subscribe to Optimism’s RetroPGF Newsletter to get the latest updates! RetroPGF has the potential to change the world, but only if you support the effort by nominating worthy projects that create public goods and contribute to the collective economy.

Optimism Also Funds Proactive Grants

In addition to its famous RetroPGF rounds, the Collective also has four different funding mechanisms for proactive grants:

1. Grants Council. The Grants Council is elected by the Token House and tasked with supporting Collective Intent 2: Innovate on Novel Applications. Within that, two categories of grants are currently open for builders and growth experiments. Applications for these grants are evaluated on the 5-week cycles we detailed in this article. More information about applying for this type of grant can be found on the Grants Council’s CharmVerse page.

2. Token House Missions. Token House Missions are proposed by contributors to the Collective and should align with a Collective Intent. For example, BanklessDAO’s proposed Mission was under Intent 3: Spread Awareness of the Optimistic Vision, but other eligible Intents are Intent 1: Progress Towards Technical Decentralization and Intent 4: Governance Accessibility. Intent 2 is overseen by the Grants Council and is not part of the Token House Missions. Missions should be completed within a Season. This video is very helpful to understand how to submit a Mission proposal.

3. Foundation Missions. Foundation Missions are much narrower in scope but also ongoing. You can find a list of ongoing Foundation Missions on their GitHub. Applicants must reply as a comment on GitHub. As with Token House missions, this video is very helpful in explaining how the Foundation evaluates Requests for Proposals/Missions. Foundation Missions have a specific OP bounty attached to each Mission.

4. The Partner Fund. The Partner Fund is operated by the Foundation and is geared towards large grants for ecosystem partners who have demonstrated success, including providing funding to scale or deploy on Optimism. Grants under the Partner Fund are ongoing and applications open.

Combined, these four grant programs work to move the mission of the Collective forward through an experimental, iterative approach to guided work. We can expect the Collective to change some of the parameters for Season 5 based upon the learning from Season 4.

Granting Us The Opportunity to Contribute to the Greater Good

The Optimism Collective has created a playbook to meet a grand end goal: solve the world’s major coordination problems through a new kind of economic model that seeks to compensate people for their measurable positive impact on the common good.

Anchored in Impact=Profit and proactive grants that seek out experimentation on the edges of what we think is possible, the Collective has provided us with a clean slate for reimagining how to govern, together. But the key to all of this lies within the members of the Collective who themselves need to heed the call of Ether’s Phoenix, to rise up and take advantage of the opportunities presented by the Collective. The Collective gives us the chance to contribute to the greater good, but the good becomes great when we collectively decide to take action.

Author Bio

Hiro Kennelly is a writer and shipper at Bankless Publishing, building at BanklessDAO, an Associate at Bankless Consulting, and is now and forever a DAOpunk.

Editor Bio

Trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Designer Bio

Tonytad is a graphic designer who has worked locally and internationally with organisations and firms on over 200 projects, which includes branding, logos, flyers, cards, and covers.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

More In The hOPe Series:

https://banklessdao.mirror.xyz/lERTlV4Wl-Z4hSXifOYTWjQx_Du_5B2iR61Fpzo60iA

https://banklessdao.mirror.xyz/hAasqwY7wqgu-BZHZa-pt5_MRGZNhJCUUy8Sneh6aew

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The Optimism Collective’s RetroPGF Learning Journey

Since the Optimism Collective launched sixteen months ago, Bankless Publishing has been covering that ecosystem, from tokenization and technology to the Law of Chains and the Optimistic Vision. As part of our work, we’re pleased to curate eight of those articles as part of what we’re calling The hOPe Series. These article are available as free, open edition digital collectibles, helping you to curate writings on one of the most impactful ecosystems in web3.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

― Adam Smith, The Wealth of Nations

“The time during which the labourer works, is the time during which the capitalist consumes the labour-power he has purchased of him.”

― Karl Marx, Das Kapital

“impact=profit [is] the principle that positive impact to the collective should be rewarded with profit to the individual.”

— The Optimism Collective

It’s not news to us that something is wrong with capitalism, this system that has brought so much material wealth to so many, but has also destroyed traditional ways of life, brought large-scale, potentially irreversible damage to our planet, and has turned most people — many of whom want nothing more than to leave work and reunite with the selves they left at home — into data points on the map of economic conquest.

This was foreseen, but it is not our destiny.

In modern times, there have been two foundational texts upon which much of our social and economic structures have been built: The Wealth of Nations (1776) by Adam Smith and Das Kapital (1867) by Karl Marx.

Although academia continues to spill much ink over their differences, these are both core philosophical texts — rich with social and economic data — that reach back into premodern history to demonstrate why and how the world is as it is and what can be done to further their respective visions of human progress.

Even if you don’t agree with what they wrote, it’s hard to argue that the two are great thinkers struggling with big questions, certain in their seemingly incompatible visions for how to lift up humanity and move the needle of progress forward.

Dicing Up the Dialectic

Smith and Marx offer complex socio-economic theories, and without a framework it’s difficult to know how to move through their work. One of the best ways to analyze competing information is via dialectics, with the basic formula as follows:Thesis → Antithesis → Synthesis, as explained in this fun graph:

Image source: Sketchplanations. Licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

The Wealth of Nations, written nearly 100 years before Das Kapital, sets forth the thesis that society will be better off if individuals pursue their own self interest inside of an unrestricted, competitive marketplace. Marx’s response to witnessing what he saw as the dehumanizing effects of unfettered ‘capitalism’ was to publish his antithesis, Das Kapital, arguing that the economic system promoted by Smith exploited workers, forcing them to disjoin their labor and its fruits, causing alienation from their own worth because their labor is used to enrich others, to maximize profits for the “owners of the means of production”. To resolve this conflict, Marx advocated for a worker-led revolution to overthrow the capitalists and institute a society where all had equal status and wealth, a type of social welfare state.

Fast forward to the present, and even the most ardent Marxist is forced to see that the implementation of his ideas have proven ruinous, even if his intellectual work may have been priceless. And yet, we understand the necessity of marketplaces, of enabling those to pursue their self-interest, but as we exist in this state of hypercapitalism where we labor for the profit of others while spending our leisure time enriching the shareholders of social media platforms, many of us wonder if there is another way to create value, to feel valued.

Two hundred and fifty years after Smith and 150 years after Marx, it’s time for a more Optimistic economic model that combines the best parts of capitalism (competition as determined by a marketplace) and socialism (care and support for our fellow humans) to create a synthesis of the two, an Optimistic Vision, and share it with the world.

The result is the Optimism Collective’s simple equation to build a better world:

impact=profit

Impact=Profit Is a Vision For Our Time

At the core of the Optimistic Vision is the idea that digital technologies will enable us to organize and to coordinate as never before, to leave behind the “inherited economic rulesets built for the physical world” and to reimagine our socio-economic architecture to build a new set of operating procedures for a blockchain-powered digital age.

The Optimism Collective may be glass-half-full by nature, but they are also pragmatists, and recognize that marketplace dynamics predate capitalism and are as embedded into our social fabric as long-term relationships. Their response to this tension is to create a regenerative cryptoeconomic model that uses protocol profits to sustain a retroactive public goods funding model built to reward those who make the greatest impact on citizens of the Optimism Collective.

The core idea of impact=profit is that we don’t have to choose between people or profits — digital democratic governance and recursive retroactive public goods funding models mean that we can have our block of cake and eat it too.

And that’s just to start, as Optimism’s ambitions hardly stop where digital borders end:

“We imagine a future in which the Collective expands beyond the digital realm and into the physical world. The idea that a decentralized ecosystem could reliably provide for basic human needs at scale may seem idealistic today, but it will seem commonplace tomorrow. We start small out of a sense of pragmatism, but we aim big out of an overwhelming sense of Optimism.”

— The Optimistic Vision

Optimism may not have set out to resolve a profound tension 250 years in the making, but they might just end up doing it anyway. Even though we’re witnessing the foundation for a liberating economic revolution, you can be forgiven that it looks mundane. But as with the blockchain, the magic of this revolution is that you don’t need to understand the specifics of how it works to understand the universality of its application.

Just as the internet set information free, the blockchain will set you free.

Author Bio

Hiro Kennelly is a writer and shipper at Bankless Publishing, building at BanklessDAO, an Associate at Bankless Consulting, and is now and forever a DAOpunk.

Editor and Designer Bio

Trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

More In The hOPe Series:

https://banklessdao.mirror.xyz/lERTlV4Wl-Z4hSXifOYTWjQx_Du_5B2iR61Fpzo60iA

https://banklessdao.mirror.xyz/hAasqwY7wqgu-BZHZa-pt5_MRGZNhJCUUy8Sneh6aew

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https://banklessdao.mirror.xyz/Tk4vbkuC8MDbI_qpoxIaT0BLigN0b4YLlrjGIw3LNRw

The Optimism Collective’s RetroPGF Learning Journey

Since the Optimism Collective launched sixteen months ago, Bankless Publishing has been covering that ecosystem, from tokenization and technology to the Law of Chains and the Optimistic Vision. As part of our work, we’re pleased to curate eight of those articles as part of what we’re calling The hOPe Series. These article are available as free, open edition digital collectibles, helping you to curate writings on one of the most impactful ecosystems in web3.

Shortly before Optimism burst into much of crypto consciousness last year with its first OP token airdrop and the establishment of the Optimism Collective as a playground for digital governance experiments, it published what I called a “short but powerful blog post — Ether’s Phoenix — about building infrastructure to support public goods funding,” positing that public-goods-focused building is “a mindset: that optimism prevails, that better systems are possible, and that humankind will be rewarded for its cooperative revolution”.

The difference here is that unlike so many other profound visions for an optimistic future, Optimism also provides a way to fund the creation of this better world.

Ether’s Phoenix is a mashup of ancient wisdom, blockchain technology, and the idea that we should monetarily reward people who have made a positive impact, summed up by the Optimism Collective's succinct guiding axiom: Impact=Profit. At a high level, it means that Optimism has built a recursive, retroactive public goods funding model which uses profits from its blockchain sequencer to reward individuals for past work they’ve done that benefits Optimism, the Collective, and Ethereum. In a practical sense, it distributes OP tokens to those individuals who are building tools that don’t themselves generate revenue but are immensely profitable as a public resource.

In the grandest sense, Ether’s Phoenix is a test of the thesis that regenerative cryptoeconomics isn’t just a funding mechanism for web3 public goods; it’s a vehicle to solve the world’s greatest challenges and an attempt to rectify millennia of coordination failures. Ether’s Phoenix rises from the ashes of Moloch.

The Phoenix Rising

Made famous through Greek mythology, the phoenix has long symbolized rebirth, the cyclical nature of a self-renewing world. In many ways, the phoenix is the perfect metaphor for what the Optimism Collective is trying to accomplish —  as Ether’s Phoenix makes clear, the Optimism Collective has no less than a long-term goal to provide infrastructure aimed at addressing humanity’s long-standing failure to meaningfully manage large-scale coordination challenges, which range from nuclear weapons and clean air to digital rights and open-source software. But first we have to start small.

In web3, we are acting as a laboratory to solve the world’s coordination problems, to — in the words of many crypto natives — slay Moloch, the modern god of coordination failure and ancient god of child sacrifice. The Optimism Collective believes the best way to slay Moloch, to overcome humanity’s history of coordination failures, is to center itself around Impact=Profit as practiced through retroactive public goods funding.

Optimism ran its first retroactive public goods funding round in 2021, when it donated $1 million to about two dozen projects. By its second round earlier this year, it was donating nearly $25 million in equivalent OP tokens to 195 participants. For its third round slated later this year, the Optimism Collective is going to distribute 30 million OP tokens, with a current market value of around $50 million.

Telling the Free Rider to Take a Hike

One of the main hurdles to solving issues that require large-scale human coordination is the free rider problem. Simply put, because of the nature of collective goods, there is no incentive for parties who benefit from collective action to contribute towards the costs of that action … i.e. since it’s being done anyway, why pay for it? Optimism’s solution is to tell free riders to take a hike by incentivizing builders to solve collective problems through the promise of proportional rewards.

The dream is to build an incentive structure so rewarding that free riding is against the party’s own self interest. Start to imagine trillion-dollar matching pools and worldwide quadratic voting rounds and you can see that this model may be the missing piece that resolves an inherent dichotomy of capitalism: how to focus collective effort towards a beneficial purpose while also making money. That’s what Impact=Profit is all about: the idea that both can be achieved by an action, that both are equally important goals.

We Are All Summoners Now

The vision is that this type of retroactive funding will enable better collaboration and incentivize collective action. In many ways, optimism, both the concept and the capital-O scaling solution, is Ether’s Phoenix; it’s what helps to give rise to new forms of coordination. Enabled by Ethereum and scaled by the Optimism Collective, it’s also a call for us to summon our own phoenix, to participate in the process of building the future we want to see. For Optimism, that starts with using sequencer profits (and 20% of the initial token allocation) to retroactively fund public goods. For members of the Collective, it may mean supporting these efforts through use of Optimism or by building tools and resources to help the Collective flourish.

As this incentive engine continues to burn hotter with the fuel provided by the growth of the Collective, ether will become the creative phoenix on which our collective dreams rise, stretching the wings of optimism as we ride a perpetual updraft, soaring over the remains of Moloch, whose dying ember slowly fades far below.

Any time is a great time to become more Optimistic. Get involved in their Discord, apply for a job at the Optimism Foundation, or just follow them on Twitter and help spread the Optimistic Vision.

Author Bio

Hiro Kennelly is a writer and shipper at Bankless Publishing, building at BanklessDAO, an Associate at Bankless Consulting, and is now and forever a DAOpunk.

Editor Bio

Trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Designer Bio

Tonytad is a graphic designer who has worked locally and internationally with organisations and firms on over 200 projects, which includes branding, logos, flyers, cards, and covers.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

More In The hOPe Series:

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The Optimism Collective’s RetroPGF Learning Journey

Article and Cover Art by trewkat | Edited by Kornekt

Since the Optimism Collective launched sixteen months ago, Bankless Publishing has been covering that ecosystem, from tokenization and technology to the Law of Chains and the Optimistic Vision. As part of our work, we’re pleased to curate eight of those articles as part of what we’re calling The hOPe Series. These article are available as free, open edition digital collectibles, helping you to curate writings on one of the most impactful ecosystems in web3.

As globally dispersed communities, DAOs have no choice but to rely on digital record-keeping. ‘That’s right’, you say, ‘that’s why DAOs vote onchain’. Well, yes … but while the ‘A’ in DAO stands for ‘autonomous’ — referring to the idea that decisions arising from votes are autonomously enacted by smart contracts — the reality is very different for many DAOs.

Even if all voting is recorded through the blockchain (and all actions are managed by smart contracts), we can’t ignore the fact that a vast amount of discussion and debate happens well before the vote. This crucial element of shared decision making usually takes place in an online — but offchain —  forum platform, so looking at a DAO’s Snapshot instance will not tell the whole story of its governance history.

That is why the Optimism Collective’s work in creating and sharing The Collective DAO Archives: Governance Library is so valuable. Not only does this work collate the governance journeys of 20 key DAOs into one resource, it has also facilitated the synthesis of all that material into ten key takeaways.

I mentioned this “goldmine” in an earlier article about the Optimism Collective’s approach to governance. The research and synthesis was completed by Justine Humenansky for the Optimism Foundation, and it’s easy to see the application of the key learnings taking place through the Optimism Collective’s continual reflection cycles and bicameral structure (there are two voting houses with separate but shared concerns).

The brilliant part though, is that because the Optimism Collective is all about public goods, the Collective DAO Archives is open access (attribution is required), and is consistently being updated. This means that the entire community can share in the wisdom of 20 DAO lifetimes.

Distilling the Learning

You can see Justine present her findings in this video taken at ETHDenver 2023, view the slides from that presentation, or read the full X thread for the highlights.

One of the slides from the Collective DAO Archives presentation at ETHDenver

The ten takeaways are the result of Justine’s reading of thousands of forum posts; together they create a must-read checklist for how to DAO effectively. I have further summarized them from the X thread for this article, but I highly recommend exploring them in full.

Takeaway #1: VotingMatch the decision-making model — the degrees of decentralization and delegation — to the type of decision being made.

Takeaway #2: StrategyCreate and implement prioritization frameworks early so that decisions are guided by strategy, even as further decentralization occurs.

Takeaway #3: TreasuryCreate funding structures that are flexible and goal-oriented.

Takeaway #4: AccountabilityProposals and ideation are best rewarded once executed; establish a “do-ocracy” in the DAO to enable competition, speed, and experimentation.

Takeaway #5: OrganizationalDefine power structures rather than ignoring their existence. This is the way to keep them in check. [A bonus read is this article about this topic].

Takeaway #6: ContributorsRecognise the difference between elected representatives and volunteer contributors. Implement accountability and compensation structures accordingly.

Takeaway #7: Path to decentralizationIf progressive decentralization is the goal, maintain transparency about the boundaries of control and the path forward.

Takeaway #8: PolicyMaintain transformability so that governance can be responsive and adaptive rather than reactive.

Takeaway #9: ToolingCommunication mechanisms that enable all contributors to provide and access feedback must be a priority.

Takeaway #10: ConcernsConflict is inevitable and will not itself cause a DAO to fail. Legitimacy is the key factor which will influence success.

Mapping the Past To Illuminate the Future

The research findings shared by the Optimism Collective are very useful, but what’s even more useful is that the underlying dataset has also been collated and curated in a way that makes it accessible to all. This is gold-standard research practice, and it increases the potential impact of the efforts put towards the Archive.

Visitors to the Collective DAO Archives site (housed in Notion) can browse by category, DAO, or even proposal title, to find links to the original documentation. Although the Notion search functionality is disabled, a simple Ctrl/Cmd F search will achieve the same if there is a specific term or DAO you’re looking for.

Alternatively, those with an interest in a particular DAO’s governance timeline can access this via the Governance Timeline, which maps all of the proposals included in the Notion database into a month-by-month format. The final piece of good news is that this resource is not just a legacy snapshot of DAO history — it is actively maintained by the Optimism Foundation.

The Collective DAO Archives: Screenshot of the Optimism Governance Timeline

Shared History, Shared Vision

This combination of targeted discovery and browse-enabled serendipity creates a valuable — arguably essential — historical record which can help to inform DAOs of all types and sizes in the pursuit of decentralized excellence.

Study the past if you would define the future.  —  Confucius

The shared vision of the Optimism Collective, that “together, we will create the future of coordinated, collaborative cyberspace”, is brought one step closer to reality through the Collective DAO Archives.

Author and Designer Bio

trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about web3, with a particular focus on how best to communicate this knowledge to others.

Editor Bio

Kornekt is a Writer, Staff Editor, and Content Manager at Bankless Publishing. Deeply fascinated about crypto, web3, and blockchain technology.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

More In The hOPe Series:

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The Optimism Collective’s RetroPGF Learning Journey

Article by lawpanda | Edited by trewkat and Hiro Kennelly | Cover Art by Chameleon

Since the Optimism Collective launched sixteen months ago, Bankless Publishing has been covering that ecosystem, from tokenization and technology to the Law of Chains and the Optimistic Vision. As part of our work, we’re pleased to curate eight of those articles as part of what we’re calling The hOPe Series. These article are available as free, open edition digital collectibles, helping you to curate writings on one of the most impactful ecosystems in web3.

The Optimism Collective, a leading Ethereum Layer 2 scaling solution, has recently announced the first draft of the auspiciously named Law of Chains. In theory, the Law of Chains will govern the blockchains that are built on the OP Stack; these will eventually constitute the Superchain ecosystem—a unified collective of blockchains dedicated to open, decentralized block space. The Law of Chains represents an open neutrality framework that is meant to define the minimum standard for Superchain participants.

What Is the OP Stack?

The OP Stack is a series of software modules that power Optimism Mainnet and facilitate open-source development in the ecosystem. The OP Stack currently hosts projects such as BuildOnBase, opBNB, ourZORA, and Magi, and new chains are being deployed with increasing frequency. Optimism introduced the Superchain concept following its recent Bedrock upgrade. The Superchain is meant to facilitate continued scaling of the network of OP-Stack-based chains and allow for some level of interconnectivity.

The OP Stack is the first realization of the modular blockchain theory. We’re finally moving beyond charts that describe how this might work to a concrete codebase where you actually get to fit these components together.

— Introducing the OP Stack

As it’s an MIT-licensed public good, builders can fork the OP Stack however they see fit. In practice, such freedom to iterate generally leads to disparate implementation of standards, confronting users and builders with the challenge of individually assessing each chain’s security, quality, and neutrality. The Law of Chains is meant to diminish or eliminate some of that uncertainty. It is important to note—frontrunning initial developer objections about how perceived conformity requirements might stymie independent projects—that the Law of Chains will only apply to OP chains that voluntarily opt in to become part of the Superchain.

What Is the Law of Chains Meant to Do?

Currently, each OP Stack chain operates independently, with no straightforward way to share standards and improvements. With governance mechanisms designed in the same vein as the ​​Optimism Collective’s experimental and agile approach to governance, the Law of Chains will become the guiding principle for Optimism Governance and facilitate the Superchain’s evolution into a unified collective of chains upholding a shared commitment to open and decentralized blockspace.

