DAOs continue to pop up regularly, each with a unique governance strategy. Some lead to successful projects, while others fail quickly. DAOs cannot rely on the same model or standard since each has a special function. This article will discuss some of the existing DAOs, and how they have gone about launching a governance token.

Eligibility Strategies

Fungible Token Airdrop(s)

LooksRare:

One fascinating approach to governance combines publicly available data and on-chain participation. Rather than providing a list of tasks to complete in the future, LooksRare took a retroactive snapshot of all wallet accounts that traded 3+ eth on OpenSea, the largest NFT marketplace, within a six-month time window. This snapshot provided a concrete, non-arbitrary metric to determine eligibility. Additionally, users had to claim the rewards within a specific window - or those tokens would go to the underlying protocol treasury. One of the improvements LooksRare has over OpenSea lies within its revenue-sharing model. Each transaction you complete on LooksRare generates a fee that goes back to the token holders rather than the company (or protocol) itself.

Although this method worked very smoothly initially, there are still some nuances with the emission structure. Similar to other protocols within crypto, or more recently referred to as web 3, vesting arrangements are concise, and founders can cash out at these given intervals - 6 mo, 1 yr, 2yr, etc. I do not believe this protocol and the founders are playing a short-term game; however, many token holders and market participants maintain a merited, wary sentiment based on previous experience. (getting rugged!)

Ethereum Name Service (ENS):

The most popular naming service on Ethereum decided to reward its earliest community members by providing 25% of the overall token supply to the wallets that held a .eth domain name. There were over 137,000 eligible wallet addresses, which all received a denomination of tokens based on three different factors.

1. .062 * Length of registration in days

2. .27 * Length of ownership from first registered name in days

3. 2x multiple if set as primary name (for instance, setting maxyz.eth to my primary wallet address 0x…3e11)

ENS performed this airdrop strategy retroactively, eliminating profit-seekers trying to "game the system" once they understood the criteria. This retroactive strategy ensures governance falls with the early adopters who used the protocol for its technological capabilities and potential rather than for a quick profit. The $ENS tokens airdropped allows for a vote in governance proposals and a way to delegate your vote(s) to a community member you trust.

Non Fungible Token Models

IndexCoop: Collectooors & $JPG Governance:

IndexCoop's protocol is known for its many decentralized funds. Each fund represents a different part of the industry and allows for a broader, more diversified approach to purchasing crypto assets. IndexCoop launched its $JPG fund, which provides exposure to some of the most sought-after NFTs. These include CryptoPunks, BAYC, Fidenza, Squiggles, Sandbox, XCOPY, and more. The price points for many of these collections range in the $50,000-$100,000+ range and can be tricky (or impossible) for collectors to purchase, so this fund provides a cheaper alternative.

The value of holding a Collectooors NFT by IndexCoop lies in the voting rights. Each NFT allows the holder to vote on the inclusion of a specific NFT or vault of NFTs.

Nouns DAO:

Nouns DAO provides an example of the power and flexibility behind NFT governance. One noun is raffled daily, with 100% of the proceeds going into the treasury. The current treasury sits at ~28,000 eth or $35 million—those holding the Nouns NFT vote on future governance proposals and decide how to allocate the treasury. The Nouns NFT holders engage with all parts of the DAO - from branding to treasury management - via a token-gated voting mechanism.

On Chain Participation

Bright Moments DAO launched a year ago, and I have followed it along the way. The tokenomics and DAO formation can quickly become confusing, so I'll write a simplified explanation, sparing some details. The core team travels around the physical world, minting 1000 NFTs representing each city along the way. After ten cities, the idea is that there will be a global community representing the most distant parts of the world. This community represents international artists, creators, builders, crypto-curious individuals, students, professors, executives, and everything else you can imagine. As far as I have looked, I've never found a project that aligns such a large and distant group together. Again, like all projects, the governance is highly experimental and continuously evolving.

