I’ve been DAOing for 3 months now, and my network has never been more diverse. Engineers, business people, artists, and many more from around the world, come together to collaborate and achieve something bigger than all of them. If they can all work together and harness their skill set, they will unlock unforeseen potential. Each individual has undeniable proof of contribution with a guaranteed stake and voting right in the community. Everyone is incentivized to make their DAOs succeed because they’re owners—no despicable bosses, no grievances, or unfair treatment. What not to like about that?

Ok, ok, I’m out of cloud nine; let’s analyze why not everything can be an effective DAO - for now. Ian Morris coined a term that resonates so well in the context of DAOs called The Paradox of Development. Societies’ evolution creates internal tensions, and organizing them becomes increasingly complex. As society develops, its problems don’t disappear; they morph into new - and sometimes more significant - issues.

DAOs today are similar to ancient human communities. They’re slowly coming together with rudimentary tooling but eventually will develop more complex governance and financial systems. I broadly see 2 types of DAO structures: Closed and Flexible. Closed DAOs have a few members with a deep connection to the cause and a high level of commitment. These types of DAOs are not open to everyone. They are suitable for tackling complex problems that require focus and context. In this article, I’m focusing on Flexible DAOs.

Flexible DAOs have a low entrance and exit bar. They benefit from having large numbers of people even with low engagement rates. An example is when the DAO’s funds come from each member buying membership tokens. Another example is when the DAO is backing up an NFT project. These types of DAO tend to grow fast and struggle with achieving complex jobs because of their scale. They often evolve to form subcommittees or groups to own specific activities. These DAOs have few core members with privileged roles that do most of the work. But at the same time, they’re open to others who have less context and little sway on the DAO’s matters.

I argue that Flexible DAOs today are best suited for non-urgent work that doesn’t require context. They may encounter leadership gaps due to the open structure. When a Flexible DAO scales, contextualizing its members is exponentially more challenging. The question is: how do you get everyone up to speed with all the necessary information? Not an easy problem.

Traditional organizations have teams of few named individuals. Each team is likely to work together daily for a few years. A healthy team (5-10 people) often includes 80% having enough context to get the new joiners up to speed. Together, they co-develop processes that incrementally improve their collective performance. In Flexible DAOs, however, there are tens or hundreds of people with varying levels of context and commitment. As a result, the participation fizzles out to minimal work or cheering from afar.

While I’m still in love with DAOs, it’s clear to me that not everything should be a DAO. Hierarchical organizations will outperform DAOs - for now - in cases that need context, speed, and long-term commitment. What I know is that every DAO should start with a well-defined mission and core members who deeply care about it. Its mission should dictate the DAO structure. DAOs shouldn’t blindly optimize for scale because the DAO size isn’t a sign of success.

I’d love to hear your thoughts on Twitter (@m_mbahaa), or Discord (mamood#9776)