By proving its advanced characteristics, according to the 2023 Report by World Economic Forum, the Number of DAO Members Increased 130x in 2021 to 1.6 Million.

DAO - Decentralized autonomous organization - is a method of governance in which crypto investors vote to decide how a project is run.

However, when starting a project, the typical approach involves the core team creating a product and going to market, followed by airdrops, reward campaigns, and events to attract more users.

DAOs rely on the active involvement of their members to function and work toward their mission. If there is a lack of participation or a heavy dependency of only a small team, DAOs can quickly become stagnant and die out. It’s the collective contribution that keeps the DAO autonomous.

Among 12.000+ DAOs listed by DeepDAO, a significant number does not adhere to the strict definition of a DAO. Do DAOs actually operate like a DAO?

We did a survey to see what went wrong and why can’t we get more contributions from the community.

These are the top significant problems that 1% DAO can focus on to truly communicate and create “growth loops” from Day 1:

The 1st problem is transparency - Community members can’t keep track of what’s going on, inside out.

Let’s look at the case of Gnosis Dao - they use Self-Executing Social Agreements Platform (SESAP) and Smart Social Contracts (SSCs) to align incentives by allowing parties to create explicit agreements with clear rules of collaboration and by automating the execution of these agreements using blockchain technology, AI and smart contracts. This ensures that all parties have a clear understanding of their roles and responsibilities, as well as the consequences of not fulfilling these obligations.

Still some Gnosis DAO members stated that moving the DAO fully on-chain would give far greater transparency by allowing multiple front ends to have a decentralized view of the DAO activities. An on-chain treasury & on-chain DAO operation, as well as tools that link proposal creation, approval, and payout in a structured way; is what the community really wants. Yet, moving on chain isn’t that easy because it’s costly - not only for the DAO, but also for voters.

Ultimately, it is crucial for DAOs to prioritize transparency at all levels to ensure collective knowledge for DAO members from all levels.

The remaining problems could be summarized in a very popular case by KyberDao.

In 2019, KyberDAO conducted a DAO Experiment to improve collective decision-making by the community. However, despite only having one simple question in the poll, the turnout was low, with only 60 votes submitted out of 50,000 token holders.

To address the underlying issues, KyberDAO held public meetings and discussions to gather feedback from the community. As a result, these are the top 3 key bottlenecks that needed to be addressed:

1. Community members have no idea How much control the DAO have: Members raised concerns about how voting power distribution affects voter psychology. For example, a voter with a small amount of KNC might feel that they have minimal influence since the Kyber team holds a lot of KNC. This results in a lack of motivation to participate.

2. Lack of education: Voters may struggle to stay informed even with simple questions. Clear and well-structured information is necessary for effective participation in collective decision-making.

3. Clear, automated reward for voters should be established: When it comes to increasing participation, installing proper incentive mechanisms was often mentioned as an important factor. Also, the reward send-out should be automated to avoid delays.

This case study highlights the significant workload that a DAO faces on a daily basis, until they find a way to automate repetitive tasks to focus of impactful decisions. Additionally, communication remains a huge challenge, as contributors are uncertain about whether their contributions are needed and where they can most effectively collaborate.

Final thoughts

DAOs are such means of effective coordination in a decentralized environment without the need for much trust. However, when there is a lack of feedback & co-creating loop, everything is dependent on the core team, and this hinders open growth and innovation from DAO members. If web3 is community-owned, there needs to be transparency, open communication, and a commitment to the principles of decentralization.

We believe that most DAOs nowadays faces at least 1 out of those 4 problems, maybe all. Therefore, it’s essential for Dao leaders/admins to look at those problems and try to figure out how to handle before they become serious and could destroy the whole Dao operation.