More specifically, the Law of Chains is meant to facilitate minimum standards regarding covered participants, platform expectations, security standards, and user and servicer protections on the Superchain. It will also allow for economies of scale across the Superchain with regard to development and upkeep of underlying infrastructure such as block explorers, indexing, sequencing, etc.

Releasing the OP Stack will [be] the first step in an explosion of highly compatible L2s and L3s. We lovingly call these op-chains. By sharing and contributing back to a hardened, standardized, and modular codebase, all of these systems can work together to build the future of Ethereum. With a shared message-passing format, these chains can easily communicate with each other without custom adapters for each and every chain.

Introducing the OP Stack

The closest current analog to the Superchain would seem to be the Cosmos Inter-Blockchain Communication (IBC) protocol, which defines a set of low-level primitives for authentication, transport, and ordering, along with a set of application-level standards for asset and data semantics. However, unlike the Superchain, IBC does not contemplate or rely upon the identification of a minimum standard for the characteristics noted above for the network of blockchains in which it is operating.

The Impact of the Law of Chains

Once formally introduced, the Law of Chains could make a significant impact on the OP Stack ecosystem by attracting more developers and users to Optimism. Some of the key benefits of the Law of Chains include:

• Easier cross-chain development: The Law of Chains will make it easier for developers to build cross-chain applications that can run on any OP chain. This will, in turn, facilitate users moving their assets between OP chains.

• Improved security: The Law of Chains will establish minimum security standards for all OP chains that opt into the Superchain, which will help protect users and developers from malicious actors.

• Increased transparency: The Law of Chains will increase transparency in the OP Stack ecosystem, building trust and confidence among users and developers.

The Law of Chains as Social Contract

Of course, there are critics of the Law of Chains’ and OP Stack’s reliance on a single sequencer, along with other criticisms that will likely surface in the Optimism governance forum. However, if nothing else, the Law of Chains strives to facilitate the development and mainstream adoption of blockchain ecosystems.

Much to my chagrin as an attorney, Optimism’s Law of Chains is heavy on important ideals but light on the law. As stated in the Collective’s announcement, “[f]undamentally, the Law of Chains is a social contract (not a legal one) . . . .” This is also reaffirmed in the disclaimer on the Optimism Governance page:

[The Law of Chains] is fundamentally social in nature, intended to guide Optimism Governance and participants in the Optimism Collective. It is not a legal contract, and provides no legally enforceable warranties, representations, indemnities, rights, or obligations. Participants commit to the Law of Chains independently. No party acquires the ability to bind the other by virtue of their shared commitment to these guidelines.

For example, while the Law of Chains includes the concept of Participant Protections, those protections are framed in a manner that reflects the importance of such protections as a matter of principle, but no legal rights or obligations are created. If participant protections are violated, the only recourse is an appeal to Optimism Governance, which is essentially an appeal to the onchain democratic process.

Optimism Governance is not a legal entity or a singular adjudicative body. It is a collection of many unaffiliated, independent, and uncoordinated individual voters. Its outcomes cannot be guaranteed.

Participants in the Superchain will also not have the ability to contractually bind other participants by virtue of their shared commitment to the proposed—and presumably eventually adopted—guidelines. While the Law of Chains expressly disclaims the creation of any partnership, joint venture, employment, franchise, or agency relationships, there is still arguably the second-order effect of providing aspects of collective bargaining in contracting and infrastructure development with external parties.

While the current iteration of the Law of Chains may be perceived as somewhat ‘toothless’ in its ability to enforce its own standards, that does not mean that enforceable legal mechanisms utilizing OP Stack technology and embodying its ideals will not eventually evolve. For now, however, it seems as if the “Law” part of the Law of Chains may be a misnomer, albeit a well-meaning aspiration.

Author Bio

Lawpanda is a U.S. attorney with an active litigation and counseling practice assisting builders, developers, traditional companies, and decentralized communities. He is a member of the Blockchain Lawyers Group, BanklessDAO’s Legal Guild, LexDAO, LeXpunK, and a member/consultant/contributor to a variety of DAOs and protocols. Read his scribblings on Mirror and connect on the app formerly known as Twitter, LinkedIn, or at nathan@lexfg.com.

Editor Bios

trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Hiro Kennelly is a writer and shipper at Bankless Publishing, building at BanklessDAO, an Associate at Bankless Consulting, and is now and forever a DAOpunk.

Designer Bio

Chameleon is a designer and creator in the web3 space.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

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The Optimism Collective’s RetroPGF Learning Journey

Article and Cover Art by Trewkat | Edited by Hiro Kennelly

Since the Optimism Collective launched sixteen months ago, Bankless Publishing has been covering that ecosystem, from tokenization and technology to the Law of Chains and the Optimistic Vision. As part of our work, we’re pleased to curate eight of those articles as part of what we’re calling The hOPe Series. These article are available as free, open edition digital collectibles, helping you to curate writings on one of the most impactful ecosystems in web3.

Unless you are brand new to blockchains or have been hiding out in a cave, it’s safe to assume you’ve heard of Optimism, a Layer 2 scaling solution for the Ethereum blockchain. Optimism launched in January 2021 as Optimistic Ethereum, an EVM-compatible Layer 2 blockchain, and then transitioned to an EVM-equivalent chain in late 2021, at the same time changing the name of the network to Optimism:

We were a bit hesitant at first, but we’ve come around to embrace the name. It’s short and sweet, and it rolls off the tongue. But more than anything else, Optimism represents who we are as people: we’re Optimists. We work with the conviction that the platforms we build will be used to change the world for the better.

A Little Ray of Sunshine

In April 2022, Optimism announced the launch of the Optimism Collective, “a large-scale experiment in digital democratic governance, built to drive rapid and sustainable growth of a decentralized ecosystem, and stewarded by the newly formed Optimism Foundation.” From launch, the governance plan for the Optimism Collective was to have two separate voting houses: the Citizens’ House and the Token House. While the Citizens’ House did not launch until later, it was announced from the beginning that membership would be conferred rather than be linked to token ownership and that this group  —  known as OP Citizens  —  would be responsible for stewarding Optimism’s retroactive public goods funding, now in its third round.

Meanwhile, the Token House was brought to life with the first airdrop of the OP token in May 2022. Token House members are known as OP Holders, and while anyone holding OP tokens may vote, there must first be a delegation of the tokens to enact the voting power. Holders can choose to delegate to their own address and therefore cast their own votes on proposals, or to delegate to another address, in which case that delegate will vote with the power of all tokens under their delegation.

Things Can Only Get Better

The Optimism approach to governance is one of continual improvement. Again, this ethos was baked into the very first iteration of the Optimism Collective. While the Optimism Foundation was established to steward the initial governance model, there is a Working Constitution, which “will remain in effect no more than four years from the date of its adoption. After that, authority over governance will be ceded to a permanent Bedrock Constitution (that incorporates the lessons of the Collective’s prior governance experiments).”

If you’re familiar with the concept of retroactive public goods funding (RPGF), you’ll know it’s based on the fundamental principle that “it’s easier to agree on what was useful than what will be useful.” In other words, it’s with the benefit of hindsight that we’re best able to assess the impact and value of our actions. Although Optimism’s documentation doesn’t explicitly make a connection between the application of this idea to RPGF and its governance approach, it seems to have permeated the Collective consciousness. Openly allowing the governance experiment to play out, assessing and improving, and then after a time making more permanent decisions about what works for the community, is in many ways preferable to the more cemented alternative in which early actions tend to become somehow ‘wrong or right’ with the passage of time.

Time After Time

The OPerating Manual of the Optimism Collective is the best place to get all the details about the iterative process of the Token House governance cycles and structure. Like many DAOs, the Collective surfaces ideas through a proposal process, which then can be voted on by Token House delegates. Unlike some DAOs which have an ad hoc or ‘as necessary’ voting cycle, the Optimism Collective has a neat and tidy schedule that is designed to optimise the time and energy of delegates.

According to the Manual, all Token House proposals progress in a five-week cycle. It’s so specific as to state that each of these governance weeks starts on Thursday at 7pm UTC and finishes the following Wednesday at the same time. The first three weeks are purely for feedback and review, and there are clear guidelines about proposal titling and formatting and expectations about providing answers to delegates’ comments.

The rigour doesn’t stop there. Only those proposals that receive explicit approval from four delegates who act for >0.25% of the current votable token supply are allowed to proceed to a broader vote. There is no room for ambiguity here; each delegate uses the same templated statement to signal their approval in the comments, but the approval is for the proposal to move to a vote rather than endorsement of the proposal itself.

Thank U, Next

Proposals that make it through the feedback and review process are subject to an onchain vote in weeks four and five. Proposals that don’t make it can be resubmitted in the next five-week cycle. For the voting round, all delegates may vote with the voting power established via a snapshot at the start of the period. There are different quorum and approval thresholds set for various proposal types, but quorum is measured as a percentage of the total votable (delegated) OP supply, and approval is the percentage of approval votes as part of the overall total, not including those that abstain.

A Hard Day’s Night

Each five-week cycle occurs within a longer season, and between seasons there is an aptly named Reflection Period. This is dedicated time for delegates to provide input on what worked and what didn’t, without the distraction of voting on current proposals. The Optimism Foundation takes on the role of collecting feedback and developing a special set of proposals which address the issues raised. It’s important to note that this process is inherently positive and completed in the spirit of improvement that drives everything the Collective does.

To date, the Token House has completed three seasons and is in Season 4. This fourth season introduces Collective Intents  —  short term goals which are intended to focus the Collective’s efforts and budgets. There are four Intents: Technical Decentralization, Innovate on Novel Applications, Spread Awareness of the Optimistic Vision, and Governance Accessibility. This diagram illustrates the proposed pathways through which the Token House will achieve each Intent:

How it All Comes Together. Source: Optimism Collective Governance Forum

We Are the World

The spirit and intent of the Optimism Collective shines through in all that it does. Rewarding contributions to the Ethereum and Optimism ecosystem through retroactive public goods funding is just one facet of the work being done to scale Ethereum and design a more open and decentralised future for all.

Another huge body of work to come out of the Optimism Foundation is the Collective DAO Archives, an open-source library of policies and governance processes from 20 different DAOs. This goldmine is the work of Justine Humenansky, who also distilled the findings from the research into 10 categories, each with a key takeaway. You can see Justine present her findings in this video taken at ETHDenver 2023, view the slides from the presentation, or read the full Twitter thread for the highlights:

She organized the results of her research into 10 categories: voting, strategy, treasury, accountability, organizational, contributors, path to decentralization, policy, tooling, & concerns.

This presentation highlights takeaways from each category.

— Optimism (✨🔴_🔴✨) (@optimismFND) March 2, 2023

Praise You

You may have noticed I’ve been singing the praises of the Optimism Collective and its governance, so for transparency, I will confirm that this article is written as part of BanklessDAO’s Mission Proposal towards Intent 3: Spread Awareness of the Optimistic Vision. The wonderful part though, and what made this so easy to write, is that it only takes a moment to capture the vision once you choose to look. I invite you to see for yourself the positive work taking place through the Optimism Collective and find your opportunity to contribute to the chorus of praise for Ethereum’s most optimistic Layer 2.

Author/Designer Bio

Trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Editor Bio

Hiro Kennelly is a writer and shipper at Bankless Publishing, building at BanklessDAO, an Associate at Bankless Consulting, and is now and forever a DAOpunk.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

More In The hOPe Series:

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The Optimism Collective’s RetroPGF Learning Journey

Article by Hiro Kennelly | Cover Art by Ornella

Since the Optimism Collective launched sixteen months ago, Bankless Publishing has been covering that ecosystem, from tokenization and technology to the Law of Chains and the Optimistic Vision. As part of our work, we’re pleased to curate eight of those articles as part of what we’re calling The hOPe Series. These article are available as free, open edition digital collectibles, helping you to curate writings on one of the most impactful ecosystems in web3.

Crypto Twitter lit up in April when Optimistic Ethereum (Optimism) announced that it was ready to tokenize its community and create a decentralized autonomous organization called the Optimism Collective.

Optimism

@Optimism

Introducing the Optimism Collective:

10K

12:12 PM • Apr 26, 2022

And then, this happened:

Optimism

@Optimism

Let the claims (officially) begin! ‿

2,302

4:45 PM • May 31, 2022

There has been talk of Layer 2 Summer for over a year (and #L222 has been trending since last year). Layer 2 (L2) is a term for a specific type of Ethereum scaling solution that allows users to inherit the security of Ethereum but transact with cheap fees and fast inclusion times. Optimism relies on Optimistic rollup technology to scale Ethereum. As the name implies, the scaling solution literally involves optimism, in this case that the transactions are legitimate.

But this optimism extends beyond the technology. Optimism holds special appeal for those of us aware that its founders are aligned with Ethereum’s ethos of permissionless building, progressive decentralization, and public goods funding, the idea that together we can create a more vibrant, sustainable, and beautiful world.

In the structural design of the Optimism Collective, we see this optimistic spirit at work. The Collective will be divided into two governing bodies: one for token holders to focus on short-term incentives, and one for those focused on long-term retroactive public goods funding. In the medium term, an executive body is tasked with guiding the Collective as it gets its governance legs.

Exploring the nuances of the Optimism Collective’s structure reveals a governance and token design that encodes the belief that together we can build better things even though our incentives are not always aligned, even though our specific goals may be different. Optimistic Ethereum encapsulates the spirit of this new epoch. Optimism isn’t just a scaling technology; it’s also the fundamental subatomic force that binds all of Web3.

The Optimistic Path

On March 23, 2022, Optimism published a short but powerful blog post — Ether’s Phoenix — about building infrastructure to support public goods funding. It posits that public goods-focused building is “a mindset: that optimism prevails, that better systems are possible, and that humankind will be rewarded for its cooperative revolution”. Shortly thereafter, a follow-up post told their story. Optimism started as a “small group of ETH obsessives, maniacally scribbling on whiteboards”, to a short time later, developing the Optimistic Rollup.

https://optimism.mirror.xyz/Fdpds7l4yE2VDpLN4AZQUCjpBYdoPrIHw6a4uzUepmw

As the team raised significant funding to scale their own operations, they wrote that Optimism was “nearing the end of a chapter and the beginning of the next — one driven by community ownership and governance”. A week later, the news was so hot that even Arbitrum did a quote tweet trying to get in on some of the action:

ANDAO (💙,🧡) 🦇🔊

@ArbitrumNewsDAO

Congrats to $OP! Wen $ARB?

Optimism

@Optimism

Introducing the Optimism Collective:

40

3:10 PM • Apr 26, 2022

A New Model of Optimistic Governance

On April 26, 2022, a new model of democratic governance was born. As a decentralized autonomous organization, the Optimism Collective resonates with the soul of Ethereum: the idea that the technology we build and the systems we create to incentivize behavior can create an abundant, sustainable, and techno-optimist future. Calling itself a “new model of digital democratic governance optimized to drive rapid and sustained growth of a decentralized ecosystem”, the governance model is designed to empower a community to build and benefit from a robust public goods funding model.

This model is centered around the axiom of impact=profit and the conviction that funding public goods can be profitable.

The Optimism Collective defines the impact=profit axiom as “…the principle that positive impact to the collective should be rewarded with profit to the individual”. In other words, people and projects should be retroactively funded for contributing to the public good. As Vitalik Buterin writes, “The core principle behind the concept of retroactive public goods funding is simple: it’s easier to agree on what was useful than what will be useful”.

When designing the governance framework, the Optimism team decided to go bicameral, erecting two different governmental bodies to make up the Collective. The Token House, governed through tokenization, will begin to take shape now that Airdrop #1 has occurred. The Citizens’ House will come later and be governed by holders of soulbound NFTs. Each House will be tasked with aligning incentives and values in pursuit of the Optimistic Vision.

Optimism: The most used blockchain infrastructure.

Own your infrastructure. Grow your margins. The most used blockchain infrastructure. Launch scalable, customizable Layer 2s and apps with Ethereum-grade security - powered by the OP Stack.

https://www.optimism.io

Along with the bicameral structure, the Optimism Foundation was created to help guide the Houses as the community discovers how to govern the Optimism Collective. Initially, the Foundation and the Collective will have to learn how to govern together. As the Collective finds its groove, the Foundation will relinquish its governance responsibilities to the Collective and slowly dissolve in an act of decentralized sacrifice.

The Founding Documents

The founding documents of the Optimism Collective are the Working Constitution of the Optimism Collective and the OPerating Manual v.0.1. The Working Constitution embodies the soul of the Collective and informs its operations. The Manual and all further iterations must stay true to the principles as laid down in the Working Constitution.

Working Constitution

The Working Constitution embodies the spirit of the Collective and creates a flexible framework that supports a sustainable and fair model for democratic governance. It enshrines the Collective’s experimental governance mandate and clearly states that it will self-destruct within four years of adoption as it cedes its authority to the permanent Bedrock Constitution. The Working Constitution also mandates the eventual creation of the Citizens’ House to provide checks and balances to the Token House, and it cements the Foundation’s role in helping to guide the Collective. This Working Constitution is a living document that will continue to evolve as governance successes and failures inform the Collective.

OPerating Manual v0.1

The initial OPerating Manual enacts the principles enshrined in the Working Constitution, providing the operating guidelines and governance procedures for the Token House. The Manual will be updated with the launch of the Citizens’ House. As an experimental and iterative organization, the Collective will ensure the Manual will be regularly revised as the governance model becomes clearer and more refined.

The Optimism Foundation

According to the Working Constitution, the Optimism Foundation is a “Cayman Islands organization responsible for guiding the growth and development of the Optimism Collective”. Upon formation, the Foundation has certain enumerated powers and responsibilities as defined in the Working Constitution. The Foundation will act as the benevolent matriarch, helping to steer the wider Collective of community members, builders, and citizens, until it too decentralizes into Web3’s subatomic optimistic force.

The Collective Blueprints

The Optimism Collective will ultimately be governed by two bodies: the Token House and the Citizens’ House. Although each House will have separate responsibilities and areas of focus, they will share responsibility for granting ‘citizenships’ in the Citizens’ House and defining the network parameters for the Optimism protocol. Until the Citizens’ House is fully formed many of its responsibilities will rest with the Foundation.

Optimism: The most used blockchain infrastructure.

Own your infrastructure. Grow your margins. The most used blockchain infrastructure. Launch scalable, customizable Layer 2s and apps with Ethereum-grade security - powered by the OP Stack.

https://www.optimism.io

The Token House

The Token House is made up of holders of the OP token, the Optimism Collective’s governance token. OP holders will submit, deliberate, and vote on proposals affecting project incentives, protocol upgrades, disbursement of treasury funds, and network parameters. They also will grant citizenship to the Citizens’ House, once formed. Members may either vote directly or delegate their voting power to a third party.

Governance will be primarily coordinated through the Optimism Forum and Snapshot, the off-chain voting platform. Initially, proposals will be tightly regulated and overseen by the Foundation. Certain proposals, such as those encompassing treasury appropriation or rights protections (changes to the founding documents), may only be initiated by the Foundation. Unlike many protocols, most proposals can be submitted straight to Snapshot for voting.

To minimize voter fatigue and increase participation, voting on proposals will occur at set intervals. Governance proposals must meet quorum (the minimum number of OP votes required for a proposal to be enacted based upon the total OP supply) and overcome an approval threshold, which is the minimum number of votes required to be cast in favor of a proposal. Initial quorum will be set at 10% of the total supply, while approval threshold requirements vary depending on the proposal type.

The Foundation will ensure that only proposals meeting quorum and approval thresholds are considered for implementation. For proposals that meet voting requirements, the Foundation “will determine whether the proposal is safe, secure, consistent with the purposes of the Foundation and the Collective, and capable of being implemented in a legally compliant manner”. If so, the Foundation will work towards proposal implementation; if not, it may be sent back to the Collective for modifications or resubmission, or a proposal may be implemented subject to certain guardrails.

The Citizens’ House

If the Token House is for the plutocrats (Optimism’s term!), then the Citizens’ House is for the people. The primary purpose of the Citizens’ House is to determine how to allocate network revenue and its initial OP token supply to retroactively fund public goods. The Token House is meant to incentivize for the short-term; the Citizens’ House will be built to sustain the Optimism Collective’s long-term vision, anchored in the impact=profit maxim.

In the spirit of optimistic experimentation, membership in the Citizens’ House will be granted via soulbound non-transferable tokens, known as Citizenship NFTs — recipients can’t sell, transfer, or otherwise move these out of their wallet address. Yet soulbound NFTs aren’t without controversy:

Kev.Ξth, GG24 is live💰✨

@owocki

@provenauthority this meme is for u

48

3:32 PM • May 27, 2022

That aside, it’s clearly a way to decouple economic incentives from governance, which is a strong check on the Token House. The Citizens’ House, described by Optimism as the identity-first layer of the Collective, will require a new Operating Manual, v0.2, but this experiment in citizen-based governance is expected to commence once the Foundation, in consultation with the Token House, determines the mechanism for granting Citizenship NFTs.

The Token House and Citizens’ House form a marriage of two parties whose incentives do not cleanly map, but who must work together, believe in the vision, and behave optimistically. Optimism doesn’t just bind us when we have the same motivations; it’s a force that steers us towards a collective vision for how we want to live.