In this case, the earliest contributors received an ERC-20 token, which has more recently been diluted into one "digital city" - representing 1000 of the 10,000 total NFTs. The other 9,000 derive from 1,000 in 9 worldwide cities, each token containing equal voting, governance, and ownership rights. The 10,000 NFTs represent 100% ownership of the Bright Moments DAO. So, holding 100 NFTs gives you 1% ownership of the project. A single entity cannot complete the process of traveling around the globe in a single month or even a year. So, a temporary governance structure had to be in place before a large enough group of outstanding NFTs. Again, this is where I believe the process of progressive decentralization will play a significant role for DAOs in the future. There is a necessary tradeoff between speed for an operating team and transparency for everybody involved; this is one potential method for operating a DAO.

Arbitrum Odyssey:

In June 2022, Arbitrum announced a series of tasks that would reward those who completed them with NFTs. This process lasts only eight weeks and does not favor anyone who previously used the protocol. The Arbitrum Odyssey may be an intelligent way to bring new users onto the protocol, potentially setting up a multifaceted DAO design. Here is how to follow along.

https://twitter.com/0xmaxyz/status/1540115487782080512?s=20&t=PEHZM8-VS4gnK2FgGHdczg

Combination and Interoperability

Specifically, when it comes to University DAOs, it is vital to realize what you are voting on and who gets a say in that vote. For instance, an external company should have a voice in where a hackathon will be located but should not vote on the specific project a student or group wants to work on at a casual hackathon. (unless there is some direct involvement within the given task) When aiming to maximize students' motivation, granting them the freedom to make their own decisions remains crucial.

This situation reveals that a traditional, binary approach would not be fit for a blockchain club within a university. This reason is why I advise caution with directly launching an ERC-20 for fundraising, as expectations and non-aligned participation may interfere with student freedom for experimentation. Of course, this thought process is only the case when a vast majority of decision-making occurs via Snapshot or a token-gated, on-chain voting tool.

I am passionate and excited about governance models because creativity is the only limiting factor. One example is giving out membership cards with special access to specific channels and votes. An example list of membership tiers within a student organization may include:

1. Current Students

2. Alumnus Members

3. External Researchers

4. Sponsors

5. Project XYZ

Ex. In a hypothetical situation, say Mustang DAO wants to organize a hackathon with many different universities, student groups, and external participants. If certain club members currently working on Project XYZ were deciding whether to continue the project or go in a new direction, then it would make sense to bound that vote to only those with a stake in the given project. At the moment, much of this voting is transparent and publicly available. Yet, in the future, much of this decision-making will happen more anonymously through zero-knowledge proofs. Without diving too deep into zk-proofs, they allow one party to demonstrate they know specific information without revealing the actual information. This security mechanism preserves the underlying data and has broad applications. Explore more here.

Issues

A prominent issue for protocols trying to release a token revolves around "farming the system" or trying to game the system determined by the protocol. On-chain metrics are both a beauty and a curse for crypto protocols. On the one hand, you can identify who has interacted with a given protocol and reward them. Conversely, the initial community airdrop is often the first time the open market has a chance to value the underlying protocol. Users can instantly trade ERC-20 or ERC-721 tokens across decentralized exchanges such as Uniswap. Two groups emerge from these airdrops: users who made a list (often cash out right away) and those who missed the airdrop. (who often FOMO in and purchase the outstanding token)

This contrast creates a clear incentive to participate in as many protocols as possible before they launch an outstanding native protocol token.

Large companies or groups of people aim to create as many wallet addresses as possible and interact with the protocol in a way that will deem them eligible for the airdrop.

Farming Example:

Let's say a new decentralized exchange is launching on a layer two protocol. I use my MetaMask account (funded with $1000 USDC) to log in to the underlying protocol and perform a handful of swaps with different token pairs. After I complete a handful of trades, I create a new MetaMask account, send over the same $1000 USDC I started with (minus the minimal transaction fees), and repeat the process 19 times.

