To sum it up, Merit Circle, a DAO in the gaming industry, received funding from YGG —a competing platform— as part of their last round. There was an expectation of non-financial value to be contributed by investors, and it is argued YGG hasn’t delivered this part of the deal. As a result, some DAO members are seeking to cancel the agreement and return YGG’s seed investment. While a minority opposed the proposal, it seems that the overall sentiment is in favor it.

If you haven’t had a chance to read the forum thread, I recommend you to read the OP, the initial responses and the first dissenting comment by “BambinoValue”.

Also, note that the forum thread isn’t just a conversation. It’s a proposal whose intent is to lead to an executable vote by DAO members.

Now, what to think of it?

It seems to me that there’s a collision between the legacy business world, based on legal agreements and representatives with legal duties, and the DAO world that puts more value on code and empowered communities.

Ideally, the two sides should act in synergy. In this case, we see them antagonizing in a somewhat destructive manner.

According to the OP, YGG didn’t provide the value they were expecting to. In a traditional setup, there are provisions in place in order to make sure that parties actually deliver their material contribution to a deal: partial payments, escrow, penalties, dispute resolution processes, etc.

What is striking here is that neither the OP nor the people voicing their support to it seem interested in learning about the actual terms of the deal. They are just feeling 1) righteous and 2) empowered to break the deal.

The whole case is a theatrical representation of Lessing’s pathetic dot theory, which describes the “four forces that constrain our actions: the law, social norms, the market, and architecture”. In a digital world, the equivalent of architecture is code, hence the famous “code is law”, a call for embedding constitutional principles into the fabric of the internet.

The initial driver of the deal was market-based (the implicit price of the token purchase), then stakeholders diverged according to how they value the law —the actual agreement— vs social norms —discussing whether what YGG provided was deserving to be an investor, regardless of the actual terms of the deal. After hastily concluding against YGG, without due process nor adversarial procedure, most of the vocal community members seem happy to break the deal —and they can (code/architecture).

I understand the frustration of DAO members facing a blatant abuse of the spirit of the agreement, if not of its letter. I also appreciate that social norms are so powerful in DAO-run communities that participants are really held accountable and can’t hide behind tricks of the law.

However, we want communities, not mobs.

As a few people pointed out on Merit’s forum, breaking the seeds agreement might lead to dire consequences for the project, and even for the industry in general.

If DAO members don’t see themselves as compelled to respect the commitment that was made on the behalf of Merit, what are the chances that others enter into SAFT or similar agreements? What’s the point of signing a contract when the party you’re signing with plans to morph into an entity that may or may not apply it, depending on their mood swings?

Another stunning aspect of this thread is the total disregard members seem to have for the people who actually signed the token purchase agreement on the behalf of Merit, and who may be personally liable for breaking it.

Again, who would want to take the risk of being a legal representative of a company that turns against you, once it decentralizes into a DAO? Founders and leaders already expose themselves to regulatory risks. Should they also be wary of being betrayed by the very same people they hand over their governance power to?

Some may argue that trustlessness should remain the most important principle when entering into a deal with a crypto project. Seed investors shouldn’t have to trust the early company nor the DAO to allocate them tokens, founders shouldn’t trust the investors to deliver whatever they promised in addition to their funds, DAO members shouldn’t be trusted to make decisions that comply with regulations or earlier contractual commitments, etc.

Instead, incentives should be designed so that they remain active until every commitment is fulfilled, and code should be used to enforce them.

Yes?

I understand the ethos, but is it realistic to expect such a maximalist view of trustlessness to be applied to every collaboration a project entails?

Is it economically efficient? There are transaction costs associated to trustlessness.

And is it desirable? Do we want to frame every joint effort into an ironclad procedure?

Circling back to the case at hand, here are my takes.

When the law applies, acknowledge it

DAO members would be well inspired to take into account the existence of the law and the consequences of infringing it, in the interest of the project itself, and of some of its participants (known representatives exposed to lawsuits).

Negating its existence won’t make it disappear. It’s one thing to favor legitimacy over legality, and another one to behave like law had become irrelevant because we have DAOs. It will come back to bite us all.

When the law doesn’t apply, its spirit might

All legal systems guarantee, at least in theory, that the accused retain certain basic rights, like the right to present a defense, to confront accusers, or to appeal.

Disputes in DAOs should be approached with the same guarantees in mind, if not in code.

A public conversation in a public forum is a step toward this goal. It’s hardly enough. Social practices for conflict management and dispute resolution are available, and there are even training sessions specifically designed for DAO members, offered by GravityDAO. For on-chain maximalists who dislike both legal arrangements and personal trust, use decentralized jurisdictions like Kleros!