OP Token Allocation

The Token House will be made up of OP holders, and the disbursement method for the tokens has been under discussion throughout the cryptoverse, largely focusing on the mechanics of Airdrop #1. Airdrop #1’s allocation parameters reward active Optimism and Ethereum users who are helping the larger ecosystem grow, but it’s also worth examining the general allocation to get a sense of what Optimism is working to accomplish.

The OP token allocation is broken up into five distinct categories of recipients:

Thirty-six percent of total token supply will be allocated to core contributors and sugar xaddies — those people and entities who have enabled Optimism to reach this point. This type of retroactive allocation is typical in the ecosystem, and recognizes the importance of compensating past work. These allocations will be subject to a lockup period.

At the outset, there will be an initial total supply of just over 4 billion OP tokens, which will inflate at a rate of 2% per year. Sixty-four percent of the total token supply will be allocated to the community of users and projects through airdrops, ecosystem incentives and development, and retroactive public goods funding. A rough approximation of the unlocked OP token supply is below.

https://community.optimism.io/docs/governance/allocations/#token-distribution-details

As the graphic makes clear, Optimism expects to release their total token supply over a four-year period, but its main focus will continue to be on proactively funding its ecosystem’s growth and retroactively funding public goods. All of this began with Airdrop #1.

Airdrops

The announcement of Airdrop #1 was a watershed moment for the Ethereum ecosystem as it helped many to understand the core ethos of Ethereum, expounded by Vitalik and scoped by Optimism. Airdrop #1 allocated 5% of the total initial token supply to nearly 250,000 eligible addresses. These users were rewarded for both their use of Optimism and their general support of the Ethereum ecosystem. Ecosystem participants were also allocated OP tokens for voting in DAO-wide Snapshots, being a multisig signer, contributing to Gitcoin Grants on L1, and bridging to other L1s or L2s. Early users of Optimism who met at least four of the six criteria for the airdrop had their allocation boosted.

With an additional 14% allocated to future undefined airdrops, there’s never been a better time to get involved in the Optimism and Ethereum ecosystems. Join a DAO and vote on Snapshot, take on the responsibility that comes with being on a multisig, or donate to Gitcoin Grants to help fund our ecosystem. Or maybe buy a Pooly to support PoolTogether’s efforts to fight back against a malicious lawsuit. We don’t know the parameters of the future airdrops, but likely the best way to get in on future airdrops is to join the Optimism Collective Discord and get involved in shaping the future of protocol governance and public goods funding.

Proactive Ecosystem and Retroactive Public Goods Funding

While rewarding early contributors, investors, and ecosystem participants is important, nothing says public goods like proactive rewards for builders helping to grow the Optimism ecosystem or retroactive funding for goods.

Ecosystem Fund

The Ecosystem Fund is the corollary to the retroactive public goods funding with which we are familiar. Proactive funding seeks to incentivize builders to work within the ecosystem in the future.

https://community.optimism.io/docs/governance/allocations/#ecosystem-fund

Twenty-five percent of the total token supply will be devoted to building the Optimism Collective ecosystem. This will be split among the Optimism Collective, ecosystem partners as determined by the Foundation, a seed fund for early-stage projects, and future proactive allocations.

The Ecosystem Fund will not get any additional funding following its initial OP token allocation. By the time funds have been spent and support and building are underway, the team is optimistic it can shift the funding to private investors who will be rewarded through the retroactive funding model.

Retroactive Public Goods Funding

Optimism has been retroactively funding public goods for much of its recent history, announcing last July that all revenue generated from block sequencing would be dedicated to such funding. To date, over 1 million USD in retroactive funding has been granted.

In addition to revenue derived from block sequencing, Optimism is allocating 20% of the initial OP token supply to retroactive public goods funding. This retro funding is expected to occur quarterly, with an eye on ensuring that the community and companies that make up the Collective are fairly rewarded based upon their impact.

To understand the full power of the Collective, to truly realize its potential for large-scale impact as a protocol that is also a public goods funding factory, we have to get into protocol economics: the ‘OP’ in ‘Optimism’.

Protocol Economics

Users interacting with the protocol create transaction fees that would fund public goods even without the OP token. But the OP token is the fuel that will ignite the Optimism Collective into a public goods funding powerhouse, building flywheels capable of creating large-scale and lasting change.

Believing that robust public goods enable an abundant ecosystem, the Collective seeks to generate value through a virtuous tokenomics cycle that is elegantly simple:

https://community.optimism.io/docs/governance/economics/#

Sequencer fees generated through the protocol are the source of sustainable revenue that will enable OP’s economy to bloom into a flourishing ecosystem. Like our friends at Tally Ho! who are building a community-owned Web3 wallet, the Optimism Collective has hard-wired public goods into its ethos and its product, turning the protocol into a public good.

The first round of retroactive grants for public goods largely focused on tools and infrastructure within the broader Ethereum ecosystem, which will pay dividends for future builders and users. This flywheel of public goods funding is what we get when we incentivize participants to work with new models of social and economic coordination with a focus on building a robust ecosystem.

Collectively Optimistic

We have choices about the way we spend our time in Web3. Determining the methods by which we transact within our ecosystem must align with the overall vision and ethos of how we engage with this wide-open playground. There are many scaling solutions available to help us live a cost-effective life on chain, but there’s only one Optimism Collective.

Powered by the protocol, the Collective is evolving into a fully incentivized community capable of bringing sustainable funding to those who are sowing the early seeds for a rich and vibrant ecosystem. The Collective is tasked with supporting the gardeners tilling the soil, providing it with nutrients, and tending to the shoots as they slowly grow and spread into a lush, interdependent canopy.

Now is a great time to become more OPtimistic. Check to see if you can claim some OP tokens. Get involved in their Discord, apply for a job at the Optimism Foundation, or just follow them on Twitter and help spread the word. Claim or swap for OP tokens and get active in Token House governance or work to become a member of the Citizens’ House.

We have the choice to support protocols that are building innovative governance structures to serve the greater good. It’s easy to get lost in the cryptoverse, but the Collective’s guiding light gives us good reason to be more optimistic not just about crypto, but about our collective future.

A version of this article was first released in BanklessDAO’s State of the DAOs newsletter on June 1, 2022.

Author Bio

Hiro Kennelly is a writer and shipper at Bankless Publishing, building at BanklessDAO, an Associate at Bankless Consulting, and is now and forever a DAOpunk.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

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The Optimism Collective’s RetroPGF Learning Journey

Article by Jake and Stake | Edited by Kornekt | Cover Art by Trewkat

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

The Byzantine Generals problem is a problem in distributed computing that arises at the point of making decisions. In such a decentralized setting, there’s the question: “how do we make collective decisions?”. If it were a centralized system, the answer is obvious: someone at the top is the decision maker and that person is the source of truth. However, in a decentralized system, there are multiple independent actors and the answer becomes complex.

Here’s an illustration: suppose several Byzantine Generals are preparing to attack a city. Each General’s army is located at various points around the city, distant from the others, and has their own resources and supply lines. However, the number of troops needed to successfully take the city is greater than each individual army. Each General is to cast a vote through a messenger(s) to the other generals to attack or to retreat, and they will act together based on the majority vote (>50%). If some Generals attack and others do not, they will be defeated. To survive, they must attack together or retreat together.

Things become complicated by the presence of treacherous Generals (bad actors). They may vote for a subpar decision or even communicate different answers to other Generals. Suppose the Generals are nine in number and the vote is split with four to attack and four to retreat while the bad actor has the deciding vote, the bad actor may send a vote of attack to one General and a vote of retreat to another General. This forks the decision, causing some Generals to attack and some to retreat, thus sabotaging the campaign.

Coordinated and Uncoordinated Attacks by the Byzantine Generals. Source: The Wolf Of All Streets

There is a related problem in cryptocurrencies, known as the “Double-Spending” problem. But before looking into that, let’s go through some background basics. Decentralized blockchains have two important characteristics  —  they are open source and immutable.

Being open source means anyone can write to the blockchain’s database and verify data validity. Immutability means actors can only ever add to the blockchain. Once a user adds data to the blockchain, it cannot be deleted or modified. The state may be updated by an additional block, but the data added to the chain in the original block cannot be modified. Blockchain transactions can be tracked and verified to be legitimate, and users cannot change their balance from 1 to 100 without first receiving funds from somewhere else in the blockchain. These characteristics combine to create a source of truth that anyone can access and write to.

Let’s use the Bitcoin protocol as an example. Typically, transactions will occur like this: Alice has 1 bitcoin and decides to pay Bob 1 bitcoin for a Pokémon card. When Alice sends the funds to Bob, the transaction is recorded by a node (computing unit) on the blockchain network. The node verifies the transaction against transactions in the previous blocks, asking “does this account have enough funds for this transaction?”. If the account has enough funds, the transaction succeeds and the node will include the transaction to the block it is working on adding to the blockchain. If not, the transaction is thrown out.

When the node solves the proof-of-work requirement, it adds the block to the blockchain and collects the bitcoin reward given by the network. Each node races to add blocks to the blockchain to collect the reward and verifies transactions in the process. In our example, the node will verify that the transaction is legitimate by checking Alice’s balance and will apply the funds to Bob’s account after solving the proof-of-work requirement.

Back to the Double-Spending problem…

Now let’s say Alice promises to pay both Bob and Charlotte 1 bitcoin each (for their rare Pokémon cards of course). Although she does not have enough funds to pay both Bob and Charlotte, she can create two transactions on different nodes:

• 1 bitcoin paid to Bob

• 1 bitcoin paid to Charlotte

In both cases, the transactions seem legitimate. One node thinks Alice has 1 bitcoin to pay Bob. Another node thinks Alice has 1 bitcoin to pay Charlotte. If both blocks get added to the chain then Alice has spent double the funds she started with. However, blockchains are protected from such a scenario because only one block can be added to the chain at a time and each block is linked to the previous block.

Progression of blocks in a blockchain. Source: Bitcoin: A Peer-to-Peer Electronic Cash System

Blocks are added in a “first-come-first-serve” fashion and each block has a timestamp to show where it is in line. This allows for a clear order of when transactions occurred, so Alice cannot pay Bob and Charlotte the same coin. (This solves the trivial Double-Spending problem).

However, things get more interesting when there’s a tie (the non-trivial Double-Spending problem). What happens if Alice somehow adds each transaction to two different blocks with the exact same timestamp? At this point, there is a fork, and the network must collectively decide which way to go.

If a node receives both blocks, it will do two things: work on the block that arrived first and keep the other block in memory in case that branch’s chain is longer thus becoming the source of truth. Let’s break this down with an example. Suppose node-1 receives Bob’s transaction and begins working on block B and node-2 receives Charlotte’s transaction and adds that to block C. Assuming both blocks satisfy the proof-of-work requirement with the same timestamp, they will tie, broadcast their respective blocks to the network, and continue to work on their respective chains.

Since both nodes added a block simultaneously, the other nodes in the network would work on the block they received first, saving the block they received second. The tie is broken when one chain becomes longer than the other. If a node has been working on the shorter chain, it will discard its work and begin working on the new (longer) chain. If the second set of blocks also ties, the process continues until one chain is longer than the other. In summary, blockchains defend against the double-spending problem by using timestamps to determine the order of transactions.

The scenario with these two chains is analogous to the two decisions offered to the Byzantine Generals. The nodes must act in unison to maintain the integrity of the blockchain, just as the generals must act in unison to be successful in their campaign against the city. Their action is determined by the majority rule, in other words, a decision is made with >50% consensus.

This system works when the majority of nodes are honest players. On the flip side, if the majority are bad actors, they could use their power to process transactions faster and take back the payments they have already made, leading to a 51% attack.

51% Attacks

A 51% attack occurs when an individual entity or a group of miners gain control of more than 50% of a blockchain’s hash rate and thereby compromise the network. An attacker with the majority of computing power can work on one block (with payments they have already made) and switch to another block. The attacker can build a competing chain faster than the other nodes in the network because the attacker controls the majority of computing power.

If the bad actor does this, it de-legitimizes the value of the network. No one would want to put their money into a system that could take their funds away from them at will. To combat this, blockchains offer rewards for successfully adding blocks to the chain. At this point, the attacker can choose to collect the reward and add to their own wealth or take back payments and devalue their own wealth.

[The attacker] ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth. 

 —  Satoshi Nakamoto (Bitcoin: A Peer-to-Peer Electronic Cash System).

This reward mechanism is expected to serve as an incentive to keep the blockchain running honestly, thereby maintaining the integrity of the system and preventing a 51% attack even in the case of a 51% control.

A version of this article appeared in Bankless Publishing on January 27, 2023.

Author Bio

Jake and Stake is a writer and editor at BanklessDAO. He is the creator of and contributor to the DeFi Download, with a background in software engineering and cybersecurity.

Editor Bio

Kornekt is a writer and editor with strong conviction in the world Web3 creates.

Designer Bio

Trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

The Importance of Self Custody by theconfusedcoin

DAI a Different Stablecoin by Jake and Stake

7 Etherscan Basics by Hiro Kennelly

DAOs Are Playgrounds for Growth and Development by siddhearta

How Web3 Writers Do Research by Samantha Marin

The Core of Crypto Is Punks and Principles by PG

DAOs Unlock How We’re Made to Work by Zero Mass

Article by Zero Mass | Edited by Hiro Kennelly

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

Nothing Ventured

The history of organizations parallels the history of societies. Arguably, whenever humans come together in a structured social order with a particular purpose, it could be considered an organization. The latest evolution of organizations is emerging in the form of decentralized autonomous organizations (DAOs) and it’s the type of organization we’ve been trying to create all along. A brief review of organizational studies highlights the direction organizations have been going and how DAOs can help us take the next leap forward. Much can be learned from each of the organizational theories described below, including their shortcomings, and how DAOs can incorporate wisdom from past developments into a new, truly decentralized theory of organizations.

While the origin of organizations stretches back into the history of kingdoms, regimes, and later governments, designing organizations for work is relatively new. Of course, even ancient civilizations had ways of organizing work projects, but these structures were quite simple. If a laborer wasn’t a slave who was forced to work by a cruel master, they were lucky to be paid some measly amount for their labor. It was mainly those who had no wealth or resources of their own, such as farmland, who had to work for others. Modern organizations have a much more complex system of power, incentives, and communication than the organizations that built the Pyramids of Giza or the Great Wall of China.

Sculpture of railroad workers. (Photo from Mike via Pexels)

Being More Thoughtful About Organizations: Scientific Management Theory

The last evolution of modern organizations began in 1911 with Fredrick Taylor’s book, The Principles of Scientific Management. Taylor argued that four activities needed to happen in order for organizations to run more efficiently and effectively:

1. Organizations extract and document all of the data about how each task in the organization is performed from the individual workers who best know each task.

2. Once the data are documented, organizations design more efficient processes, which need to be implemented in partnership with the workforce (i.e, not just ordered by decree of the management).

3. The organization implements a process of “scientific selection and progressive development” for its workers.

4. The work is then to be divided equally between management and the individuals performing the specific tasks to produce goods and services.

This became known as the “scientific management” organizational theory that led to the assembly line and a new baseline for modern organizations. There’s no doubt that developing a better understanding of specific processes that only exist in workers’ heads and documenting them in a scientific approach is beneficial (number one above). Most problems have arisen in activities #2 to #4. #3 has never really been done well by modern organizations and is the source of many issues but #2 and #4 are what concern us the most in trying to create better organizations.

Assembly lines of manufacturers circa 1940s (Photo by Birmingham Museums Trust via Unsplash)

In general, management is usually quite poor at including the frontline workers in the development and implementation of new processes, rules, etc. It is usually dictated to them and they are expected to comply. Even in Taylor’s day, he recognized the immense difficulty in achieving #4, which is still a problem today as most organizational leadership pushes the brunt of the work and real problem-solving to lower levels. Managers, especially in large organizations, tend to spend their time with (often unnecessary) meetings and paperwork, and making decisions with minimal real-time data and little or no involvement from the frontline workforce. Taylor thought management needed to be more actively involved in the production of work over a 100 years ago and it’s still a problem today.

DAOs have the innate ability to solve both of these problems as the members of the DAO collectively create new rules and processes as they go. There is no line between “management” and “workforce” when it comes to individual contributors, which allows for smoother and more sustainable implementation of organizational changes. Secondly, because an individual contributor can also take part in management, or governance, of the DAO, the work is inherently split evenly between workers and managers. In this respect, a DAO may actually have the ability to fully implement the scientific management model as Taylor had envisioned it.

Further Refinement of Organizations: Improving the Division of Labor and Calculating the Span of Control

A couple decades later, Luther Gulick (1937) expanded upon the principles of scientific management, specifically in relation to the division of labor. While the benefits of the division of labor were already long established by early economist Adam Smith, Gulick argued that how you divide up work tasks has a major impact on the outcome.

He postulated that 1,000 workers making shoes, each conducting every step from cutting leather to assembling the shoe parts might make 500 pairs a day. However, if you assigned those same 1,000 workers to only the tasks they were best at in the shoe-making process, they may work in an integrated way to create 1,000 pairs a day instead. This is because you eliminate inefficiencies that occur when someone is bad at a particular shoemaking task, slowing down the overall production (multiplied by all the other workers who are bad at other tasks in the process).

Another addition to organizational theory introduced by Gulick was that of “span of control” the idea that organizations need to be designed in a way that doesn’t require supervisors to have too many subordinates. Each organization is different and it also depends on the type of work being done but most organizations struggle with finding the balance here — how much control can a manager have on quality if they oversee 20 people? If you reduce the number of people one manager oversees, you’ll need more managers, which can be a drain on resources and could be more costly than it’s worth.

A manager organizing tasks and projects. (Photo by Jo Szczepanska via Unsplash)

The way we currently recruit for organizations now exacerbates both issues — project managers take educated guesses about who will be best for a particular job on their team — or worse, human resources chooses for them. We largely deal with the span of control through trial and error, if it’s dealt with at all. DAOs can solve these issues too. Members of a DAO choose their own tasks to do and the quality of their work is verified by multiple other members, not just a single manager. This negates the need for worrying about a manager’s span of control since there aren’t managers for specific people. In addition, DAOs accomplish work through individual tasks and projects rather than through jobs. This makes it much less likely for someone who’s not good at a particular task to continue doing it for long, even if they choose the wrong task to begin with.

Transformational Leadership: Another Top-Down Approach

Jumping forward in time a bit to the early 1970s, we see the concept of “transformational leadership” emerge as an organizational theory. The focus here shifted from how leaders can motivate and inspire all of the workers in an organization to personally identify with their work and a mission of the organization to drive success. While the idea is to develop many such leaders in a single organization, the examples given in the literature usually revolve around a single charismatic individual who single-handedly changes the course of an organization.

The problems with this approach are probably obvious — not only does it rely on a unique set of leadership skills that are very hard to train for, it is also a return to the dysfunctional top-down approach. When you have the unlikely event of Lee Iacoca coming along to turn around a failing car company or a Steve Jobs return and right the course of a wandering tech company, it works very well. Otherwise, the average organization is going to have trouble finding these types of leaders or trying to develop them internally.

The quintessential “transformational leader” addressing employees from a stage.(Photo by William Moreland on Unsplash)

DAOs don’t rely on transformational leaders. In fact, they don’t have organizational leaders at all. Instead, they use crypto tokens to administer voting rights. At a certain threshold of tokens, which for some DAOs is a single token, a given member may participate in making decisions about governance. This can be any member of the DAO, not just an arbitrary set of leaders. Leadership in DAOs happens in group form and this group has much lower barriers to entry than a traditional organization.

Getting to the Heart of It: Organizational Culture and Transparency

As it became clear that scientific management, carefully managing the division of labor and relying on transformational leaders wasn’t fixing the inefficiencies of organizations, the focus turned toward analyzing culture. Researchers like Steven Ott suggested that merely knowing the organizational processes and rules wasn’t enough to understand how they worked. It was the unwritten rules, customs, and informal practices that needed to be observed and accounted for when trying to decipher the organizational code. He suggests that “radical change” of an organization is only possible if you can uncover its culture practices and bring them to light in order to address them. An example would be after work gatherings at a local restaurant where decisions are sometimes made but only among those who attend these informal meetings.

Even when problems with organizational culture were identified, we still struggled to change them. Some of the largest tech companies like Google and Facebook have been aware of their lack of diversity for several years and have made little progress in changing their dominant white cultures. Despite Walmart’s efforts to convince us through TV commercials how much it values its workers, the Walmart corporate culture of treating employees as a liability is quite obviously here to stay.

A common modern brick-and-mortar workplace. (Photo by Proxyclick Visitor Management System on Unsplash)

The problem here is transparency. Even the most altruistic modern organization has a lot that happens behind closed doors. When it comes to DAOs, however, radical transparency comes with the territory. Every member of a DAO has the ability to take part in nearly any conversation, decision or process they wish, given that they have met the token ownership threshold. Of course, most wouldn’t be able to be part of everything that happens in a DAO but they don’t need to be since all of the transactions and decisions are recorded in the DAO’s blockchain.