Now, the underlying protocol announces that there will be a retroactive airdrop for users who performed at least two swaps on the protocol. Here are some example figures for the fabricated $FARM airdrop:

• 15,000 wallets w/ 1 swap

• 10,000 wallets w/ 2+ swaps

• Trading price for $FARM on decentralized exchange: $100 (assuming $100 million valuation)

• 20% of total $FARM supply within airdrop (200,000 of 1,000,000 tokens)

Rather than being airdropped 1/10,000 of the $FARM airdrop, the farmer gains 1/500th.

Farmer Payout: Airdrop Formula & Calculation

Number of tokens * Proportional share of tokens * Trading Price

Farmed: 200,000 $FARM * (1/500) * $100 = $40,000

Not-farmed: 200,000 $FARM * (1/10,000) * $100 = $2,000

Farmer Net Profit: $38,000

If the entire farming process only took 2 hours (~6 min/wallet creation & swaps), the farmer pockets an excellent $19,000/hr.

Wrapping Up

There is no correct answer.

The DAO landscape is far too new and ripe with innovation to have a perfect model settled as the template. Simultaneous experiments are happening across science, finance, education, sports, and many more. Each DAO needs a different model; some opt for transparency and purely on-chain action, while others prefer a more private, traditional operation approach. Regardless of the model the DAO chooses to adopt, there remain common themes.

No Code DAO Tooling

Here is a list of some standard, valuable tools for creating a DAO:

1. Mirror

   1. Allows for easy writing, fundraising, token creation, and more. Many simple, built-in tools are ready to explore.

2. Snapshot

   1. Allows for a simple way to token-gate decisions via voting.

   2. This is NOT entirely on-chain but does imbed nicely with many crypto features.

3. Gnosis-safe

   1. Allows multiple teammates to require a transaction rather than one persona having full access to a treasury or existing funds.

   2. Extremely important for safety, percentages of a hack plummet.

4. Discord

   1. The most popular messaging system for crypto and NFT projects.

   2. An excellent tool for rallying the community and sending announcements

5. Collab.Land

   1. A great tool to pair with discord to token-gate certain chats or channels with a specific ERC-20, 721, or 1155 requirement.

All-in-One DAO Managers

1. Aragon

   1. An all-in-one tool that allows you to create your DAO, launch your governance mechanism, and more. Plus, it's all open source!

2. DAOStack

   1. An all-in-one account manager for DAOs, like WordPress helps less technical users build a website.

3. Colony

   1. A combined DAO tool for governance, launching tokens, and payments.

   2. Contains built-in measures to prioritize efficient decisions and bypass via discarding unnecessary voting.

4. Tally

   1. Includes forum-based discussions as well as showing voting statistics (i.e. voting power, proposals sent, DAO involvements)

New tools are constantly popping up within the crypto ecosystem. This list is by no means comprehensive but will allow you to launch and experiment quickly. The open source nature of the ecosystem provides rapid development and creativity. Stay on the lookout for more exciting tools!

University DAOs have the chance to unlock more freedom for students, more transparent, expedited participation for community members, both on and off campus. Much of academia has abandoned its original aim - equipping and supporting students to explore and experiment within a specific discipline. University DAOs have the chance to provide a space for technical experimentation - bootstrapping the perks and eliminating the bottlenecks of traditional education.

DAO’s: A High Level Primer

• DAOs, or decentralized autonomous organizations, are a new, experimental method to align members. Often these members bond over a shared purpose, accompanied by incentives to support. The community members can choose to contribute any combination of resources to a DAO. DAO contributions can come from time, work, money, etc. Assistance does not have to look like a simple job description and can come in any form. Suppose somebody believes the community or the DAOs majority no longer aligns with the original vision of the DAO. That person can propose a governance proposal and spark the conversation regarding a specific change.