Thanks to Phil for telling me about the whole story 🙏

Cover image: The Murder of Powell / C.S.R. Photograph. Retrieved from the Library of Congress.

Optimism is known for building a layer 2 technology that brings scalability and low-cost transactions to Ethereum. But their vision goes far beyond the technical substance of the project. Optimism Collective’s explicit goal is to “reward public goods & build a sustainable future for Ethereum”.

Optimism's mission is building permissionless and neutral technology – not necessarily tied to the purpose Optimism Collective now puts at the very heart of the DAO. Why such a gap between what the project does – its substance – and what it aims for – its purpose?

DAOs do not have to commit to altruistic and world-changing ambitions, but they frequently do. What could be the reason? Would they need missionaries more than mercenaries? If economic incentives are the linchpin of crypto projects, why do they so often set high standard values and missions?

These questions led me to consider the motivations for starting or joining a project. Are they different between DAOs and other organizations?

Let’s consider four main types of motivations:

• external rewards - monetary compensation like salary, equity, bounties, but also symbolic rewards like badges & honors

• fulfillment - intrinsic rewards that directly come from performing an activity

• sense of belonging - the relationship with the work collective we’re part of

• purpose - being connected to the mission, contributing to something greater than ourselves

Traditional firms have perfected external rewards.

DAOs augment them with tokenized rewards, which combine immediate compensation (like cash) with the ability to profit from the future value (like stock options). Being paid with the liquid token of a project also gives optionality: one can partially cash out to cover daily expenses while hodling some in the expectation of its future appreciation.

NFTs are the new badges & honors. Not only can they be used to acknowledge contributions, but they also serve as a signal for public recognition leading to new benefits such as airdrops.

Intrinsic rewards are often associated with work that leverages human intellectual, aesthetic, and manual skills: craftsmanship, art, scientific research, writing, coding…

DAOs invite everyone to pick or suggest what they want to work on. There is no manager assigning others to activities they don’t want to do. The ability to choose what one wants to learn and practice is more likely to lead to individual fulfillment.

A sense of belonging exists to a certain degree in every organization, and cooperativism might offer its ideal vehicle.

With DAOs, a whole new level of cooperation is unlocked, with deliberative spaces and collective agency over every aspect of the organization, including governance.

At the dawn of the age of DAOs, there was this delusion that organizations could be automated thanks to mechanism design, and that people would then mostly rely on economic incentives to engage with each other.

In true DAOs, culture, narratives, and personal bonds are combined with organizational design and augmented through automation. DAOs are not machines in which humans would be cogs. Quite the opposite: they are supersocial institutions.

Finally, let’s get to the matter of mission and values.

Many traditional firms pretend to have broader goals than just creating economic value. Coca-Cola wants to “refresh the world and make a difference.” Of course, in a sustainable way for the people and the planet. BP’s purpose is “to ensure that people from all over the world are leading decent and improved lifestyles.” Meta’s mission is “to give people the power to build community and bring the world closer together.” There’s no shortage of philanthropy at Fortune 2000 companies.

On the surface, DAOs appear to show a similar trend. Optimism is the latest case in point. They could be happy bringing scalability and low-cost transactions to Ethereum, and be fairly paid for that. But they want more! Reward public goods! Build a sustainable future!

The same zeitgeist rules on DAOs and corporations. As soon as basic needs are satisfied, the quest for meaningful lives and purposeful activities haunts every individual. Offering the opportunity to contribute to a generous purpose, a contribution to something admirable, to make “a dent in the universe” is also a way to attract talents.

Switching barriers for changing jobs have never been so low as with DAOs. Talented contributors are handsomely paid, their achievements are visible and celebrated, they can work from anywhere, and they don’t have to abide by exclusivity clauses or notice period. It’s not enough today to offer a good pay, an interesting job, a fantastic team. Purpose is needed, and purpose is served, in Corporate America as in DAOLand.

The true difference between traditional businesses and DAOs doesn’t lie in the discourse around values, missions, and purpose, nor in their motivations, but in their respective ability to make them real. Social washing and greenwashing are common at corporations because almost nothing truly holds them accountable for their commitments.

Statements about mission and values are mere signals. DAOs make them actionable, by transcribing them into their technical and social stacks. What sets DAOs apart is the way their high standards are enforced:  through open governance, transparent use of funds, mechanism design, and the social fabric of their communities.

This alone is a reason to see the future of work with Optimism.

Thanks to @akrtws @orishim @thegrifft @liviade for their insights and comments. Cover photo by Ralph Repo, licensed under CC-BY-2.0.