The Flattened Hierarchy: a First Attempt at Decentralization

In the last 15–20 years, a number of organizations, such as IDEO, claim to have “flattened hierarchies” that have less of a top-down approach, decentralizing processes and decision-making. At least in theory. Julie Wulf of Harvard found that while these types of organizations claimed that they gave more decision-making power to lower levels than a traditional organization, their actual practices reflected the opposite. In these organizations, leaders such as CEOs had more direct reports than usual and less indirect ones (the “flattening” process depicted in Wulf’s writing). Because of this, senior leaders were closer to decision-making across the organization and thus had a hand in making decisions that would normally be made by someone lower in the hierarchy (and without any involvement from upper management). At IDEO, product design teams were purportedly autonomous, yet senior management inserted themselves to dictate how time was spent on the shopping cart project.

Going back to organizational culture, did these organizations with supposedly flattened hierarchies really think that changing the org chart would prevent those who have more political leverage and clout from having greater influence than others? It was a valuable experiment, but if the tools to manage the organization and methods of communication remain the same, the cult of personality will prevail.

A simple, flattened hierarchy.

DAOs are able to minimize outsized influence of individuals through (truly) decentralized decision-making as described earlier where the majority of the community is able to vote on most pivotal decisions. Everyone’s vote counts equally. A flattened hierarchy still has leaders such as CEOs and division managers. DAOs require no formal permanent leadership roles, allowing them to distribute power more evenly across its members to a degree that a flattened hierarchy in a traditional organization would not be able to.

Final Take: DAOs Are the Next Evolution of Organizations

The recent past of organizations, starting with scientific management up through flattened hierarchies, included important insights that all sought to help organizations become more efficient, more effective and even more human. DAOs signal the beginning of the next evolution, which will allow humans to collaborate in efficient, equitable and perhaps more effective ways than ever before. While they are currently confined to a small number of applications, their potential is great — especially in a time when millions of workers and businesses only recently realized their work can be conducted remotely.

As with any innovation, there is no shortage of challenges with DAOs to be overcome. One is the common practice of using governance tokens for voting, which can lead to inequalities when “whales” dominate token ownership and heavily influence voting. Another is the learning curve with the tools that are used for DAOs, like Discord and Collab.Land. DAOs need to spend a considerable amount of time onboarding new folks to these commonly used tools, not to mention the high digital literacy barrier that they create for many who could participate in DAOs (causing yet another equity issue).

Despite these issues, DAOs take a major step toward removing politics, concentrated power, exclusionary cultures and other inefficiencies from organizations, using technology to help us all be better at our work.

A version of this article was originally published by Bankless Publishing on January 21, 2022

Author Bio

Zero Mass is a writer exploring the unique space of DAOs and crypto. His pseudonym is purposefully designed to test the “trustless” concept.

Editor Bio

Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO, an Associate at Bankless Consulting, and a DAOpunk.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

The Importance of Self Custody by theconfusedcoin

DAI a Different Stablecoin by Jake and Stake

7 Etherscan Basics by Hiro Kennelly

DAOs Are Playgrounds for Growth and Development by siddhearta

How Web3 Writers Do Research by Samantha Marin

The Core of Crypto Is Punks and Principles by PG

Article by PG | Edited by nonsensetwice & Trewkat | Cover Art by Bilulu

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

Over the last 15 years, the web has come to be dominated by a handful of powerful players. To access and use their proprietary platforms, we gradually give up our privacy, lose control of our data, and become vulnerable to censorship and manipulation. We did not fare much better with the global financial system. Money is managed non-transparently, for the benefit of a few and to the detriment of many, leading to a vicious concentration of power which often overrides nation-states’ agendas and ecosystems’ well-being.

These are some of the reasons computer scientists, mathematicians, and social-tech activists have combined different technologies — such as cryptography, peer-to-peer networks, and digital currencies — to reimagine the way we relate and exchange value in the digital world. After decades of research and development these innovators have provided us with the tools to tackle harmful centralisation and enact meaningful course corrections. The amalgamation of these tools is currently identified as ‘web3’, and presents an open invitation to enhance the way the internet and financial systems are designed and used.

The term ‘crypto’ is often used interchangeably with web3, although web3 is broader than cryptocurrencies. Crypto is a huge space, an ungovernable commons whose only barrier to entry is that it is not easy to navigate. To understand its real potential, to make conscious adoption and effective use of it, we should realise where it comes from and the essential values upon which it has been developed.

“Too often, the people disrupting any industry don’t understand deeply what they are disrupting. This is definitely the case with cryptocurrencies and the current financial system. It really is well worth your time to stop and become familiar with more history so that you can understand why we are where we are, what led us here, and — only then — what solutions might actually benefit you and those you care about.”

ANDY TUDHOPE (KERNEL)

The Cypherpunks and Precursors to Bitcoin (1980–2005)

The large-scale dissemination of cryptography as a means of protecting individuals’ rights to privacy and free speech — and therefore the root of cryptocurrencies and web3 — was initiated by a group of people known as the cypherpunks. The bizarre name is a play on the words cypher, encryption, and cyberpunk (a dystopian sci-fi genre), and it denotes those who first developed anonymous transacting systems to protect individual rights against the threat of state and corporate surveillance.

The May/June 1993 cover of Wired.

As Haseeb Qureshi’s article on the cypherpunks notes, the internet of the early 1990s was a desolate domain, populated mainly by hackers and nerds. The cypherpunks’ foresight lay in understanding how, once inhabited, profound changes in our economic and social systems would occur, with a harmful concentration of power by a few. To be ready for that moment and ensure internet freedom, they started a mailing list to talk and develop cryptographically secure digital infrastructure.

“We must defend our own privacy if we expect to have any. We must come together and create systems which allow anonymous transactions to take place… The technologies of the past did not allow for strong privacy, but electronic technologies do.”

E. HUGHES, “A CYPHERPUNK’S MANIFESTO”

Some of the individuals on that mailing list are names you may have heard before:

• Jacob Appelbaum, Tor developer

• Julian Assange, founder of WikiLeaks

• Adam Back, inventor of Hashcash

• Bram Cohen, creator of BitTorrent

• Nick Szabo, designer of BitGold

• Wei Dai, designer of B-money

• Hal Finney, creator of Reusable Proof of Work

• John Gilmore, founder of the Electronic Frontier Foundation

• Eric Huges, founding member of the Cypherpunks movement

• Timothy May, chief scientist at Intel, and author of A Crypto Anarchist Manifesto.

As time went by, the cypherpunks realised that encryption alone would not be enough to liberate cyberspace. Since the end of Bretton Woods, central banks’ control over monetary policy had grown by leaps and bounds, making it clear that in order to build a truly free digital commons, a completely sovereign economy with a digitally native form of money would be required. This is what led them to build the foundation for Bitcoin.

Image source: Dan Held via Twitter

“The words of anti-establishment intellectuals sow the seeds for revolution. They present ideas and sometimes discredit the establishment, paving the way for a charismatic leader to package their thinking into a movement.”

TONY SHENG

Bitcoin: The Revolution of Trust (2009)

With the global financial meltdown in 2008, trust in the banking system was under strain, and cypherpunk skepticism was once again justified. After many years of socio-political commitments and technological breakthroughs, there were enough developments for Satoshi Nakamoto to combine into a working protocol. In January 2009, the Bitcoin network launched as an alternative to the opaque and fallacious logic of the then-current financial system.

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”

SATOSHI NAKAMOTO

As Yuval Noah Harari wrote in his 2014 book, Sapiens, more than 90% of the entire world’s money exists only on computer servers, making it a “de facto” digital currency. Therefore, Bitcoin’s disruptive value proposition is not the invention of digital currency, but its methodology in guaranteeing the trustworthiness of digital currency. Leveraging advanced cryptography and blockchain technology, Bitcoin indeed enables a network of peers to create and maintain a functional money system without the need for trusted intermediaries, laws, and governments.

This is why it is not only a technological revolution but also, above all, a socio-political one: there is no longer a single entity able to decide upon the validity of supply and transaction history, but an entire community.

We Are All Satoshi

To grow and succeed, the project needs the voluntary commitment of its participants, who are mathematically incentivized to sustain the network for the benefit of both others and themselves. This is what Bitcoin is about: a decentralised payment system with a distributed incentive structure that we collectively engineer and freely opt into.

“For the first time in history, we need not revolt against a system of violent legal enforcement. We can abandon it for openly verifiable mathematics, which we subscribe to by acts of our own volition. This is because, in the world wide web, running code is more powerful than holding elections.”

KERNEL

Ethereum: The Collaborative World Computer (2013)

In working with and writing about blockchain and Bitcoin for a while, the young programmer Vitalik Buterin realised that cypherpunk ideals of privacy, financial freedom, and open-source development could extend to many other applications beyond money. Following his vision, along with a small group of programmers, he launched Ethereum: a peer-to-peer network and community-operated blockchain to codify, secure, and trade just about anything.

To make a quick comparison between Bitcoin and Ethereum:

• Bitcoin is a payment network that can be used to transfer value between two people anywhere in the world without intermediaries.

• Ethereum is an open-source platform and base-layer infrastructure that enables anyone to write smart contracts and decentralised applications.

Image source: Bankless Newsletter

Imagine Ethereum as a diverse ecosystem of individuals and organisations that build and grow alongside a protocol designed to facilitate human coordination and play infinite games. No single individual or entity has made it what it is today, rather it is a collective that has organically evolved the ecosystem to become more vibrant and diverse.

Thanks to its decentralised nature, open-source standards, and interoperability, Ethereum benefited from a great deal of bottom-up innovation and active participation. This led to rapid growth and has made it the most widely used blockchain for building and playing around with DeFi, NFTs, and DAOs.

“Ethereum is an organisational “dark matter” that can coordinate galaxies of people, and it has the ability to create new Schelling points anchored in shared, tokenized stories.”

SIMON DE LA ROUVIERE

Web3: The Trustless Web

What brought us to web3 was decades of research and development by people who cared about making the internet more equitable, open, and decentralised. Crypto was born out of shared values and principles, rather than from desires of conquest, money, and power. To date, many of the revolutionary promises it has made are still under development, making it an easy target for the disillusioned, the cynics, and the pessimists. It must be acknowledged, however, that many steps have been taken so far.

Over the last few decades, a growing number of people began engineering and using new composable primitives for permissionless value exchange. Many discovered the power of collaboration and community and started exploring new organisational structures with inclusive governance mechanisms. Professionals, users, and third parties voluntarily contributed to add value to different projects and the reward was then shared amongst them instead of only accruing to founders or financiers.

With public blockchains, we could now make institutions transparent. Moreover, by becoming a digital asset, money, stocks, bonds, IDs, and real estate can engage with smart contracts to become programmable, and therefore be managed in more unequivocal and efficient ways.

Different blockchain applications have come into being, enabling us to design protocols rather than platforms, and to take agency over our data and money. Perhaps this has gone by the wayside in developed economies, but for people living where hyperinflation is a reality and access to financial systems is more limited, cryptocurrency stepped in as a lifeline.

Crypto ownership by country 2019-2025| Statista

A ranking on general crypto adoption by country reveals that especially Asian countries were relatively early to adopt the likes of Bitcoin.

https://www.statista.com

If you are in the U.S., the UK, or Singapore, crypto might be a fun way to speculate on meme coins and NFTs. However, if you are in Nigeria, Argentina, or Afghanistan, it represents a means for survival and dissent amid corruption and censorship.

Crypto is currently the only solution that combines the benefits of digitalisation with cash-like respect for personal privacy. It should come as no surprise, then, that the countries with the highest adoption rates are those where cryptocurrencies are used as originally intended: for confronting tyranny and ensuring financial freedom. In other words, to rethink a global political economy and to make it more public and accessible.

To date, the parts of the crypto space that are honourable are those that actually stay true to its core principles of decentralisation, privacy, openness, and transparency. Everything else is just old vicious cycles running on blockchain rails.

As with any significant innovation, there is no shortage of challenges to overcome, and very little is truly decentralised yet. However, having a negative, belittling, or passive approach will not improve our present condition. If we care about the future to which we are contributing, we should understand the societal implications of our involvement in the crypto space.

The most important task for humanity should be to close the technology/wisdom gap.

Technology represents agency and power.

Wisdom represents our collective capability and capacity to apply that power responsibly, towards a desirable future. pic.twitter.com/aNBfOK4zY8

— Stefan Ekwall | neonvoid.eth (@neonvoidvibes) December 7, 2022

Instead of doing the easy thing or the one that pays apparently more, now is the time to realise that we have the agency to reimagine the digital realm as a place where the people, more than corporations or governments, are the protagonists. The degree of imagination and change will only depend on how hard we care and commit.

“People must come and together deploy these systems for the common good. Privacy only extends so far as the cooperation of one’s fellows in society… We cannot expect governments, corporations, or other large, faceless organisations to grant us privacy out of their beneficence. It is to their advantage to speak of us, and we should expect that they will speak.”

E. Hughes, “A Cypherpunk’s Manifesto”

The Committed Will Lead the Way

Thanks to collaboration and composable bottom-up innovation we are demonstrating that it is possible to leverage collective intelligence to find better answers. We do not currently need superior technology, but more willful participation. The web3 stack alone will not empower us as individuals and as a society. It is on us, the users and builders, to understand its real potential and use it accordingly; to cultivate systems where longevity, prosperity, and reciprocal well-being are at the core.

A version of this article was originally published by Bankless Publishing on January 25, 2023

Author Bio

PG is an eclectic explorer interested in linguistics, philosophy, and the Cypherpunk side of crypto. He loves the mountain and enjoys the silence. Passionate for cultivating awareness and maximising harmony, He is all-in to facilitate human composability and foster regenerative innovation.

Editor Bios

nonsensetwice is a writer, editor, developer, and fitness professional. A member of, and contributor to, BanklessDAO since its inception, nonsense’s main drive to contribution is the development and growth of contributors in web3, particularly in the realm of governance. When he’s not engaged in DAO work or kicking clients’ asses with yoga, nonsense can be found playing Borderlands, producing work for his L V N A C Y project, or shitposting on social media. Follow the bastard at nonsensetwice and nonsensecodes on Twitter.

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

The Importance of Self Custody by theconfusedcoin

DAI a Different Stablecoin by Jake and Stake

7 Etherscan Basics by Hiro Kennelly

DAOs Are Playgrounds for Growth and Development by siddhearta

How Web3 Writers Do Research by Samantha Marin

Article by Samantha Marin

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

Web3 Research Unpacked

Research looks different when all the information you could possibly want is ungated and permissionless.

Will you need a billion subscriptions to everything from the Wall Street Journal to JStor to the Pew Research Center to access information, like you needed as a Web2 writer? Thankfully, no. Does that mean that information is easier to find? Well…..also no.

Actually finding information in Web3 is harder than it looks. This is because we lack the information aggregators and archeologists we’re used to relying on in the traditional world. Instead, you must be your own aggregator and archeologist. You get to do more than be a writer — you get to be an on-chain ontologist, a Discord-server deep-diver, and a Medium-article miner.

It takes practice, certainly. But start with these ten tools I use to dig up the information gold that’s buried out there.

1. Dune Analytics

2. Cold DMs on Discord and joining servers

3. Advanced Twitter search

4. Forum posts and comments

5. Coin explorers

6. The crypto philosophers of our time

7. The crypto-native publications we have now

8. Podcasts that broaden your ideas

9 . Absurdly-specific, keyword-filled google searches

10. Block explorers

1. Dune Analytics

Dune Analytics is the closest thing we Web3 writers have on this earth to a gift from a divine power, in my opinion. Anyone can create queries that run forever. Because this might be my most-used source of information gathering, I’m going to take my sweet time to explain it. (Strap in.)

Dune Analytics is free and open-source, just how I like it 🙂 Image from Dune Analytics.

Reason 1. People get very creative with their dashboards, which means lots of cool new info to include in your articles.

See: BanklessDAO tipping economy, my favorite dashboard, by Bankless’s own @paulapivat. Where else would you find this wildly unique dashboard? A centralized service? I think not.

Image: The BanklessDAO tipping economy by @paulapivat on Dune Analytics.

Reason 2. You can learn SQL and make your own dashboards. #advanced

If you’re willing to put in the work, learn some SQL (Full disclosure — I have yet to be willing to put in the work) and make your own dashboards. The great thing about Dune is you don’t need to rely on anyone else to get your necessary info — Web3 archeology 101.

Reason 3. Because Dune is crowdsourced, people update these way faster than traditional analytics services

One thing I love about Dune is that contributors get on there to update things at lightning speeds. Even crypto-native-yet-still-sorta-centralized analytics services see some lag time. I was recently writing an article on OpenDAO and was happy to see that Dune contributors started making queries nearly the same day the DAO spun up.

This chart, which shows $SOS Token Holders over time, is an example of charts getting spun up faster than you can say “airdrop.” Image from Dune Analytics, chart by @0xroll.

Reason 4. You can search the person who created the dashboard and make some interesting conclusions based on the information they chose to include and exclude. (Tread lightly here.)

If the person who created the dashboards has some stake in the token or the DAO’s success, then you can draw a few conclusions about why they may have included certain dashboards and left others out. But be careful here, because you don’t want to get too crazy with the conclusions you draw. It’s just an interesting exercise to do some wallet searching (see tactic #3) and twitter stalking (see tactic #10) on whoever made the dashboard, then think critically about why they made it how they did.

Reason 5. You can become friends with creators and ask them to make specific dashboards for you. (Becoming friends often means sending some tokens along. But hey, that’s alright!)

If you’re looking for a specific piece of data, just ask for it. Really, it’s that simple. I recommend reaching out to your favorite dashboard creator and, in exchange for creating the dashboards you need, sending them some tokens of their choice. Remember, analytics experts are trying to make a buck, too. Learning SQL might’ve been cheaper, but I bet making a dashboard-creator-friend is much more fun.

Yep, use Dune. It’s amazing. Moving on.

2. Cold DMing People on Discord and Asking Their Opinions (Bonus Points if You Join Their Server)

Did you know that crypto people love to talk about themselves? Shocker, I know. (Also guilty of loving to talk about myself.) But a cold DM really is one of the best ways to get information, especially if it’s about something that is too early to find reliable information on. (We’re still early, right?)

You’d be amazed at how verbose contributors are when you ask interesting questions. Interviewing people over Discord chat is much less intimidating, too, since both interviewer and interviewee have time to think about their responses and really craft their words.

Joining the Discord server itself is another great way to do research. Cruise around like the DAO lurker you are (or the lurker you’ve always wanted to be) and see what’s going on. Listen in on meetings (I recommend listening to larger community-call or amphitheater-style meetings, since small meetings will likely require you to introduce yourself) and see what people are talking about.

I wouldn’t use direct quotes from anyone in a casual meeting, but if someone is giving a prepared presentation, maybe get your notebook out. Be courteous and don’t get too quote-happy in these scenarios — I wouldn’t be pleased if someone quoted me in a random meeting in which I didn’t know I was being quoted. Remember, this is the office and the stage at the same time. But do take in the vibes, learn about the DAO, and start finding contacts to interview.

3. Advanced Twitter Search

If you haven’t tried this yet, it’s pretty dang fun. You can unearth some super weird, interesting, informative, and downright wild stuff by searching properly through the beast that is Crypto Twitter. That noisy place sometimes feels like searching for a teeny tiny fish in a big wide ocean: what you’re looking for might be deep. An advanced twitter search is your gold mining device. (Admittedly, I don’t know what people actually mine gold with.)

Bookmark this URL now before you forget to do it: https://twitter.com/search-advanced?lang=en

When you click on it, this dialogue box appears at the center of your screen:

Your second reminder to bookmark this URL and your image source all in one: https://twitter.com/search-advanced?lang=en

I typically fill out the boxes under “all of these words” and/or “any of these words.” I’m usually looking for some specific event or topic that people were tweeting about, and I want to see what the most popular tweets were.

An advanced twitter search is a great way to gather a general sentiment on an idea. For example, I recently wrote a piece on the MakerDAO/SocGen collaboration. I wanted to see what people on Twitter were saying right after the initial announcement, so, using commas to separate search terms, I typed:

All of these words: Maker, DAO, SocGen

Any of these words: OFH, tokenized bonds, SG-Forge, DAI, dai

Through this search, I found:

1. General feelings on the collaboration.

2. Twitter accounts of people involved in the collaboration, which easily led to more info (and potential interview sources).

3. The rough time frame in which people were talking about this collaboration.

You can also change the language at the bottom, which is helpful for reporting on DAOs and protocols that operate in multiple languages, or finding the sentiment in another part of the world and amidst a different group of people. (Worldly though I may sound, I am not proficient in any other languages and have yet to use that feature.)

If you’re starting a piece and don’t know where to go, I recommend doing an advanced Twitter search. You’ll have tons of interesting hot takes and ideas afterwards.

4. Forum Posts and Comments

Forums are where the high-signal-low-noise DAO conversations happen. (Okay, sometimes there’s high noise.) These are Reddit-style open posting platforms where DAOs make governance decisions before ratifying them on-chain. Think of them as digital town-squares where thought-leaders and key members of the DAO share ideas and gather consensus for anything from a new project to a protocol collaboration to a governance idea.

Forums are essential places for Web3 writers to spend time in. If you’re writing about a DAO and aren’t deep in their forums, are you really writing about the DAO?