• Traditionally, companies and ideas have started with one person. A tiny group of people brings an idea to life. Scaling can be complex, and staying lean in the early stages of building a company is commonly seen as a wise decision. DAOs instantly align large groups of people and communities by flipping this idea on its head. A publicly visible set of rules govern the members, and hierarchy is determined on-chain. Including everyone in governance typically forces a tradeoff; transparency can be difficult for operating teams who strive for speed. Decisions must be made quickly, and heavily disputed topics often drag themselves out or come to a stalemate - where managers are typically in place to make a final decision. However, DAOs can decide to put the issue (i.e. proposal) to a vote. This is where the token allocation becomes critically important. If the founders hold a majority of the tokens, they can override all decisions and silence the community. However, if they feel passionately about a certain decision, who is to say they are wrong? For the projects struggling with overrepresentation for early adopters, one potential solution lies with the idea of progressive decentralization. Over time as the community becomes more engaged and more structure is in place, you can offload more of the decision making to the community.

DAO Architecture Advantages

Transparent On-chain Action & Voting

• Transparency in decision-making is a critical step forward for groups sharing a central goal. The more on-chain your decision-making, the more your community will trust its leading members and view the voting process in a fair and honest light. Since any community member can submit a proposal, conversations should continue to align with the the central vision, as well as all parties involved. Some DAOs reward users for taking increased on-chain measures, such as staking an ERC-20 or ERC-721 token. The space is seeing more and more governance recorded on-chain instead of being decided in an isolated board room.

Tokenomic Experiments

• Creative distribution for DAOs is one of the most exciting, revolutionary possibilities for aligned groups. Whoever writes the smart contract for the DAO can program

  1. the maximum supply of tokens

  2. the exact type of tokens released

  3. the emissions rate of the tokens, and

  4. the perks of membership behind the token(s)

• This sense of freedom allows any distribution style to occur, and as of 2022, we have seen many different models. The current models are far from perfect, yet the open-source nature of crypto allows projects to bootstrap the best ideas and continue to iterate, choosing the best ideas from previous models.

Bottom-up Hierarchy

• A manager no longer has complete authority over decision-making. DAOs allow the community to take more initiative in governance proposals and select specific, aligned tasks. The low barrier for entry allows for a more inclusive and transparent view of DAO operations but also comes with weaknesses. Potential weaknesses include a dominant group of early adopters controlling a majority of governance voting power, free-riders, roadblocks for operating teams, and unknown regulatory risks. DAOs are currently in an experimental phase with innovators leading the charge, and "best practices" are yet to be laid out.

Specialized DAOs

• With most markets, ideas, and projects, a natural cycle emerges. Many ideas are presented, ~95% will not survive, and the ~5% will merge or survive independently to serve as a benchmark for experimentation and iteration. DAOs will continue to define their niche and become more specialized over time. As of now, we have seen DAOs serve a specific purpose (usually through acquisition), as a means to facilitate coordinated investments, and as a network for people to meet like-minded individuals to brainstorm the next revolutionary idea.

https://twitter.com/0xmaxyz/status/1491126316888133633?s=20&t=QrWggnmmnBhiWIvlq7GjuA

Current DAO Models

• Some promising DAO’s that serve as inspiration are listed below:

  1. Nouns DAO:

     1. Each day, forever, Nouns DAO auctions off an NFT with 100% of the funds going to the treasury. Each NFT serves as one vote in all governance proposals over the treasury. (currently, the treasury contains 26,958 ether)

  2. Bright Moments DAO:

     1. Bright Moments DAO is navigating the globe with 10,000 NFTs, 1000 minted in a new city, each serving as proportional membership in the DAO. With a focus on generative art partnerships and IRL minting experiences, the DAO connects crypto-curious, technical, and artistic supporters.

  3. Constitution DAO:

     1. Gaining headlines in late 2021, Constitution DAO raised $42 million in under a week with the shared goal of purchasing the US Constitution. The bid did not win, yet the experiment opened millions of people's eyes to the future potential of DAOs.

