DAOs six months in
The positives, the learnings, and the unknowns
After five years as a fan of blockchain tech but only participating as an investor (speculator), watching the tech evolve from the sidelines, I decided to jump in and build.
My main objectives were to have fun, learn, and, if possible, create value while at it.
In my professional life, I have always worked with tech startups, leading tech and product teams. In these roles, company organization was a frequent subject of discussion, so when jumping into the blockchain space and having "learn" as a core tenant, I had to explore this DAO thing.
What is a DAO
DAO stands for Decentralized Autonomous Organization. DAOs are entities without centralized leadership, where members are aligned towards a common goal, and the decisions happen in a bottom-up process using a proposal-based approach.
The idea is that you lose the traditional company hierarchy and allow all the members to contribute to the organization's steering through different processes and tools.
How is it supposed to work?
The "processes and tools" I mentioned in the previous paragraph are particularly relevant. They are the ones that allow for the decentralized and autonomous nature of the DAO.
The membership, proposal creation and voting, and the member contribution rewards, should, ideally, be all on-chain.
Membership. To be a member of the DAO, you need some on-chain proof, a token, or a set of tokens that enable daily participation on the DAO.
This can be done through a single NFT per member or a minimum number of tokens (normally erc20 tokens when on the Ethereum network).
These tokens will allow the member to use particular tools that are token-gated, like accessing private discord channels or voting on proposals.
Proposal management. Usually, all DAO members are allowed to submit proposals of any nature. These can be about spending the treasury, changing some internal processes… anything. The approval of these proposals happens through on-chain voting, where any member is allowed to vote. The approval can take multiple formats, from a simple majority to an absolute majority.
Contribution rewards. This varies a lot from DAO to DAO. Still, the most common way to reward member participation seems to be through token-based bounties, where members who deliver value to the DAO are given token bounties. Often the token ownership equates to control over the DAO treasury. If you want an analogy to traditional companies, these tokens are a sort of DAO stock shares.
Treasury. The treasury is where the valuable assets held by the DAO are. These can be anything from cryptocurrency to NFTs. The movements on the DAO treasury usually need to be voted and approved by the DAO members and sit behind a multi-sig wallet.
The tooling
Although still a bit rough, the tooling space for DAOs already has a set of commonly used apps that work reasonably well:
- Snapshot is an excellent tool for proposal submission and voting;
- Gnosis-Safe works very well as a DAO treasury multi-sig;
- Discord is commonly used as the communication hub;
- Discourse is a forum software often used to discuss draft proposals;
- Coordinape and Dework are two alternatives used to account for and distribute rewards to contributing members.
The positives
After playing with the concept for six months or so, I can account for many positives, starting with using tokenized currencies to incentivize participation. The liquidity makes everything simple, from distributing bounties to contributors to giving equity to advisors (even with vesting schedules). It can all be achieved with a couple of instant token transfers.
The leveling up of everyone also benefits the Ideation process a lot. If well organized, you have much more brainpower applied to every decision. As a positive side effect, you have the empowerment everyone gets by feeling included.
There's also talent capture that is facilitated by the flexibility around the commitment level of each contributor. No one needs to be in the DAO 24/7. The only consequence is going to be the fewer rewards you get. But on the other hand, this allows people to jump in and contribute to the DAO even when you have just a couple of hours a week available.
But, In my opinion, one of the most important benefits of the DAO is the transparency gained by the on-chain decisions and voting. Everything is visible to the DAO members, what was done, why, and who voted, minimizing the internal politics you have in many organizations.
The learnings
Having no leadership is, from my perspective, almost impossible. This doesn't mean you need a hierarchical structure, just some members tasked with being the inertia slayers, the DAO enzymes. This can take various forms, Project or Guild leads, Area coordinators...
Alignment with the DAO objectives is another tuff learning. Of course, you want to keep engagement high and reward members for participation and contribution, but not everything should be rewarded. Instead, you need to focus on rewarding the contributions that move the needle toward accomplishing the DAO objectives, which may be challenging.
We started by using coordinape and having members distribute a fixed allowance amongst peers every couple weeks. Due to incentive alignment, everyone was trying to reward the active contributors. The problem was that not every contribution moved the DAO in the right direction. Having learned from that, we decided to go with bounties per task defined beforehand. This way, it is much easier to ensure the rewards go to the most critical tasks for the DAO at each moment.
Contribution inertia is another big topic, particularly when you start the DAO and there is little monetary value to reward people. You must ensure members stay engaged through the grinding phase or everything grows to a standstill. To do that, besides the project champions I mentioned, you need to have short release cycles and demonstrate to your members how their contributions impact the value created by the DAO. Have team calls often, present the results of the initiative's members are contributing to, positive and negative, but most important, show that they have an impact.
The tooling in the space is very new and, because of that, not mature yet, making it a bit hard to implement all these new processes. In addition, as with companies, every DAO is different, so it will be tough to find a comprehensive DAO software solution that solves your specific DAO needs. So at this point, in my opinion, you should find individual software solutions for your particular needs instead of going with a "DAO software solution."
The other thing you need to consider is if you go with everything on-chain from the get-go or if you take some shortcuts and compensate for it later. For example, do you need an on-chain voting platform from day one, or should you manage stuff with google docs and polls in Discord when you have just a handful of members? I always go with starting as lean as possible. Then, as the DAO grows over time, you can begin replacing the simple tools with the more capable (and complex) ones.
Building in public seems to be a big trend in the DAO space, primarily due to the public nature of the Blockchain being the mote for the whole space. Again I think this is a timing issue. Starting something in public is hard and takes a lot of the attention that should be put on building into communication and image management. Even after things are moving at a good pace, you should do a risk/benefit analysis and decide if going public is what you need. On the positive side, building in public ties very well with the capacity to take in part-time contributors is not an easy decision but an important one.
The conclusion
It's still tough to understand which kind of project makes sense as a traditional organization versus a DAO. Which will perform better for each situation is an open question. Some years ago, Holocracy was the big new thing in this organization space. It seemed the answer to all the problems, but in the end, it failed at all the major companies that tried at-scale implementations…
If you want to learn, explore, and try new things in this space, then for sure, go with a DAO. If not, stay away. It's not ready yet to be a safe bet.
PS: I purposely avoided the legal side of setting up a DAO, it's different in every jurisdiction, and I'm not equipped to speak about it, but please do your investigation before jumping in.