You can find DAO Forums by:

1. Going to the DAO’s website and checking the footer for something that says “governance,” “forums,” “community,” or “conversation.” Example: MakerDAO’s footer has a Governance section. If the website you’re on has only icons and no words in the footer (bad UX, but whatever), look for a speech bubble icon.

2. Going to the DAO’s Twitter account and seeing what their bio link is. Sometimes you’re lucky and it’s a Linktree that helps you find Forums. If it’s Discord, you probably won’t be able to join unless you hold the required number of tokens. So, DM the DAO twitter account or a contributor and ask where their forums are. Or compose a tweet and tag them. You’ll likely get a response. DAOs love publicity!

3. Typing into a search engine [DAO NAME] + [Forums] or [DAO NAME] + [Discourse]. Google doesn’t like our Web3 content (yet), but sometimes it pulls right up.

4. CoinGecko! (Yes, really. Read tactic #5.)

Some DAOs have full website pages dedicated to governance, making forums easy to find. Others will be harder to dig up. Image from MakerDAO.com.

5. CoinGecko and CoinHall

These two token explorers are classic additions to the Web3 writer’s toolbox. This is where you can get details on just about any token you’re looking for. I always start with CoinGecko (great for blue-chip stuff, has nearly everything you could want), and if I can’t find the token there, I migrate to CoinHall. Both should be bookmarked on your browser of choice.

I like using token explorers to find:

1. Coin market cap fluctuations.

2. Price fluctuations.

3. Trading volume.

4. Supply: circulating, total, and maximum.

5. Forums and other links I’m trying to dig up. (If you jumped here from tactic #4: CoinGecko really does have Forum links on there!)

Using ATOM as an example, here’s what you see when you search for a coin on CoinGecko. Image taken January 10 from CoinGecko.

6. The Heavy-Hitters: Vitalik, Balajee, Chris Dixon at A16z, and Writer Wednesday/Thought Thursday from Bankless

When you’re not mining for specific information, but are looking for more general, think-piecey ideas, I’d go to the Heavy Hitters. These include:

1. Vitalik Buterin’s blog

2. Balaji Srinivasan’s blog

3. A16z’s Blockchain and Cryptocurrencies section

4. Writer Wednesday and Thought Thursday from Bankless

But seriously, finding really good “think pieces” by a crypto audience for a crypto audience isn’t easy. Bookmark these gems and you’ll come back to them to help form your ideas and mold your writing again and again.

Vitalik’s website is always a good place to land and get lost in for days…and days…. Image from Vitalik.ca.

7. Crypto-Native Publications: Messari, The Defiant, Decrypt, CoinTelegraph, and CoinDesk

The good thing about the speed at which Web3 moves is that the information aggregators move fast, too: we’re just beginning to have some pop up. But, the problem about the speed at which Web3 moves is that these guys can barely keep up. Add these into your information diet, but sometimes they tend to be very price-focused, placing major emphasis on ETH and BTC. That’s great if you’re writing on ETH and BTC….not so great for anything else.

1. Messari’s free newsletter

2. The Defiant

3. Decrypt

4. CoinTelegraph

5. CoinDesk

8. Podcasts: Uncommon Core, Bankless, Collectively Intelligent, On the Other Side, Citizen Cosmos, The Defiant, Crypto Sapiens, and Terra Bites

I love podcasts, but I don’t always use them as research methods because most Web3 podcasts are so. Dang. Long.

Having a healthy diet of a variety of Web3 podcasts is good for molding your own opinions and theses, which will inform your writing. What they’re not good for is finding a specific piece of information. Instead, use these to challenge your beliefs, form your ideas, and, hey, maybe learn something!

My recommendations to include in your rotation for a well-rounded and downright educational podcasting diet:

1. Uncommon Core: good for technical concepts and first principles.

2. UpOnly: good for funny, unique conversation with crypto thought-leaders.

3. Bankless: good for interviews with crypto thought-leaders and people in or adjacent to Capitol Hill.

4. Collectively Intelligent: good for DAO and Web3 organizational-focused discussions.

5. On the Other Side: good for DAO-focused conversations about how Web3 affects people on the day-to-day.

6. Citizen Cosmos: good for interviews with people in the Cosmos ecosystem (who are notoriously hard to pin down).

7. The Defiant: good for interviews with people who have one foot in the legacy world and one foot in Web3, offering some perspective.

8. Crypto Sapiens: good for interviews with founders of interesting protocols, mostly in the Ethereum and Ethereum-adjacent spaces.

9. Terra Bites: good for Terra ecosystem updates and technical concepts.

9. Very Specific, Gibberish-Sounding Google Searches Because Google Sucks at Indexing Crypto Content

Examples of things I’ve searched simply to find one Medium article: “How Superfluid Staking Works Sunny Aggarwal Cosmos Osmosis Medium” and “Lyn Alden Bitcoin Theories 2019 to 2021 Portfolio Percentage.”

You might’ve noticed that sometimes when you search a topic that’s firmly planted in Web3, you get a bunch of Forbes and New York Times and WikiHow articles that are very far off the mark of what you were actually looking for. This is a symptom of our industry being so new and Google algorithms having a hard time keeping up. So, to circumvent getting what the algorithm thinks you want, you need to literally tell it exactly what you want in order to find certain articles on platforms where many people have access to publish, like Medium, Notion, and Reddit.

Get very good at using keywords. Lots of them. Pretty soon, you’ll be pulling up Notion pages in Google search. (Really! It’s possible!) That’s all the advice I can give for googling crypto stuff. Good luck.

10. Block Explorers (I Find These Kinda Boring)

I find that block explorers really don’t do much for you unless you know exactly what you’re looking for. Honestly, I just use these if I have a transaction stuck somewhere and am having that typical panic attack of wondering if I sent my money to the wrong address. But, since block explorers are a unique feature used for gathering on-chain data, I figured I’d include them.

Bookmark these:

1. Etherscan

2. Terra Finder

3. Solana Explorer

4. ATOMScan

5. PolygonScan

6. ApeBoard (I’m not sure if this counts as a block explorer, but I’ve found it useful and didn’t know where else to include it.)

Isn’t ApeBoard adorable? See, I had to include it. Image from apeboard.finance.

Now that you’re equipped with all those gold mining devices (still didn’t look up what they use to mine real gold, sorry!) you’re ready to go digging! Best of luck on your journey into becoming a true Web3 writer — whatever being a true Web3 writer means — and, as always, be safe out there!

A version of this article was originally published by Bankless Publishing on February 11, 2022

Author Bio

Samantha is on the Communications team at Aragon. She got her start in web3 in the Writers Guild of BanklessDAO. To read more of her writing, subscribe to the Quorum Newsletter.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

The Importance of Self Custody by theconfusedcoin

DAI a Different Stablecoin by Jake and Stake

7 Etherscan Basics by Hiro Kennelly

DAOs Are Playgrounds for Growth and Development by siddhearta

Analyzing DAO Treasuries by Jake and Stake

Article by Jake and Stake | Cover by Dippudo

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

DAOs are organizations that use tokens to incentivize certain behaviors. People often work for DAOs in exchange for these assets (stablecoins, DAO governance tokens, or the blockchain’s native cryptocurrency, like MATIC or ETH); and all DAOs that offer any form of remuneration need a treasury. Without a treasury, DAOs won’t be able to pay contributors and fund projects. Unless a DAO has missionary-like contributors, it will be hard to get incentives off the ground.

That is why it is important to understand a DAO’s treasury; it helps to determine their positioning in the larger crypto economic landscape:

• Does the DAO have a sufficient number of stablecoins? If they don’t, they’ll be selling tokens and diluting holders in order to operate.

• Does the DAO hold a small number of governance tokens? If so, they will have less power to vote for crucial growth initiatives.

Sometimes DAO treasuries can be hard to identify because the assets may be spread out across multiple contracts. Uniswap, for example, has five treasury addresses according to openorgs.info.

This article will give you some tools to use when digging into DAOs and their treasuries; and highlight some details to pay attention to when analyzing the health of a DAO.

DAO treasuries matter  —  not just to investors, but to users and contributors too.

Identifying the Assets

DAO assets can be categorized into four components:

• The DAO’s governance token

• Stablecoins

• The blockchain’s native cryptocurrency

• Tokens of other DAOs as a result of partnerships

DAO Governance Tokens

DAOs use their governance tokens to incentivize users to participate in the protocol; that could involve providing liquidity, voting, or investing. These are often “Governance” tokens, but we’ll refer to them as “DAO tokens”. Like equity in an early stage start-up, DAOs will have a lot of tokens but not a lot of other assets. Often DAO tokens can be traded away for start-up capital or used to pay contributors.

Because of DEXs, these tokens are very liquid. If token emissions are very high, contributors will often sell them for stablecoins. Unless there is an equally powerful mechanism to increase demand, holders will sell them before prices fall further  —  due to increased supply.

We’ve seen this behavior with holders of BANK tokens. Here is the BANK trading volume over the past year:

Dune graph by paulapivat

Zoom in on the last 30 days and you will see more granular market dynamics:

Dune graph by paulapivat

DAO tokens should be considered the crypto-equivalent of stock, and should be discounted as a part of the DAO’s assets. DAOs can issue new tokens or change the contract. Businesses do not list stock as an asset on their balance sheets, neither should DAOs list governance tokens. Companies do not count unissued shares as assets because they could arbitrarily inflate their balance sheet by authorizing more shares without selling them, does this improve the financial position of the company?

DAO treasuries matter  —  not just to investors, but to users and contributors too.

Uniswap is a well-known example of a protocol with a large treasury but little token diversity. The vast majority of Uniswap’s $2 billion treasury holdings are UNI tokens. But discounting UNI tokens (~1.47 billion), and unvested UNI tokens ($790 million) shows a clear picture of their financial position:

Source: openorgs.info

The solid pink represents vested UNI tokens while the striped pink represents unvested tokens.

http://deepdao.io/

If there’s a market downturn or some kind of hack that pushes the project to distribute funds, selling the DAO token will dilute existing holders and could create enormous downward price pressure. Most DEXs don’t have the liquidity to handle large token sales. Hasu notes in A New Mental Model for DeFi Treasuries:

“[…] imagine that Uniswap tried to sell as little as 2% of its treasury. When executing this trade via 1inch, which routes the order to many on- and off-chain markets, the price impact on UNI would be almost 80%.”

Treasuries would do well to hold more than just their DAO token.

Stablecoins

The second most common asset held in DAO treasuries is stablecoins. If you need a primer on stablecoins, the DeFi Download has your back. Stablecoins like DAI, FRAX, USDT, and USDC maintain a 1~1 ratio to the dollar. Most are backed by off-chain assets — at least in part.

Stablecoins serve to reduce treasury volatility. Crypto-native assets are very volatile and subject to large price movements. Even bitcoin and ether are subject to market movements, trading like risk-on assets.

DAOs should aim to keep at least some stablecoins in their treasury. These stablecoins can be used to pay contributors and hedge any market or DAO-specific events.

For example, Maker accumulated $7 million of net earnings from 2018–2020. Maker used these funds to buy and burn MKR tokens as a part of their protocol outline. But on Black Thursday (March 12, 2020), Maker failed to liquidate underwater positions due to network congestion and accrued bad debt totaling $6 million in losses.

Some of the debt was paid with DAI in the MakerDAO treasury while the rest was covered through the sale of MKR tokens at depressed prices. Maker eventually bought back and burnt these tokens, costing them 3 million DAI.

If they had instead held that 7 million DAI and used it repay the bad debt, Maker would have $1 million left over, an additional $3 million, and the MKR token supply would not have changed at all.

“Or put another way, Maker could have seen up to $4 million in additional value accrual by holding a larger treasury.” Hasu (A New Mental Model for DeFi Treasuries)

If a DAO hopes to survive for years to come, it must be able to weather bear markets and black swan events. It cannot hope to do this using the DAO token alone. If they do, they’ll end up selling their tokens at the bottom (at worst) and buying those tokens back at the top (at best). Stablecoins often serve to de-risk the treasury.

Note: Be mindful of which stablecoins are in the treasury. If you were holding UST during its de-pegging event (May 7), the value of those tokens would’ve fallen 65% by May 9 and 95% at the time of writing.

Blockchain-native Cryptocurrency

You can also find the blockchain’s native asset in DAO treasuries. These tokens are used to pay for transactions on the token contract’s network. Most tokens run on Ethereum and Polygon, so DAOs set up on these chains have ETH and MATIC respectively.

It makes sense to hold some of those assets in case fees get abnormally expensive, and DAOs are usually tightly aligned with the protocol they’re deployed on. Although these assets are different from the DAO token, there’s often a high correlation between them because they’re part of the same industry. If your goal is stability, buying the blockchain’s native asset should usually be done by dollar cost averaging; unless you expect your native asset to fall in price.

Strategic Token Swaps

Another item to look at is other DAO tokens in the treasury. These tokens represent partnerships between DAOs and grant voting rights in each others’ governance processes.

One of the most strategic partnerships was between Maker and Aave in their collaboration to implement the DAI Direct Deposit Module (D3M). The module works by allowing Maker to deposit liquidity directly into Aave’s DAI pool. Subsequently, Maker influences DAI’s supply to stabilize loan rates, making it more attractive to borrowers.

Source: Aavescan

The efforts have been effective. Since its launch in November 2021, DAI variable borrow rates have stabilized to a range of 1.7% to 3.8% on Aave. The results are similar for the stable borrow rate.

Source: Aavescan

In the process of doing so, Maker earns AAVE tokens as a part of Aave’s liquidity mining incentive program, giving Maker a voice in Aave’s governance process. DAOs can also choose to spend extra cash to buy votes in the governance processes of other DAOs and the implications can be far reaching, given enough stake.

With the growing number of DeFi projects in the wild, the overhead of learning about each project’s governance intricacies and second-order effects are large. Most DAOs will only vote if there are ecosystem-wide implications or if the proposal influences the voter in particular, so intervention is minimal.

Theoretically, they can serve as “Mutually Assured Destruction” (MAD): if you dump my tokens, I’ll dump yours; but we don’t foresee this happening in the near future. If anything, the trading of governance tokens increases overlap between contributors and can foster better collaboration in the spirit of open-source development.

Financial Sustainability

In order to be financially sustainable, DAOs should generate more revenue than they expend. This means analyzing out-flows and in-flows, often discounting the DAO token.

Reporting

Looking through a DAO’s financial report is a good way to determine a DAO’s financial health. Yearn has quarterly reports that denote income, expenses, and operating margins:

Source: Yearn

From the statement you can see that Yearn has grown their gross profit following 2020, and compensation and administrative costs are also increasing. Many DAOs have put together financial statements; so contributors, users, and investors can understand the organization.

Often, these reports provide more insights than pure data. They include the categorizations of expenses that include the purpose of spending, token buybacks, and upcoming changes to the protocol/organization. Yearn noted in their most recent report that their largest cash expense was allocated to “Strategists”: developers that oversee and manage Yearn vaults; but they expect to move away from a salary for the Strategists and instead institute a profit sharing model for all DAO contributors. Yearn also notes their assets and liabilities.

Source: Yearn

However, these statements are subject to human intervention and error. An alternative is to create a dashboard of real-time blockchain data. Maker has a dashboard to display real-time P&L data.

Source: Dune (SebVentures)

Asset In-flows

The equivalent of income for companies, DAOs should determine how much they’re earning from fees and other investments. Asset in-flows can materialize in a variety of forms:

• Protocol Fees

• Membership purchases

• Yield farming rewards

Researchers can utilize the Maker Dashboard and identify how Maker categorizes income. The Dune SQL commands are publicly available, so users can run the commands themselves and double-check their accounting.

Dashboards can hold a variety of income data that’s specific to the protocol itself. For instance, Maker has a Surplus Buffer that accounts for revenue generated from Stability Fees.

Source: Dune (SebVentures)

And they break out monthly interest revenues by asset type:

Source: Dune (SebVentures)

Dashboards are a useful way to identify income from different products. Maker has several revenue streams that are broken down in the dashboard above. The Peg Stability Module, Real World Assets, and Liquidations are included. Dune is great for this sort of thing, and is essential for doing this kind of analysis yourself, but it does take some SQL knowledge.

Asset Out-flows

Often, these details can be found in governance proposals and financial reports, not solely by looking at the DAO’s treasury. Expenses will include paying salaries, profit sharing, security audits, or grants.

In order to be financially sustainable, DAOs should generate more revenue than they expend

A similar model to traditional finance can be used to look at these expenses. Some questions to ask:

• What is the DAO’s burn rate?

• How much is spent and where are those funds going?

• How is spending increasing or decreasing?

• Does this spend positively affect the DAO’s long-term roadmap?

DAO spending should line up with the mission statement of the DAO or otherwise fuel growth.

It can be difficult to identify and categorize DAO spending, so paying close attention to the DAO’s governance proposals, identifying transactions from the treasury, and going through financial statements is crucial.

Note: Some DAOs will spend funds on multiple projects at once and give those teams the freedom to use their grant as they like, making spending even more difficult to identify and collate.

Exploring DAO Treasuries

ENS Treasury

Source: DeepDAO

ENS has the majority of its holdings in the ENS token, but there’s a sizable amount of ETH. Users have to pay ETH to buy ENS domains.

Lido Treasury

Source: DeepDAO

The majority of Lido’s treasury is in their governance token: LDO. As a liquid staking derivative provider, they’ll earn quite a bit of ETH as well. Their treasury is more diverse with DAI being the 3rd largest asset holding.

MakerDAO Treasury

Source: DeepDAO

MakerDAO again has a large amount of governance tokens MKR, however what’s not noted here is its holdings in stablecoins, particularly USDC and DAI from the peg stability module (PSM). It’s important to understand how each product affects the protocol’s total holdings. This understanding will allow analysts to determine where tools fall short.

Bankless Treasury

Source: DeepDAO

BanklessDAO has a more diverse treasury than some of the examples above, with BANK composing 80% of the DAO’s treasury. Still, notice the lack of stablecoins. In the event of a bear market, BanklessDAO doesn’t have the funds to purchase BANK tokens or otherwise maintain purchasing power for projects in the event of downturns.

Rook Treasury

Source: DeepDAO

One of the most stand-out counterexamples, Rook has an incredibly diverse treasury with its top 5 holdings having a 30% share or less. This kind of runway will help Rook continue to operate into the future and survive downturns, bear markets, and black swan events.

Towards a Healthy DAO Treasury

DAO treasuries give investors, contributors, and users compelling insights into the health of the organization. They can signal a DAO’s strength and foresight, but this information should be taken with nuance. Some DAOs have various projects that earn revenue not noted in the DAO’s balance sheet, and spending is of great benefit for growth and long-term sustainability.

DAOs should keep treasury diversification in mind when planning into the future. If the DAO token is highly correlated with other assets in the treasury, it can still be negatively affected by market movements; and DAO tokens will not always hold their value, so diversifying into different assets can help DAOs maintain momentum. DAOs can hold LP tokens to generate revenue or index tokens to this effect.

If you’re looking to use a tool to help you manage and diversify your DAO’s treasury, there are a variety to choose from: Yearn, Balancer, and Llama just to name a few.

It’s crucial to understand DAO treasuries, whether you’re a contributor, investor, or user because it affects long-term success. You can see how DAOs are spending, what income looks like, and how much runway they have. In an open financial world, everyone has view-access to the balance sheet, and it’s an important part of understanding where web3 is going.

A version of this article was published by Bankless Publishing on November 18, 2022.

Author Bio

Jake and Stake is a writer and editor at BanklessDAO. He is the former Writers Guild’s Governance Coordinator and he founded and co-coordinates the DeFi Download newsletter, with a background in software engineering and cybersecurity.

Designer Bio

Dippudo is a pseudonymous individual who spends most of his time in front of a computer and has a natural interest in finance. He started contributing to Bankless DAO after falling down the crypto rabbit hole in the middle of 2021.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

The Importance of Self Custody by theconfusedcoin

DAI a Different Stablecoin by Jake and Stake

7 Etherscan Basics by Hiro Kennelly

DAOs Are Playgrounds for Growth and Development by siddhearta

Article by Siddhearta | Cover Art by Dippudo

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

One of the biggest design challenges for DAOs is to create an active, engaged community around a shared mission or purpose. DAOs without a clear mission or a shared purpose end up experiencing a lack of focus and community coherence. Passive communities  —  where members are waiting to be told what to do and how to do it  —  lead to centralized organizations where top-down decision-making determines the course of operations.

DAOs are playgrounds for exploring design challenges in areas like governance, organizational structure, community incentives, personal sovereignty, and professional development. But even with an emphasis on exploration, creating engagement is hard; it requires an opt-in system and self-directed members who are accountable and striving to level up.

To facilitate engagement, many DAOs are structured around guilds which serve as professional talent centers for onboarding members and getting members involved in projects. While DAO guilds often focus on onboarding and contribution, one of their most promising aspects is the ability to provide opportunities for personal growth and professional development; by taking advantage of the natural human instinct to explore our curiosity and engage in fun activities.

My thesis: by creating cohort-based learning courses and encouraging project-based learning, guilds can help members explore their curiosity and engage in the playful act of taking on several roles as they build the life they imagine.