  4. Klima DAO:

     1. Klima DAO has created a decentralized, open market for offsetting carbon. Currently, users of Klima DAO have absorbed a total of 15.72 million tons of carbon. You can use the native token to participate in governance or burn it to offset emissions.

  5. Gitcoin DAO:

     1. Gitcoin DAO builds open-source, collaborative, and widely used tools. The DAO allocates the treasury and individuals' donations through a unique and highly scalable quadratic funding mechanism.

University DAO’s: Beyond Campus

• Legacy club infrastructure is problematic in three main areas:

  • Funding mechanisms:

    Schools give a set budget to help students cover expenses for general meetings over the year, paid quarterly or semesterly. This money typically goes towards club incentives, outreach, etcetera. Rather than formally applying to this program, more specific grants and funding exist externally. Instead of getting a lump-sum amount, university DAOs can raise funds externally for a particular event, propose and vote on a predetermined fundraising amount, and bypass the institution-capped limit.

  • Outside Action and Travel:

    Taking action(s) outside campus require thorough and strict planning schedules. Travel schedules often require at least six months' notice, which can be severely limiting in the crypto world. Many conferences and events are planned (or created) under that requirement, and clubs cannot gain funding to travel or have to pay out of pocket. Blockchain at Cal Poly has run into this exact problem - and we want to solve the problem for our club and all future and present blockchain groups. Schools often have the budget and resources to support them, but they are largely inaccessible from a practical standpoint. While this may not be the case forever, DAOs serve as a way to bypass much of the bureaucracy found on college campuses.

  • External Participation:

    • External coordination among a student club can be troublesome. More specifically, student clubs often use a combination of methods to interact with alumni and community members. This list consists of outdated emails, old phone numbers, social media profiles, and connections via friends. Typically, you have to deploy various sales tactics, many of which alumni do not enjoy.

    • Clubs are currently very isolated, contrary to the core pillars crypto stands on. Student clubs typically host meetings, and students work on highly innovative and exciting projects behind closed doors. Democratizing access to these clubs provides immense value for all parties involved.

      1. Alumni gain a more transparent view of internal projects.

      2. Regardless of age or location, global researchers can contribute and propose solutions.

      3. Students gain more direct and niche mentorship through engaged community members.

Celo University Guild:

• Blockchain @ Cal Poly has been fortunate to gain scholarship funds via the Celo Foundation, allowing members to attend international conferences and hackathons. Members have had the opportunity to network with protocol founders and bounce ideas off experienced community members. Without revealing too much, Mustang DAO is planning a hackathon and hoping to bring many different blockchain clubs, university DAOs, and curious students together to continue to iterate on the next generation of the financial system. Additionally, we hope to continue to integrate with the Celo ecosystem through development, education, and community building.

Mustang DAO

Blockchain @ Cal Poly, the student-organized and led club, focuses on providing blockchain education for all students and members. Our club members continue to participate and place in hackathons, travel internationally for crypto conference(s), and work on innovative projects. To expand in a crypto-native way and provide the most opportunity for our club members, alumni, and supporters, we are proud to announce the launch of Mustang DAO.

• Some direct perks and activities include:

1. Providing grants to students to use for travel expenses - allowing University DAO members to travel to meet founders, investors, and like-minded individuals active in the blockchain space

2. Transparent on-chain governance decisions are publicly available for all current and future students, supporters, and community members, including the freedom to modify internal team structure.

3. Continuing to propagate education for all members and providing support (both internal and external) for students to define their role(s) uniquely and gain educational and financial support

Next Steps:

Mustang DAO

1. Continue to develop a transparent voting system for operational matters, allocation of funds, and more

2. Provide token-gated mechanism for voting; potentially earned via participation, fundraising support, bounties, research, etc.)

3. Write a second paper discussing existing DAOs, governance models, and provide insight to the overall landscape

4. Write another, more technical paper outlining the steps needed to bootstrap our DAO configuration