Role-Playing in DAOs

You may be familiar with MMORPGs (Massively multi-player online Role-playing games) like World of Warcraft or Final Fantasy. These games usually involve groups of people working together to complete a quest; this often requires leveling up their skills, collaborating with teams to build trust, and coordinating with others to accomplish their mission.

Sound familiar? This is what it’s like to work in a DAO.

There are some key themes that we can learn from MMORPGs that are important for working in DAOs:

You define your role. You are responsible for creating your own adventure and customizing your role. In these games, players assume an identity, which in DAOs means carving out and defining your role and its responsibilities. In contrast to traditional work, people in DAOs generally assume many roles. You don’t show up as dragon slayer in every game, no matter how cool she is  —  sometimes you have to be the warlock.

Send them on quests. Quests are skills challenges with a problem to solve. For DAOs this could be completing a task like writing or designing, voting on Snapshot, commenting on a proposal, voting in a poll, writing a proposal, forming a team around an idea, or joining a multi-sig. Some quests focus on strengthening skills; some others are about finding your niche and the unique role you have to play in the DAO.

Level up. It is important to take on tasks and roles, and then continue to develop and grow into other roles. Explore the edges of your comfort zone. Cultivating a growth mindset is critical to thrive in DAOs and is required to create an active, engaged community around a shared mission or purpose.

Focus on social coordination. You need to focus on building trust and team dynamics. Collaboration and mentoring opportunities provide fertile ground for developing leadership skills and domain knowledge. The hard work in DAOs is often using soft skills such as listening, empathy, open-mindedness, and adaptability.

Create rewards and incentives. All games have rewards and incentives. In DAOs these are not only financial incentives, but also social, cultural, intellectual, and even spiritual incentives. Games reward and incentivize certain behaviors, so it is important that people know what type of game is being played at the beginning. People who arrive at mission-driven organizations with the goal of wealth creation will be met with frustration and mismatched incentives.

Culture is important. Culture is built on values; it shapes beliefs and actions. You need language, symbols, and social dynamics for the community to thrive. Culture can shift our posture, the way we greet each other and the way we work together. Without having to be spoken, culture says, “this is what we do around here.” The people who cultivate the community are like healers in MMORPGs. The role of the healer is always seen but often unstated (they might be the person who restores the vibes of the community).

Leave a path for others to follow. Lead climbing is an important role in DAOs. Leaders make it easier for others to follow in their footsteps by mentoring, spotting people as they progress, providing advice learned while setting the path, and backing up new members. All these help to build a culture that moves together. Get in the habit of writing out role descriptions as you create new roles and projects; and leaving a legacy for how things are done. Accordingly, future role holders can build upon your work and continue to innovate.

When you send people on a shared quest and give them a problem to solve, they will work hard to grow and develop. Naturally, leadership traits will start to emerge. They will start thinking creatively, solving problems, meditating on their situation, and seeking other perspectives. When they come back, they would have been transformed by the environment of growth and development and would have achieved much more than they could have imagined.

The Games We Play

Since we now know some of these key elements to working in DAOs, we need to know what types of games we tend to play. The good news? You already know how to play many of these games. You’ve been playing them yourself for quite some time.

Zero-Sum Games

Modern culture loves to play zero-sum games: where one person wins and everyone else loses. We see this in our sports, politics, and yes, in our careers. Our education systems have been designed around these zero-sum games; where the goal is to plug you into the system as a ‘good worker’ in order to keep the corporate machine (and the economy) running on schedule.

Many jobs in today’s society are designed for people to become interchangeable cogs in a corporate machine. The system is designed for efficiency  —  you are expected to fill a role and execute it in a timely and productive manner. This is perhaps a bit of a dire description, but it might ring true for you and your past work. If it doesn’t, count yourself among the lucky ones.

Positive-Sum Games

Positive-sum games are win-win games. Here, resources are increased and an approach is designed to satisfy the desires and needs of everyone involved. Education is a positive-sum game because even though there may be a distribution of grades, everyone comes out ahead.

Games With Positive Externality

There are certain games we can play that result in a positive externality  — both the players and an increasingly wider set of people benefit from the outcome. An example of positive externalities is when a gardener produces a bountiful harvest that can support him/herself and feed the community, while also promoting a thriving ecosystem of birds and bees.

In DAOs, this is really captured by the idea of a person promoting an idea, forming a squad around it, and creating positive value for the whole team and the DAO, as well as becoming a public good.

Regenerative Games

Regenerative games are designed to regrow, renew, or restore systems, especially those that are damaged or lost like the environment, financial systems, and the well-being of society. Regenerative initiatives are frequently designed for environmental and biological systems, but can also occur at the individual and organizational level.

The Network’s goals are to support the development of rich, knowledge-sharing and skill-building networks within and across communities; increase regenerative capacity at the individual, organizational, community, bioregional and global scales; and help drive aligned capital toward regenerative initiatives. — THE FIELD GUIDE TO A REGENERATIVE ECONOMY

We can design regenerative systems that restore human potential and organizations that promote human thriving. By combining regenerative system design with crypto values like decentralization, self-sovereignty, and transparency, we can create regenerative cryptoeconomic systems. Regenerative cryptoeconomics is the use of crypto values and incentives to design new kinds of regenerative systems, applications, and networks.

Infinite vs Finite Games

Are you playing to win or playing so that you can keep on playing? Finite games are games that come to an end; these are the everyday games we play with the goal of winning. Infinite games are played with the goal of continuing to play; requiring players to invite others, explore the boundaries of what’s possible, and when necessary, change the rules in order to keep on playing.

As you develop your skills and share your gifts, you give rise to positive-sum benefits for your team and the DAO

In DAOs, you can play an infinite game by role-playing your way through projects and teams with the goal of being able to keep on playing (or keep on working in DAOs). As you develop your skills and share your gifts, you give rise to positive-sum benefits for your team and the DAO. Certain types of projects can give rise to positive-externalities; which benefit people outside the DAO or society as large. Lastly, engaging in this type of work can be regenerative, not only for your own sense of worth and purpose, but also as a community that works to promote public goods.

Cohort and Project-Based Learning as the Ultimate Playground

Take a look at most online courses on Udemy, Skillshare, or Coursera and you will see online courses for learning skills or otherwise transferring knowledge. These courses are designed so that you can learn for minimal cost on your own time, and often involve getting some type of certificate upon completion. If you are looking for knowledge or to learn a new skill, these types of courses are great, but they are not without their problems.

What have we learned from Web2 online courses?

• Online courses are great for transfer of knowledge, but this does not always translate to the fast paced, collaborative environment that we find in actual workplaces, much less the way we work in DAOs.

• Great for learning skills (especially things like coding, software programs, techniques).

• Learn on demand, on your own time.

• Cheap or free education.

• Low completion rate.

• Relies on self-directed learners.

• One-directional learning from teacher to student.

• Passive consumption of material.

• Courses tend to be un-engaging.

Online learning has worked well for the corporate world where you are expected to develop competency and it is useful to have a certificate for what you know how to do (this gives you flexibility and job options).

While online courses can promote and encourage growth-mindset-type learning, they fall short for developing soft skills that are required for human flourishing and development. This is the hard work of leading, sharing an idea, collaborating with others, building a team, and showing up with preparedness and readiness.

DAOs are the ultimate playground for developing these skills.

Cohort and project-based learning courses bring together elements of role playing with a keen understanding of the types of games we play.

Cohort-based learning courses are organized around a group of people (cohort) moving through a curriculum that requires collaboration and team communication. As opposed to the passive transfer of skills or knowledge that we see in online courses, cohort-based courses (CBCs) are designed for building in public with others.

Cohort-based learning courses plant the seeds for a culture of project-based learning, where contributors continue to learn, develop, and grow into various roles in the DAO.

There is power in sending people on quests, learning in groups, and developing a body of people that moves together. This is how you create a regenerative community that amplifies human potential and creates a path towards solving our most challenging problems.

Both project and cohort-based learning can be designed to be positive-sum games, with positive-externalities, and even have regenerative benefits if we prioritize the well-being of the community.

Principles of Cohort-Based Learning Courses

The principles of this type of learning include:

Live, engaged, active learning. These environments are great for developing soft skills. Focus on the ‘how’ of learning  —  how we work together, how we communicate, how we share ideas, how we deal with resistance.

Collaborative, team, or pod based. Projects and cohorts provide interactive, bi-directional learning opportunities between the leader and students, and between students. Small and mid-size groups produce more discussion, feedback, and dialogue because there is nowhere to hide. Members need to show up and contribute, creating more accountability over the long term.

Creative, generative content. Passive knowledge transfer is great for online courses, but in cohorts the goal is to create, synthesize, analyze, and evaluate. Play with different learning modalities like break-out sessions, role-playing, and discussion forums. Involve different parties in the generative process; including leaders, coaches, and other members.

Synchronous, hands-on learning. Online courses are async and on your own time; cohorts and projects-based learning requires people to collaborate and communicate in real time. Cohorts should have fixed start and end times; and as part of a quest, projects could benefit from members taking on roles for a set period before continuing to explore other roles. This creates a sense of urgency and focus that promotes growth and development.

Value of community. By getting involved in projects, leveling up your skills, and engaging in cohort-based courses, you and the DAO experience positive-sum benefits. Learning how to work in DAOs produces network benefits for the whole community. These are skills that you can continue to develop as you continue on your DAO journey; traveling with a tight-knit cohort of fellow travelers.

Going Full Regen

DAOs can play a key role in writing the story of a new economy; one built around well-being and human flourishing. Building cohort-based learning courses and facilitating project-based learning can amplify leadership skills and create a space for ideas to be explored in a community of builders. As we see more success stories in DAOs, there will be increased awareness that creating regenerative networks is possible: communities where knowledge sharing, education, and lifelong development are the norm rather than the exception.

A version of this article was published by Bankless Publishing on November 10, 2022.

Author Bio

Siddhearta is a writer, editor, and explorer at BanklessDAO.

Designer Bio

Dippudo is a pseudonymous individual who spends most of his time in front of a computer and has a natural interest in finance. He started contributing to Bankless DAO after falling down the crypto rabbit hole in the middle of 2021. Dippudo subsequently won the Fight Club NFT Competition and is now working on numerous projects within the DAO and with The Rug as a designer. He enjoys diving deeper into the worlds of economics, computer science, and finance.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

Disclaimer: this isn’t investment advice. This article has been written for informational and educational purposes only and it reflects my personal experience and current views, which are subject to change.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

The Importance of Self Custody by theconfusedcoin

DAI a Different Stablecoin by Jake and Stake

7 Etherscan Basics by Hiro Kennelly

Written by Hiro Kennelly | Edited by Trewkat | Cover Art by: ab_colours

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

When I first got into crypto and began to explore the Ethereum ecosystem, I really had no idea how to interact with the blockchain. Sure, I could fire up MetaMask and look at the little ETH I had, but it wasn’t until I decided to swap some of that ETH for another token that I began to think about what MetaMask was doing in terms of transacting on chain.

After swapping that ETH for UNI, I didn’t see that token in my wallet. I panicked, thinking that I had done something wrong, that I had screwed up the transaction and somehow lost my ETH. Then I noticed the ‘Activity’ tab in MetaMask and I clicked on that. From there, it looked like everything had worked as expected, and it seemed I could click on the transaction activity, so I did. That brought up another window that showed me the option to “View on block explorer’. What was that? It was in blue text like a hyperlink so I clicked on it, and a whole new world opened before me. Hello Etherscan!

What Is Etherscan?

Simply put, Etherscan is a blockchain explorer. In some ways, you can think about a blockchain explorer as a search engine for blockchains. The details of every transaction are available to view — there’s a search bar, and you can use that field to search the blockchain by wallet address, transaction hash, block number, token name, ENS name, or contract address.

This kind of search functionality is great, but blockchain explorers are so much more than that. They act as makeshift front ends by allowing you to read and write to the blockchain, including interacting directly with smart contracts. This functionality will prove to be invaluable as governments begin to more heavily regulate our blockchain usage. There’s a ton going on under the hood in Etherscan, so let’s start with the basics.

See Everything Associated With a Wallet

When I swapped ETH for UNI, I didn’t realize you had to import tokens to be able to view them in the wallet interface (recent upgrades to MetaMask have better token detection defaults). Once I got into Etherscan, I could see my UNI, which is when I really understood that while MetaMask is a wallet, its functionality is really quite limited. With Etherscan, I could see everything that was associated with my wallet address on the blockchain.

If you click on the dropdown menu under Token, you can see everything associated with your wallet address on the Ethereum network. Sixty tokens, really? Well …

Etherscan Shows You the Scams Too

Let’s be clear: I don’t have 60 tokens, at least not that I actively sought to acquire. One great thing about Etherscan is that it not only shows you all the tokens you have, it helps you to understand which of those tokens may be scams or otherwise malicious.

Let’s take these two for example. If you click on ApeCoinv2, Etherscan will display a message letting you know it’s not a real token.

For akSwap.io, it’s an even starker warning:

And next to the Token address, you see this:

As a general rule, if you don’t know what something is in your wallet, it’s a scam, phish, or malicious contract that could steal your legitimate crypto. Etherscan helps you identify this.

Etherscan Shows Transaction History

Say you decide to send your friend an NFT for her birthday. That’s very nice of you. So you send your NFT over, but your friend says they haven’t received it. This is another great use of Etherscan. Since Etherscan tracks all blockchain activity, you can show your friend that the NFT was indeed sent to the correct wallet address.

Etherscan Has a Gas Tracker

Although gas isn’t as exorbitant as it was during the bull market, it’s still great to have a sense of what a transaction will cost. Ethereum’s gas tracker shows you the estimated gas costs to interact with Ethereum in different ways.

Etherscan Shows You Live Action

Etherscan lets you see both the latest transactions and the newest blocks, as they happen.

If you click on the transaction hash, it will give you the details. The image below shows the transaction (Tx) beginning with 0x8fd:

That’s fun, but looking at blocks is much more interesting, for example the top block 1534402:

You can see this block had 414 transactions included within it, including 74 smart contract interactions. It will show you the fee recipient (formerly miner) the block reward, and, among other things, the amount of ETH burned (over 1 ETH!). For those interested in this granular level of blockchain detail, there’s no better place to go.

Etherscan Isn’t Limited to Mainnet

Etherscan lets you explore blockchains besides Ethereum mainnet too. When you search for a wallet address, the top of the result page appears like this:

Although it’s totally unintuitive (like many Web3 interface designs), if you click on the ‘b’ (which stand for ‘blockscan’), it links to a new page that lists the names of other blockchains where that wallet address exists:

In addition to Binance Smart Chain, which is an EVM chain, you’ll see three scaling solutions: the Polygon side chain and the Layer 2 solutions Optimism and Arbitrum. If you click on any of these, you’ll be brought to a block explorer just like Etherscan. It’s important to note that the same person may or may not control the wallet address across all these chains.

Etherscan Lets You Interact With Smart Contracts

This final aspect is perhaps the most important. Many users don’t realize that the dApps we interact with, like Uniswap and PoolTogether, are really just front end interfaces that enable you to interact with the blockchain. You can also view and interact with any deployed contract directly through Etherscan, although you will need some level of technical knowledge.

For most people, the most practical use of interacting with contracts is to make sure the contract is legitimate and verified. Let’s take the UNI token contract for example:

So far, so good. Everything looks right, but you might be surprised how easy it is to spoof this stuff. A great way to verify that the address you’re interacting with is legitimate is to scroll down a bit until you see this:

These are information tabs you can interact with. The green check mark next to ‘Contract’ means the contract source code has been verified, and this tab also displays the smart contract code so that you can examine the details.

While that’s over most of our heads, it’s awesome to know there is a place where we can review the contract.

Perhaps the most functional part of this ‘Contract’ tab for many users is the read/write functionality, specifically for NFT contracts. Below is the contract for Good Morning News. If you click on ‘Write Contract’, connect your wallet, and aren’t afraid to learn things from YouTube, it’s a great way to mint an NFT during a frenzy when front end applications can be overwhelmed and fail. Interacting directly with a smart contract to bypass faulty front ends is a Web3 superpower.

Etherscan Is a Web3 Multi-Tool

Etherscan can do so much more than what is mentioned here, but these basics are a fantastic way to start familiarizing yourself with blockchain explorers. The more time you spend with Etherscan, the more comfortable you’ll become — you’ll be cruising blocks and minting from contracts before you know it.

A version of this article was originally published by Bankless Publishing on September 22, 2022.

Author Bio:

Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO, an Associate at Bankless Consulting, and is still a DAOpunk.

Editor Bio:

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this newfound knowledge to others.

Designer Bio:

ab_colours is a versatile designer with over seven years of experience. He specializes in doing product design, UX design and brand identity. He has been DAOing for the past eight months and has been able to amass quite a lot of knowledge about the fascinating blockchain space.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

The Importance of Self Custody by theconfusedcoin

DAI a Different Stablecoin by Jake and Stake

Article by Jake And Stake | Edited by Frank America

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

One of the oldest projects on Ethereum, MakerDAO created DAI, the original, decentralized stablecoin and has since established itself as the longest-standing DeFi lending protocol. After surviving the collapse of both the capital and crypto markets over a 36-hour period on March 12–13 2020, MakerDAO has proven to be one of the most resilient protocols in DeFi.

But Maker is not a company; Maker is a tech stack that offers a variety of products centered around the stablecoin DAI.

It all starts with Maker’s lending product: Maker Vaults. For the uninitiated, Maker uses its vault contracts to let users deposit collateral and borrow against it. Users deposit collateral and receive a loan in the form of DAI — Maker’s native stablecoin. If your collateralization ratio falls too far, your collateral is subject to liquidation and DAI must be repaid to avoid this.

DAI is an over-collateralized stable asset fully backed by crypto assets and Real-world Assets (RWAs) as well. The over-collateralization gives its biggest advantage, providing security for any DAI holders. But its most crucial feature is that DAI is fully decentralized meaning that it cannot be censored, so that’s an extra layer of safety for DAI holders.

— CORINA (MAKERDAO TEAM)

Maker generates fees in correlation with the amount of collateral deposited and reinvests those fees into the protocol. The entire system creates an upward spiral of value that feeds back into DAI and MakerDAO.

Maker is a tech stack.

Maker is incentivized to increase demand for DAI across as many platforms as possible (within the Ethereum ecosystem). This means increasing demand for DAI denominated debt positions, improving liquidity & capital efficiency, and reinforcing the strength of its peg through diverse collateral. Let’s get into how they’re doing that.

MakerDAO Vaults

Why vaults could be the ultimate tool against inflation.

In order for users to mint multi-collateral DAI, they must first deposit their collateral into Maker’s vaults which are categorized by collateral type. As a result, the user creates an overcollateralized debt position denominated in DAI. There’s no due date for repayment, but if the collateralization ratio falls below the liquidation ratio, your funds are subject to requisition.

During inflationary periods of an economy, the purchasing power of money (USD) decreases, meaning there’s a general price increase of goods and services. In such cases, holding assets can be safer than holding money, and productive assets even more so.

Once users have created their position, the generated DAI can be used for everyday activities, like buying groceries, paying off debt, or purchasing your favorite NFT. During periods of persistent inflation, the value of your collateral could increase compared to the value of the loan. If your collateral is more valuable in relation to the loan, you can increase your credit line or pay back your loan with less collateral.

As long as the DAI stability fee is less than the USD inflation rate, the cost of your DAI-denominated loan will fall; meaning the DAI you borrowed is worth more than the DAI you are required to repay.

At the time of writing, the stability fee for depositing can be 1.50%, 3.00%, or 0.50%, depending on what type of vault the user decides to use, ETH-A, ETH-B, or ETH-C, respectively, while USD is inflating at 8.5%.

Borrowing DAI can protect against hyperinflation.

As mentioned previously, productive assets are extremely attractive during inflationary periods — especially hyperinflation. Instances of hyperinflation throughout history include Zimbabwe in 2008 and Argentina over the past decade. During periods like these, productive assets are even more attractive.

Staked Ether (stETH) is one such productive asset. ETH has been coined the “internet bond” because staked ETH returns a practically risk-free, ETH-denominated yield from block production. This serves as an automatic increase in your line of credit. Not only will the value of your collateral increase compared to your loan, your collateral will also compound in ETH terms.

Stability fees according to makerburn.com by collateral type:

• stETH-A (1.5%)

• stETH-B (0%)

• ETH-A (1.5%)

• WBTC-A (2.0%)

As the price of Ethereum rises, so will your DAI credit line. And if inflation is higher than the stability fee, your debt will be diluted away. This makes stETH an auspicious collateral because of its yield, making it productive ETH.

Borrowers can also increase their exposure to ETH. After depositing collateral into a vault, users can generate new DAI to buy more of the same collateral, using Maker’s vaults to benefit from inflationary periods. Users can then pay off their debt at more attractive prices.

It’s important that DAI maintain its peg. If the value of DAI is volatile compared to 1 USD, users will not find it as attractive to use as a safe-harbor and thus not use Maker’s Vaults. That’s why MakerDAO provides mechanisms like the Peg Stability Module (PSM) to ensure that DAI is pegged to 1 USD.

The Peg Stability Module

How DAI maintains its peg.

Typically, if DAI is trading below 1 USD, Maker can increase the stability fee to incentivize users to repay their loans and subsequently increase demand for DAI. Similarly, the DAI savings rate serves to incentivize users to hold and deposit DAI, pushing the price back to 1 USD.

During events like Black Thursday, Ethereum prices fell 50%, leading to huge demand for DAI. This pushed the price of DAI to $1.10, well past the peg. The Maker community quickly voted to accept USDC as a collateral type, serving as a release valve for users to short the peg back down.

Afterwards, Maker voted to implement the Peg Stability Module (PSM). Users can deposit USDC and generate DAI at a 1–1 ratio, no matter the price. The constant one-to-one exchange allows users to arbitrage DAI’s price.

The PSM allows users to swap their stablecoins for DAI and vice versa. The DAO can receive a fee on swaps. This allows users to seize arbitrage opportunities in the market, when DAI is trading above its peg users can deposit other stablecoins to receive DAI at a 1–1 ratio (minus the swap fee which is currently 0) and sell it on the open market. Similarly for the inverse.

The PSM mechanism will tighten DAI’s range to its peg of $1 by acting as a release valve if the value of DAI swings too widely. Currently, the PSM holds 3.5 billion USDC.

Under the hood, the module functions like a vault, but unlike other vaults all tokens inside it are owned by MakerDAO. This allows Maker to change the stability fee (0%), liquidation ratio (100%), and swap fee.

As a result of the PSM, all of the USDC in Maker has been deposited by users to arbitrage stablecoin prices. The PSM is a new feature of the DAI tech stack that the market finds extremely useful.

Users can access the PSM through 1inch, Paraswap, or the interface created by one of MakerDAO’s community members, found here.

Maker has a similar mechanism for DAI borrow rates. In order to increase demand for DAI, borrow rates must be low enough to be attractive and high enough to be profitable, but sometimes secondary lending markets’ rates are not optimal. That’s where D3M comes in.

D3M

How the Direct Deposit DAI Module can help stabilize the variable interest rate.

D3M is Maker’s “Direct Deposit DAI Module”. D3M is a new feature that will allow Maker to supply liquidity to and remove liquidity from secondary markets (like Aave) algorithmically. MakerDAO governance sets a parameter called the “Target Borrow Rate”, which determines the borrow rate “equilibrium” that D3M wants to maintain. This allows Maker to stabilize the variable interest rate of DAI on these markets, thus creating predictability for borrowers and lenders. These reduced fees incentivize demand to borrow DAI.

By algorithmically expanding or contracting the supply of DAI, Maker can optimize demand and revenue and earn fees based on borrow-demand. Additionally, this earns the protocol rewards from the secondary market’s liquidity mining incentives, thus increasing Maker’s governance rights in these markets.

D3M allows these lending markets to become distributors of DAI throughout whichever L1 and L2 chains they exist, further stabilizing DAI’s variable interest rate, which makes DAI more attractive to large institutional investors and borrowers.

How does it work?

1. Users deposit collateral into Aave.

2. If the borrow rate for DAI on a Aave is higher than Maker’s target rate (liquidity is low), D3M will generate DAI collateralized by Aave’s liquidity pools (ETH, WBTC, etc).

3. That DAI is deposited in Aave, generating $aDAI, earning the same rate Aave provides to its users. This reduces the borrow rate, incentivizing demand to borrow DAI.

4. The generated $aDAI goes to D3M.

5. If borrow rates are too low, D3M will withdraw DAI from the pool to maintain equilibrium. Reducing supply and pushing borrow rates up.

The efforts have been effective. Since its launch in November 2021, DAI variable borrow rates have stabilized to a range of 1.7% to 3.8% on Aave. The results are similar for the stable borrow rate.

You can see an increased variance of liquidity as a result of algorithmically stabilizing the borrow rates. Note that liquidity was affected heavily by large market drops in January, February, and May. Maker also turned off the D3M system connected to Aave during the ETH-stETH depegging event in order to manage the risk posed by Aave’s exposure to stETH.

Maker is the only protocol that has the ability to inject and remove DAI liquidity to/from secondary markets algorithmically. Protocols get a plug-and-play experience with the D3M to adjust DAI borrow rates quickly.

“Maker is the only protocol that can inject and remove DAI liquidity algorithmically.”

With D3M, Maker becomes a wholesale creditor for other protocols. Even though, at the time of writing, Aave is the only protocol with a D3M deployed, a Compound D3M will be deployed soon, and you can imagine several specialized protocol’s integrated with Maker similarly (Maple, TrueFi, Centrifuge, etc.) D3M allows Maker to scale their credit facility across protocols with different core competencies than itself.

Still, D3M isn’t the only way for DAI liquidity to spread to the multichain world. Maker is developing a novel bridging mechanism to expand DAI’s reach.

Maker Teleport

How teleports will reduce gas fees and enable fluid DAI movement across L2s.

Maker will allow users to bridge between L2 solutions faster and more efficiently than other stablecoins. Bridging from chain to chain is cumbersome and costly, as users must interact with L2 bridges and wait for their transactions to settle on each layer:

• L2-A → L1

• L1 → L2-B

Maker will utilize a burn and mint contract on each L2 to enable users to move funds without waiting for the typical settlement times. This will reduce the friction of bridging across ecosystems, with transaction finality improving drastically. Optimistic rollups can take 1–2 weeks, while ZK rollups can take just a few hours.

When users want to initiate a teleport from L2A → L2B, they will send their DAI to the L2A bridge contract where it is burned. This event generates an attestation that users can provide to the minting contract on L2B, withdrawing their DAI. To account for the DAI moved from one chain to another, DAI will be transferred across bridge contracts on Ethereum L1.

Teleport allows DAI users to have canonical DAI on a variety of different L2s with faster withdrawals than typical settlement pathways. This will also be more gas efficient. DAI will not be moved piecemeal — per transaction — but will instead be transferred in batches, reducing gas costs. Instead of multiple drivers traveling alone, they carpool with each other and save on gas.

The Rug | Crypto News

@TheRugNews

POLITICS — US President Joe Biden urges gas station operators to “migrate to Layer 2 immediately” in a bid to stymy skyrocketing gas prices

32

3:58 PM • Jul 3, 2022

This approach increases DAI’s liquidity across the Ethereum ecosystem, making it more attractive to users as the default stablecoin. The increased demand will further accrue value to the MKR token in a similar manner as above. The more debt is denominated in DAI, the more demand there is for DAI to service those debts.

Maker’s ambitious bridging strategy will also make borrowing with vaults more capital efficient and will lower users’ fees. By minting natively on L2 rollups, users will save gas leading to a direct reduction of costs. Users can enter and exit positions at lower costs than they would on Ethereum L1.

The reduction of costs will also make it feasible to offer vaults that use different collateral types. In the past, Maker had to off-board the use of certain collateral because the costs were too high.

Web3 Growth

@w3g_io

6/17

This limitation of capital flow made the gas cost for maintaining oracles for these collaterals was greater than income from the stability fee. In addition, after explosive increases in gas prices, the costs skyrocketed and therefore the losses too.

4

11:07 AM • Oct 16, 2021

But now Vaults can use the reduced L2 fees, drastically reducing the cost to maintain oracles for these collaterals.

Within the next couple of quarters, MakerDAO is planning to fully deploy the Maker protocol (MCD) on other Layer 2 chains — such as Arbitrum and Optimism. This is an important step in the Multichain Strategy Roadmap.

— CORINA (MAKERDAO TEAM)

Rollups are also expected to increase transaction throughput by a factor of 100 by way of ZK rollups. This will improve vaults by increasing the oracle update speeds and decreasing costs thus allowing Maker to issue loans at lower minimum borrow requirements. All of this together will improve the liquidation experience, reduce minting and repayment times, and allow users to move easily from one chain to the next.

As Makers L2 strategy continues to be built, it proves to be hugely beneficial to users. Cheaper fees, faster transactions, and unparalleled security across several chains differentiate Maker’s DAI from other stablecoins.

If you’re interested in a deep-dive into Maker’s multi-chain strategy and its mechanics, check out this article detailing their partnership with StarkWare.

Finally, Maker is diversifying its collateral methods by using Real World Assets (RWA):

Another vital part of the Maker expansion plan is accepting real-world assets tokenized on-chain as collateral in the Maker protocol. Two examples we can bring in here are the 20M loan provided by Maker in DAI to SG Forge (subsidiary of French bank Societe Generale) and the recent 100M loan deal with Huntington Valley Bank.

— CORINA (MAKERDAO TEAM)

Let’s dive into how Real World Assets (RWA) factor into the MakerDAO roadmap.

Real World Assets – RWA

How Real World Assets (RWA) can reduce overall collateral volatility.

One side effect of leaving a bull market is that the demand for leverage decreases, but as prices go down, traders and market actors look to stablecoins as a safe haven for their wealth. The problem here is that the DAI supply is largely a function of demand for Maker’s loans.

As a result, Maker enabled the PSM, a permissions liquidity tool that accumulates USDC and saves it as a liquidity reserve for DAI. This has exposed Maker to counterparty risk (a la Circle) and regulatory risk from the US government.

Still, the demand for stablecoins can increase past the supply of other stablecoins and crypto-collateral alone (even “blue chips” like BTC and ETH). The demand to leverage long is not high enough for Maker to supply the DAI necessary for the market’s demand. This is where RWA comes in.

Maker found themselves in a position where they held a lot of USDC, but the assets weren’t compensating for the small amount of risk they have or contributing to profitability. But if Maker could deploy these assets into productive, low-risk, yield-bearing assets the protocol would have another revenue stream.

In an effort to explore this opportunity, Maker has begun to onboard new collateral types. This has expanded beyond cryptocurrencies and into real world assets (RWA). The new collateral also improves the security posture of DAI because RWA prices are not as highly correlated with cryptocurrencies as cryptocurrencies are with each other. For example, when BTC falls, so does ETH, but this is not the case with housing bonds which are generally unaffected by crypto price movements.

The move to onboard RWA is an effort to expand into productive assets that are uncorrelated with the majority of DAI’s collateral. This move serves to diversify Maker’s portfolio and allow them to have a surplus of assets that will allow the protocol to mint more DAI and take risks without existential threats to the system.

Société Générale

Maker has had its sights set on RWA as early as March 2020, with their first foray into the industry being a collaboration with French Bank Société Générale:

“Société Générale’s investment arm, SG-Forge, is raising a $20 million loan through MakerDAO’s DeFi lending protocol to refinance their on-chain covered bond issuance backed by real estate, called OFH tokens.

– SAMANTHA MARIN (VIA BANKLESS PUBLISHING)

“Obligations de financement de l’Habitat” (OFH) tokens roughly translates to “housing finance bonds”. Since then the deal has progressed further with MakerDAO voting to create a new vault type (RWA-008) that will have a 30 million DAI debt ceiling with a stability fee of 0.05%.

In that same proposal, Maker created a similar vault for Huntingdon Valley Bank with a 100 million DAI debt ceiling and stability fee of 0%.

Huntingdon Valley Bank

Huntingdon Valley Bank (HVB), a Pennsylvania-based community bank, has entered a partnership with Maker where HVB will originate loans for commercial mortgages, construction financing, business loans, etc and Maker will give HVB access to DAI liquidity in exchange for a share less than or equal to 50% of the value of the loan and claims on its interest. Maker is represented by the RWA Master Participation Trust which will distribute payments accordingly.

In the above example, Ankura Trust (an independent loan assessor) verifies the loan of which a share is given to Maker’s Trust in exchange for cash. This is the first large-scale partnership between a regulated US bank and a DeFi protocol, the result of which is Maker’s entrance into wholesale lending and access to real world assets, broadly and at scale.

Note that HVB is not borrowing assets from Maker, but is instead selling these assets to the protocol via the Maker-controlled trust. In exchange for USD converted from DAI, Maker receives access to RWA cash flows and TradFi assets.

This expansion represents more than just increasing the security of DAI. It transitions Maker from a purely retail DeFi banking system into a wholesale DeFi banking system. It allows Maker to enter larger financial transactions. These transactions may come with higher risk, but that risk is mitigated by partnering with expert wholesale entities.

RWAs open an entirely new market to Maker and serves to diversify the longest standing stablecoin in DeFi: DAI. These are battle-hardened smart contracts that have a new market, new collateral, and expert financial analysts backing an already irreplaceable money lego.

Real World Assets diversify the longest standing stablecoin in DeFi.

Conclusion: Popping off the Stack

Maker has created products and formed partnerships to increase DAI liquidity throughout the Ethereum ecosystem. By way of D3M, Maker can directly inject DAI liquidity to secondary lending markets, decreasing loan rates and increasing demand. This desire to borrow DAI is supercharged by Maker’s wormhole bridge and multi-chain strategy. Making vaults available across various chains will make DAI available to new, cost-conscious users, increasing demand further.

Maker’s biggest competitive advantage for lending is having the lowest rates in DeFi. As the issuer of DAI, the protocol does not pay third party liquidity providers for capital and acts as a primary market lender for the other lenders in the ecosystem […] Maker is highly secure, relying on an automated Dutch liquidation system as well as its own price oracles.

— CORINA (MAKERDAO TEAM)

The more prevalent DAI is, the more utility is needed for it, further increasing demand. Maker is supercharging this by allowing DAI to be accessed across a variety of lending platforms and chains. But Maker is also capitalizing on its strong position by diversifying its collateral with atoms (RWA).

In using RWA as collateral, Maker is strengthening DAI’s ability to maintain its peg and creating opportunities for Maker to enter other markets. All of this serves to increase DAI utility, strength, and availability. Subsequently, this demand creates a surplus of value that is fed into the MKR token.

“The Maker protocol is akin to a living system that adjusts its behavior to what the market needs. In bear markets, it can shift to hold mostly fiat backed stables due to market conditions. In bull markets, users want to use leverage, and the protocol subsequently holds much more ETH and wBTC than any other collateral.”

— MARIANO DI PIETRANTONIO (MAKERDAO TEAM)

DAI is decentralized in another fashion: distributions. More than 50% of all DAI in circulation is held by externally owned accounts (EOA); in other words plain-old wallet addresses. This statistic indicates that DAI has organic users that believe in its stability, resilience, and decentralization.

Most recently, Maker has demonstrated its resilience as Celsius fell. Before filing for bankruptcy, Celsius took out a loan from MakerDAO, and while many of their creditors are owed funds, MakerDAO is not one of them. Celsius had to pay back the loan in order to get their collateral back. Maker is the equivalent of a senior creditor, but not because of enforcement by the law, but by code. Maker’s smart contracts have superseded the need for a court system and government intervention.

DAI has seen it all, and Maker is moving in the right direction on several fronts. Maker is not a company. It’s a set of systems that serves to make DAI the most abundant, demanded, and innovative stablecoin in crypto.

Special thanks to Corina Dolghier, Mariano Di Pietrantonio, Cristobal Garcia, and Frank America for their feedback.

Author Bio

Jake and Stake is a writer and editor at BanklessDAO. He is the creator of and contributor to the DeFi Download, with a background in software engineering and cybersecurity.

Editor Bio

Frank America is an author, comedian, musician, and narrator. He is the Co-founder of The Rug, and a content manager for Bankless Publishing.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

The Importance of Self Custody by theconfusedcoin

Article by theconfusedcoin | Edited by Trewkat | Cover Art by ab-colours

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

Custody in finance is defined as the right of an entity or person to manage and look after another person or entity’s money, investments, or finances. In modern finance, it’s common for third parties such as banks or centralized exchanges to have custody of our assets. This may seem ordinary on the surface, but it comes with significant risk. We have heard numerous stories about people unable to withdraw their own money from banks because the bank had no liquidity or was in financial distress. In traditional finance (TradFi), the only option for self custody is in the form of cash or illiquid real estate. However, with central banks going haywire over the decades, cash is not the safe haven asset it used to be.

Crypto changes this; it reintroduces the concept of self custody  —  having total control over your assets without having to involve a third party. In a world where banks run, exchanges go bankrupt, and malicious hacks often happen, it is paramount that your assets are safe and in your possession. The applications that enable crypto self custody are called non-custodial wallets. Some examples include MetaMask, Phantom, Trust Wallet, and Ledger. Beyond giving you peace of mind, self custody ushers in many other benefits:

1. Ownership

In order to make crypto more accessible to the general public, several centralized exchanges and applications were born and modeled on the principles of TradFi. Exchanges like Coinbase, Kucoin, and Kraken retain custody of your assets, even though they show up in your account after you purchase them. If any of these exchanges go ‘belly up’  —  like Voyager and FTX have done  —  you might end up losing everything.

In a world where banks run, exchanges go bankrupt, and malicious hacks happen often, it is paramount to ensure that your assets are safe and in your possession.

However, if the same tokens were transferred to a non-custodial wallet like MetaMask, you would sleep soundly knowing that your assets are fully in your care.

2. Control of Your Assets

You are entirely responsible for your assets; no third party can place restrictions or limits on your transactions. No permissions are required and you are free to buy or sell any number of digital assets. In order to withdraw your own tokens from exchanges, most of them require you to complete a KYC form. With self custody, no such documents are needed and you are free to use your assets as you please.

3. Unlimited Transactions

There are no limits on the amount and number of transactions you can make in a non-custodial wallet. Centralized exchanges often put limits on the amount you can withdraw and on who you can transfer your tokens to. These restrictions are not applicable when your digital assets are stored in a non-custodial wallet.

4. Security

When a third party is handling your assets, there’s always a risk of mishandling. This could be in the form of hacks or misuse of the assets. We have seen enough examples of this happening in the last few months to know it’s a big problem (FTX, Celsius, Voyager, and banks in Lebanon).

When a third party is handling your assets, there’s always a risk of mishandling.

With self custody, the owner is assured of the security of their assets  —  the owner of the private key is the only one that has access to the wallet and its funds. While non-custodial wallets have been subject to hacks, this has largely been due to the user’s interaction with decentralized applications that are unsafe and easily exploited.

5. Access To Decentralized Applications

The concept of self custody introduces us to non-custodial wallets, which are essential for access to decentralized applications. Through these applications we can stake tokens for extra yield, exchange tokens on DEXs, trade NFTs, and play web3 games. While this is an indirect benefit of self custody, it is an important one!

Hot or Cold?

Depending on the use case, there are two types of non-custodial wallets:

Hot Wallets

These wallets are typically the browser extensions or mobile applications that many users are familiar with. They enable you to store your digital assets and interact with all the various decentralized applications with ease. Hot wallets are simple to use as they are always connected to the web and transactions can be made easily without having to physically connect any device to your phone or laptop.

However, because they are always connected to the web and interact with many applications, they are susceptible to hacks. Storing large amounts of crypto in a hot wallet is risky.

Cold Wallets

Cold wallets are the most secure form of storing digital assets. Most cold wallets are attached to hardware, usually a USB stick that serves as a form of two-factor authentication. Only the person who has physical possession of the wallet and who knows the pin can access the funds. Since cold wallets are not connected to the web, they are much harder to hack. This makes them one of the safest modes of self custody. Some examples are Ledger, Trezor, and KeepKey.

Drifting From the Exchanges

Moving your assets from centralized exchanges to a non-custodial wallet might seem daunting and scary at first. However, the benefits of doing so far outweigh the initial discomfort. You can’t stay on the cutting edge if you’re not on the frontier!

Crypto is built on the idea of financial freedom and self custody is an important step towards achieving that. We have been at the mercy of custodians for too long and it’s time we take control of what’s rightfully ours.

A version of this article was originally published by Bankless Publishing on December 3, 2022.

Author Bio

theconfusedcoin is a DeFi dabbler, NFT connoisseur, and writer at BanklessDAO.

Editor Bio

Trewkat is a writer, editor, and designer at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this newfound knowledge to others.

Designer Bio

ab_colours is a versatile designer with over seven years of experience. He specializes in doing product design, UX design and brand identity. He has been DAOing for the past eight months and has been able to amass quite a lot of knowledge about the fascinating blockchain space.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

7 Tips for Avoiding DAO Burnout by Frank America

Article by Frank America | Edited by Hiro Kennelly | Cover Art by Chameleon

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

Many people in the web3 space are in more Discord servers than they can count. In these communities, they may have obligations ranging from administrative tasks, to major writing or audio/video assignments, or even nebulous directives like governance coordination. In light of all this, one thing is certain: DAO fatigue is real. So how do we avoid getting burnt out on DAOs?

Here are seven suggestions:

1. Mute push notifications

2. Stop attending non-critical weekly meetings

3. Choose your favorite DAO and stick with it

4. Don’t work for governance tokens

5. Specialize your method of contributing

6. Mitigate decision paralysis and “death by democracy”

7. Delegate your votes

1. Mute Push Notifications

This may seem like a small thing to do, but how many of you have been in some level of sleep only to hear your Discord notifications going gang-busters because someone posted a funny meme from Australia? Choosing to engage with your DAO 24 hours a day is a serious psychological factor to consider.

The first step to combating DAO fatigue is to engage your DAO on your own terms. This doesn’t mean you have to turn off notifications, but that you turn off push notifications (the ones that show up on your phone no matter what) and limit regular notifications to the isolated zones of a Discord server that are relevant to you.

If you, like me, are in it for the long haul, then consider that notifications don’t have to appear on your mobile phone the instant they happen. You know you’re going to engage your DAO, so just pick the times that work for you. This is a lot less overwhelming than seeing them in your palm every time you check your phone. Think of it like DAO housekeeping.

Side note: there is a subliminal tax that is paid every time we check a notification. Whether it is for a like on Twitter or Facebook, an updated post on a forum we follow, or a simple ‘sup’ from a long time friend. Control your phone, your computer, and manage your notifications. Engaging your DAOs on your terms is a huge leap forward in combating DAO fatigue.

2. Stop Attending Non-Critical Weekly Meetings

Before you go to a weekly meeting ask yourself, “Is this weekly meeting critical to how I can help this project, team, or group of people?” Chances are there is work you could do that would further the cause more than draining another hour on the old Discord audio.

DAOs are non-local, asynchronous groups that collaborate and coordinate across time zones toward mutually shared goals. While granted, voice-syncs are inherently valuable for social morale building and getting things done “in real time”, the fact of the matter is, we’re in UTC mode. DAOs follow the sun with their efforts, and are not optimized for worldwide synchronous sessions. Finding ways to enhance efforts being equally valuable any time they are contributed is a key value-set for successful projects.

Another idea might be to swap out one meeting every week to five separate micro-sessions across as many time-zones, twice a month, where small pods of people voice-sync on what they’re all working on, or want to work on. Make deliverables required to attend the meeting. Create skin in the game.

If we make non-critical meetings non-mandatory and create a culture where attendance doesn’t equal performance then people will get used to creating and completing bounties or assignments non-synchronously. Once-a-week doesn’t seem like a lot for the first few months when we’re on our DAO honeymoon, but 52 times a year (times the number of teams you’re on that meet weekly), times a multiple year commitment may become too much. Often what takes place in a meeting may be supplanted by a few targeted DMs, and a couple of shared gDocs. This maximizes a DAO’s strength: people do the work and engage when they want to.

Your time is valuable and if you want to avoid DAO burnout, keep your focus on the producers, engage the newbies a-synchronously, and put your attention into meetings where things get done, while also encouraging more asynchronous work.

3. Choose Your Favorite DAO and Stick With It

Okay, this is a hard one but think about it. There are too many DAOs to choose from and you can’t be in all of them. Pick a like-minded group or niche that furthers your goals in web3, and dig in. Let go of the superficial involvement in a myriad of DAOs, and drop the big-game POAP hunting.

If you want to avoid burnout, then pick it, and stick it. Everybody has seen that one DAO member who is gonzo for two to five weeks — then crickets. If after a substantial amount of involvement in a single DAO things aren’t working out, then offload your obligations and start dating again.

4. Don’t Work for Governance Tokens

If you really wanna go the distance in web3, stop working for governance tokens.

This isn’t exactly what it sounds like, and is a controversial take, but many DAOs reward efforts with what many affectionately call worthless governance tokens, which enable holders to vote in Snapshot or other web3 governance protocols. Often, governance is merely a synonym for token-weighted voting, and since these tokens often have no other utility (other than perhaps representing equity in the DAO or providing access to gated systems), and since most Snapshot votes are overwhelmingly in favor of a proposal, then one could argue that people are simply working for something that doesn’t have a ton of value.

To go the distance in web3 you need to find a way to pay or earn in hard currency; that’s BTC, ETH, or a stablecoin. The optimistic side to consider here is that if you’re doing work to learn a new skill, or become better at something that makes you more marketable in web3, or to build your social network and influence in the space, and governance tokens are a by-product of those efforts, then self-improvement is the value set you are working for, and that is very healthy as self-development is crucial.

Just think, a year ago I didn’t know how to use MetaMask, Coordinape, Snapshot, DeWork, Mirror, Uniswap, OpenSea, Optimism, Polygon, Guild.xyz, Collab.Land, Poap.xyz, and a myriad of other tools in my web3 kit. My take is that I wasn’t working for governance tokens. I was working to learn these new skills, and if a multi-sig sent me a bunch of governance tokens on the tail end of that, well that’s fine too, but it’s not why I did the work.

So figure out what you’re working for, and adjust accordingly. To the degree DAOs can, they would do well to pay, operate, and calculate in BTC, ETH, and DAI only.

5. Specialize Your Method of Contribution

Another method to combat DAO fatigue is to think about how you apply yourself. Marshal your skills and select your tools carefully. You gotta build a niche. Aim to be the, “Oh, you need to talk to that person” person…” You don’t want to be the “Anybody can do this job, but I’m doing it because I said I would” person. Specialize how you contribute to DAOs.

If you have a particular specialty, let that be known, and deliver on that, and only that. Don’t just raise your hand for tasks because “it takes a village”. Let people that don’t have specialties or don’t want to cultivate them take on those jobs. In fact, if you have a specialty and are doing anything that doesn’t tailor to that skill set you are doing your DAO a huge disservice. With that said, everyone needs to “earn their stripes”, so to speak, so some amount of, “hey, I’m just here to help” may be in order for a while. But once you find your groove, stick with it. Applying your expertise, effectively, will greatly reduce any chances of you encountering DAO burnout.

6. Mitigate Decision Paralysis and “Death by Democracy”

Here’s another controversial take. What the majority of people want to happen is rarely the best thing for a DAO. Typically what happens is that someone comes up with an idea, and people are excited, so they vote for it. But not all of these ideas are winners and a DAO can hurt itself by trying to do too many things at once. This is what I call “death by democracy”. Instead, DAO’s could trust individuals who have already built trust via results, more and more over time. To accommodate this accreditation theory, voting could be weighted against demonstrated efficacy, that is by reputation, and results. Voting should not be weighted by the number of tokens held, but by the clout built up by delivering results that benefit the DAO.

Without some centralized nodes of authority that these trusted contributors represent, DAOs can end up treading water. Just think of all the multi-sigs that have funds sitting there since the last bull cycle simply because 4 out of 7 people can’t figure out what to do with them? That “slack energy” isn’t just represented financially, it occurs in DAOs politically and socially too. Garnering a small amount of consensus amidst trusted DAO members can alleviate that slack, which brings up the last tip.

7. Voter Fatigue Is Real So Let’s Just Delegate Instead

Voter fatigue is real. If every decision needs to be put to a vote, and every forum post needs X amount of “Yes” and every Snapshot needs Y amount of signatures, then things just can’t get done in an expedient manner. If you don’t think voter fatigue is real just look at Snapshot participation rates during the bear market.

A possible remedy to this is that DAO members could appoint a small batch of their team to make decisions for the whole guild, project, or DAO, within an agreed range of influence, at the onset of some fixed interval of time (quarter, season, year, etc). That’s it. Take time to delegate voting at the beginning of a season, and then the delegates take it from there. DAO members could withdraw their delegations and re-delegate after fixed periods if performance was lacking. Otherwise, they could roll forward. If it ain’t broke don’t fix it. Sometimes too much rotation in DAO leadership can cause a lack of progress. Other times no rotation can halt growth. Either way, this delegated authority would enable DAOs to move faster, and grow more quickly, as well as reduce contributor burnout across the board.

DAO Burnout Closing Thoughts

These seven tips to avoid DAO burnout are just that, suggestions. This may not be right in every case or for every DAO, but hopefully some of these tips help you manage your efforts in the web3 space to build towards sustainable, repeatable efforts and contribution, such that we can all grow faster and stronger, together.

A version of this article appeared in Bankless Publishing on December 7, 2022.

Author Bio

Frank America is an author, comedian, and musician. Frank is Editor-in-Chief of The Rug News, and a Content Manager/Staff Writer at Bankless Publishing.

Editor Bio

Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO, an Associate at Bankless Consulting, and is still a DAOpunk.

Designer

Chameleon is a designer and creator in the web3 space.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

A Beginner-Friendly Approach to Evaluating NFTs by Marc Bisbal Arias

Article by Marc Bisbal Arias | Edited by links and Trewkat

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

Each Blockchain Is a Different Market

Not all NFTs are created equal, so we shouldn’t use the same criteria for evaluating them. Although most great projects or collections have common characteristics, we need to think differently if we’re judging a purely artistic NFT compared to one that has additional utility.

Similarly, different blockchains (i.e. Ethereum, Solana, Tezos, etc.) are used by different types of artists and teams. This means that each ecosystem is unique.

The first step when evaluating an NFT project is to understand the general markets and agents in the space. For instance, NFTs as PFPs (profile pictures) and 10,000-item collections were popularized on Ethereum. Solana is also flooded with these. However, there haven’t been many large collections on Tezos, apart from some recent notable exceptions.

A characteristic in Tezos is that artists launch multiple copies (known as editions) of the same artwork. On the other hand, Ethereum and Solana NFTs are typically collections of unique but similar items (see above), which sometimes have a strong focus on roadmaps and deliverables.

Collectors Kevin Rose and Chris Wallace recently said that NFTs on Tezos are much cheaper than on other blockchains, with Chris stating that those on Tezos can trade for 5 or 10 times less than on Ethereum. In my experience this rings true, and NFTs on Tezos are also cheaper than on Solana. There’s no other place where I’ve been able to collect works for amounts as little as 60¢ or $3. Excluding free-to-mint NFTs, some of the cheapest ones I’ve seen on Solana and Ethereum cost somewhere from 0.1 SOL to 0.5 SOL or 0.04 ETH to 0.08 ETH (in USD, these are $10 — $50 and $120 — $240 respectively, at today’s prices). Often, they trade for much more.

Another difference is that I haven’t yet seen teams developing roadmaps on Tezos. Mostly, this blockchain is used by artists selling unique artwork rather than teams working on deliverables.

Now that we’ve seen some differences in NFT projects based upon their native blockchain, let’s talk a bit more about assessing NFTs that are purely artistic versus those projects that have a defined roadmap.

NFTs as Art

I am definitely not an art expert, so there are only four methods I use to assess purely artistic NFTs:

1. Relying on those who know more than I do. Do other artists or collectors think this is a good piece or artist? The more people think it’s good, the more likely this is to be true. There are some artists and collectors I trust more than others, because I may see value where they also see it, or because they’ve also created art I like, or because they’ve worked on relevant projects. I follow these people on Twitter to improve and support or disprove my judgement. Tyler Cowen recently wrote an article about how to start art collecting, which I think can be useful for NFT collectors. Once I find which are the key artists in a space, I study them to figure out why they stand out and why their work is important.

2. Learning. We may look at a painting and not appreciate its artistic quality. But if we learn its meaning, the work that went into its creation, the innovative mechanism or technique that was used to produce it, that painting can gain value before our eyes. My go-to resource for learning about artists and understanding their work is Proof, a podcast where Kevin Rose interviews different artists. Listening to artists talk about their work and process, and reflecting on the questions they’re asked, has increased my understanding and helped me to analyze art. Learning about art in general can also make us understand what is valuable or not, and why.

3. Do I like it? This one is pretty obvious; if I find the artwork aesthetically pleasing or interesting in any way, I am more inclined to buy it.

4. Investigating trend-setting artists or popular types of art. This is something else I’ve found to be helpful to learn about this market. While generative art isn’t something new, its use in NFTs has exploded and become quite popular. Tyler Hobbs’ Fidenza is one well-known example of the genre.

Somewhat unrelated to the above, price is another key factor I use to consider whether to purchase NFTs or not. However, this is not exclusive to this subset of NFTs. No matter how great an artwork, artist, or team behind an NFT is, there’s an amount at which I will no longer consider buying it.

NFTs With Roadmaps and Utility

Now let’s take a look at how NFTs become valuable and different types of NFT utility in the space. Here I’ll mostly focus on the Solana ecosystem because it’s the one I’ve followed most closely, although I’ve seen a fair share of projects on Ethereum and they have many similarities.

Many teams behind NFT projects have created roadmaps with the aim of providing further value to holders and early supporters. Examples of these include regular airdrops of new NFTs, merchandise, comic books, governance tokens, staking mechanisms, and early or discounted access to other NFT projects.

Why some NFTs are more valuable than others comes down to three factors: being early, executing on a roadmap, and community.

First and foremost, being early pays off. CryptoPunks are highly regarded in terms of historical and cultural value because they were one of the earliest projects that launched.

Second, when there is a roadmap, execution is crucial. If you’re buying NFTs you’d do well paying close attention to the team behind it. Are there identities known? Have they built something before? What’s their track record? Do they have a reputation to live up to? None of these things guarantee that the project or collection is going to succeed long-term, but it definitely makes it more likely than an anonymous team that hasn’t created anything before.

These are important questions to ask before getting in, and this is why some people say that picking NFTs feels similar to angel investing: ultimately you’re betting on people and their ability to deliver, and most projects will disappoint.

Something you can do early on is join their Discord and get a sense of what the team is all about. If they host Twitter Spaces or community calls, it makes sense to listen and see what they say. Does it make sense to you? Are they promising too much? (Not everyone can ship great work!) Are you genuinely interested in what the team is planning to build?

Finally, the community is an important factor that ultimately affects the direction of the project. The kind of people an NFT project attracts and engages with can say a lot about it. But what does community mean exactly? Let me show you three different kinds of communities I’ve seen and it will become clear.

How Communities Are Different

I’ve been in some Discord channels where all people do is chat about the floor price: “Why isn’t the price going up?”, “This will 10x in a few days!”. This leads nowhere. Most people in these communities bought the NFT to make a quick profit. If holders aren’t engaging in positive ways (asking genuine questions to the team, building derivative projects or applications around the NFT), that’s a bad sign.

Another red flag is if the team behind the NFT is never showing up in the chat engaging with holders, building community, or executing their roadmap. I’ve seen teams that managed to create a strong, positive, and friendly community around them by showing up throughout the day to chat and get to know the people in the Discord, hosting Q&A sessions, creating contests, hosting trivia events, and so on. One project excelling at this is Grim Syndicate.

Another special type of community I’ve seen is one filled with developers or other kinds of builders. Clear examples of this are Loot or Adventure Cards. If you hop into the Discord channels of these or similar projects, you’ll find people constantly talking about further development and coordinating to build things together.

Builder/developer communities and positive early adopter communities have better chances of succeeding long-term.

When people mention community as being a key driver of a specific NFT’s success, that’s what they mean. Are people chilling, getting involved, building things, hyped about the things that are coming next, and creating things around the project? Or are they only concerned about the price? Identifying the community vibe surrounding an NFT can help predict long-term success.

Brands

Something should now be obvious. Teams behind NFT projects are effectively building a reputation and constructing a brand, whether conscious of it or not, and their NFTs represent precisely that. Pixel Vault has become one of the most reputable and recognizable brands in the NFT space because they’re constantly overdelivering and focusing on their early supporters. And when people use their NFTs as PFPs, they’re signaling they’re part of a community that’s valuable to them.

That is why non-web3 native brands are experimenting with NFTs and utility. Adidas recently dropped an NFT that is tied to exclusive merchandise drops to holders during 2022. But this is just one example; many brands are using NFTs to focus on their biggest fans and fostering brand loyalty. Because of the nature of NFTs as gateways to private and exclusive communities, events, and other type of perks, the space has been quickly gaining popularity.

Note also that when there are brands with a reputation behind a project, the stakes for them to deliver are high. So buying NFTs of well-known brands should be much safer than a random project with unproven or anonymous founders.

What’s Next?

Deciding on whether you want to buy an NFT or not is only half the work. The other half is following up. Your goal is to find evidence that confirms or negates your initial judgement. And if you end up buying, your next task is monitoring your NFT collection every so often. If you own a lot of NFTs this can require a significant amount of time, but monitoring doesn’t mean looking at prices hourly or daily.

Mostly, you’ll want to pay attention to what the artist keeps creating, or what the team is building. Occasionally it also makes sense to pay attention to prices. Discord, Twitter, and any community calls or updates the artist or team does are some of the best ways to catch up on what’s happening. Generally speaking, any kind of regular update that provides transparency on development is a good sign.

Whether you decide to keep a particular NFT for a long time or sell it after a short time, it is good practice to stay well-informed about the community, the market, and trends in the NFT space. That way you can make decisions based on experience rather than emotion.

A version of this article was originally published by Bankless Publishing on March 11, 2022.

Author Bio

Marc Bisbal Arias focuses on research, analysis, and investing.

Editor Bios

links is a web2 product leader and startup artist seeking inspiration in web3.

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy

DEX Aggregator Basics by oxdog

Article by oxdog | Edited by Trewkat | Cover Art by ab_colours

Welcome to Bankless Publishing’s Crypto Basics Series. We’ll be shipping all of our introductory web3 content on Mirror each Monday, enabling users to curate a web3 reference library by minting NFTs on Optimism.

When you want to swap your tokens, you have countless DeFi Exchanges (DEX) to choose from, such as Uniswap, TraderJoe, dYdx or Curve. All exchanges have ever-updating swap prices and varying slippage. With over 250 DEXs listed on CoinGecko, you will never get the best possible conditions relying only on your DEX of choice. Searching all DEXs for the best price is unreasonable, and luckily you don’t need to; this is precisely what DEX Aggregators are built for. They are a search engine for decentralized exchanges to find you the best conditions across all DeFi. What are they, how do they work, and what are the best aggregators?

What Are DEX Aggregators?

You can think of DEX aggregators as being similar to search engines for accommodation. When you search for a place to stay, you have hundreds of options to choose from. If you are a maniac, you will visit every hotel’s website individually and compare their prices. If you are an ordinary person, you use a hotel search engine like Trivago that helps you find the best fit. It saves you time and money!

When you visit the same DEX over and over, it is like staying at the same hotel every time you travel. It is convenient, yet you are very likely missing out on lower prices and more beautiful stays. DEX aggregators are here to help.

Decentralized finance is built on liquidity that users provide. A formula is used to calculate swap rate and slippage based on the underlying liquidity available. Because liquidity is constantly changing in each exchange, rates fluctuate with it. DEX aggregators monitor several liquidity sources across DeFi and use sophisticated algorithms to detect the most favorable rates with the least slippage.

When you trade on an aggregator, you are still using the underlying protocols of the DEXs, but the aggregator decides which one is the best for you. Your trade may even be split across multiple exchanges to give you the best possible conditions. Two famous examples of DEX aggregators are 1inch and Paraswap.

Finding DEX Aggregators

1inch

1inch is the number one DEX aggregator with over $236B+ in total volume, 265 liquidity sources, and availability on nine chains: Ethereum, Binance Chain, Polygon, Optimism, Arbitrum, Gnosis, Avalanche, Fantom, and Klaytn. This aggregator can also be used for yield farming and has its gas token named Chi, which can be burnt on trade to save gas.

1inch also has a mobile wallet (iOS/Android) where you can store your assets, buy crypto with fiat, transfer on multiple networks, swap tokens, and stake 1inch to gain governance rights and eventually be eligible for gas refunds. You can find more 1inch stats here.

Paraswap

Paraswap is similar to 1inch, but smaller. It has a total volume of $30B and is deployed to six chains: Ethereum, Polygon, Binance Chain, Avalanche, Fantom, and Arbitrum. A benefit of trading on Paraswap is the gas refund program. When you stake a certain amount of PSP, you can enjoy up to a 100% gas refund. For example, if you stake 5,000 PSP, which equals around $100 at $0,023 per token, you get 50% of your gas refunded.

Also, Paraswap recently opened early access to their mobile app. Currently, it is only available for iOS (Apple) users, and you have to stake PSP to be eligible. If you are curious, you can find more information here and stats about Paraswap here.

Besides 1inch and Paraswap, you have other options you can trade on.

• OpenOcean

• Matcha

• Slingshot

The Future Is Here

In the future, it will be uncommon to visit a DEX or aggregator directly. As wallets' functionality and user experience designs improve, DEX aggregators will be built directly into them. So instead of opening your browser, visiting an aggregator, connecting your wallet, and initiating a transaction, you can hit a swap button in your wallet app, which uses an aggregator under the hood.

Many wallets already have this implemented. If you’ve ever used the swap feature on MetaMask, then you’ve used an aggregator, since MetaMask implements the same 0x API that Matcha (mentioned above) uses.

If you haven’t tried a DEX aggregator, now is your time. It will immediately pay off by saving money that would otherwise be lost on every trade you make.

To learn more about DEX aggregators, take the Bankless Academy lesson on this subject.

Author Bio

oxdog is on a 4-year daily meditation run streak, and soon he will be able to levitate and say no to chairs // React TS Solidity Developer // Contributor BanklessDAO.

Editor Bio

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Designer Bio

ab_colours is a versatile designer with over seven years of experience. He specializes in doing product design, UX design and brand identity. He has been DAOing for the past eight months and has been able to amass quite a lot of knowledge about the fascinating blockchain space.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

Other Articles in the Crypto Basics Series

Decentralized Ledger Technology 101 by The Crypto Barista

The 101 on NFTs, A Briefing by Lanz

4 Simple Steps To Join a DAO by Samantha Marin

Towards Better Token Distribution by Paul Hoffman

Cryptocurrency Wallets 101 by ijeblowrider

How To Learn Solidity by oxzh

Ultimate NFT Red Flag Checklist by kalex1138.eth

Four Factors That Make a DAO Sticky by Peter Jones

14 Blockchain Basics by Hiro Kennelly

The Beginner’s Guide to Promoting NFTs by Monique Danao

DAO Governance Primer by EthHunter

The Three Pillars of Discord by Daryl, Lanz, and Roy