If you only have a couple of minutes to spare, here’s what investors, operators, and founders can learn about DAOs.
- DAOs are a new way of organizing people. Traditionally, a company structure has been the most effective free-market approach to accruing talent in pursuit of a goal. That labor is usually persuaded and controlled through wages. DAOs seek similar ends — the creation of value — but rely on a decentralized framework in which workers, users, and other stakeholders have true ownership of the entity.
- Various types of DAOs have emerged to serve different use-cases. As interest in the space has increased, DAOs have begun to diversify and experiment with the boundaries of what’s possible. There are DAOs for investing, DAOs for building new products, DAOs for socializing, and many iterations both between and beyond.
- Meaningful assets are being managed by these entities. Those skeptical of the crypto space in general and DAOs in particular, may want to reconsider their stance. These are organizations with real sway, and real capital. Tens of billions are being managed across top DAOs, with some, like Compound, boasting a treasury of almost $1 billion itself.
- We’re still early when it comes to DAO infrastructure. DAOs have many of the same needs as corporations, but must often deal with greater complexities given their scale, fluidity, and technical stack. That necessitated the emergence of tooling for formation, communication, collaboration, payments, and more. DAOs have a handful of providers to select across these categories, but by and large, choice is limited. We should expect many new entrants to the space in years to come.
- DAOs have clear vulnerabilities that have yet to be fully addressed. The first DAO was famously hacked, with a bad-actor attempting to siphon off millions in Ethereum. While DAOs are safer today, they carry risks. Contributors often join pseudonymously, meaning reputation capital is not entirely on the line. Furthermore, without sufficient protections, some DAOs are still vulnerable to exploitation.
Aaron Wright, founder of Tribute Labs
Alex Zhang, Mayor of FWB
Chase Chapman, Co-founder of Decentology
Cooper Turley, ∞ DAOs
Derek Taylor, Founder of DDDVVV
Jarrod Dicker, Partner at TCG Crypto
Jess Sloss, Founder of Seed Club
Jihad Esmail, Community at Syndicate
Jose Macedo, Co-founder of Delphi Digital
Jorge Izquierdo, Co-founder of Aragon
Kevin Kelly, Co-founder of Delphi Digital
Nadia Alvarez, Head of Growth at MakerDAO
Patrick Rivera, Mirror
Pri Desai, Operations at Tribute Labs
Raihan Anwar, Community at FWB
Tina He, Co-founder of STATION
Will Papper, Co-founder of Syndicate
Mario Gabriele, Founder of The Generalist
→ You can follow everyone via this Twitter List.
We did not always work for companies.
As late as 1820, just 20% of the American population worked for an organization that paid wages. The rest farmed, fished, ran their own businesses, or split their time between these activities.
Over the following 130 years, that changed rapidly. Industrialization offered the chance for greater wealth while demanding increased labor. That drove the consolidation of workers beneath large organizations with centralized command systems. These shifts meant that by 1950, as much as 90% of the populace depended on companies for wages.
The company, then, is a modern phenomenon, at least in the way we usually think of it. What seems so embedded and intractable today — the default for most new ventures — is really just humanity’s latest attempt to solve the problem of coordination.
A better alternative may have emerged. Though far from perfect, decentralized autonomous organizations (DAOs) seek to remedy some of the company’s flaws while enabling human collaboration at scale. This internet and crypto-native structure looks to decentralize governance and ownership, giving contributors the chance to determine a project’s direction and profit from its success.
While still in its fledgling stages, the explosion of interest in this organizational framework indicates that DAOs are an idea to be taken seriously. Over the last few months, in particular, new DAOs have risen to prominence, attracting meaningful capital and high-caliber, devoted talent. Historically, those that have paid attention to such dislocations in the crypto realm have looked prescient years later — even when the hype seemed overblown. Both builders and investors would be wise to give the space due consideration.
Beyond the potential for financial gains, DAOs may herald a societal shift with lasting implications. We are, after all, influenced by the organizations in which we operate. In his work, “A Society of Organizations”, sociologist Charles Perrow argued that organizations explain much of the way our world works. He introduced this theory, as follows:
[U]nless you are an organizational theorist...your specialty will be treated as a dependent variable; organizations will be the independent variable that shapes political and economic behavior, the stratification system, religion, social psychological processes and history in general.
How will DAOs, as a new independent variable, influence each of these dependencies? What will this structure do to religion, history, and politics?
In a telling line, Perrow says, “My proposition is that organizations are the key to understanding our society because organizations have absorbed much of society.”
If that maxim holds true, what parts of life will DAOs absorb? If companies invaded the relationships and connections made in the physical realm, DAOs may, over time, assimilate our digital beings. They may, in short, absorb the internet, becoming the constituent pieces of our new, web3 society.
We’ll explore that idea in today’s piece, while unpacking the current state of DAOs. In particular, we look to answer the following questions (and say the word “DAO” so, so much):
- Definitions. Explaining what a DAO is and how we might think of them.
- History. The origins of a new organizational structure.
- Categories. The diverse types of DAOs that exist.
- Culture. The values and philosophies that underpin the space.
- Landscape. Key players and the tools they use.
- Starting a DAO. Exploring the benefits of going decentralized, and the tactics needed. Legal issues. Promising developments in Wyoming, and open questions.
- Against DAOs. The vulnerabilities of the structure and its unproven potential.
- Frontier. Exploring what the future might hold.
By the end of this piece, we hope you’ll have a strong grasp on what’s happening, and why it matters. Though it may seem unlikely today, in a few decades time, it’s not impossible that a large percentage of the population works not for a centralized entity, but a decentralized entity, enabled through crypto.
History and lore
Want to invent your own financial derivative? With Ethereum, you can. Want to make your own currency? Set it up as an Ethereum contract. Want to set up a full-scale Daemon or Skynet? You may need to have a few thousand interlocking contracts, and be sure to feed them generously, to do that, but nothing is stopping you.
Those words appeared in Vitalik Buterin’s 2013 Ethereum Whitepaper — the source for one of the first ever descriptions of a DAO. Not only does Buterin’s explanation above illustrate his blockchain’s modularity and power, it hints at its intellectual influences.
Indeed, years before there was Ethereum, let alone DAOs, there was the “Daemon.” In 2006, science fiction writer Daniel Suarez published a book by that name that can be seen as a kind of ur-text for DAOs.
In Daemon, Suarez paints a picture of a mass scale computer program that orchestrates an underground cooperative society. While the Daemon is involved with a number of insalubrious acts (think self-driving-motorcycle assassins!) that we wouldn’t want any web3 organization to take inspiration from, its fundamental operations are very similar to those a DAO under takes today: paying out bounties, sharing information across a community, and managing a narrative currency.
Despite its functional analogousness, Daemon did not coin the name “DAO.” Buterin had written about “decentralized autonomous organizations” prior to the publication of Ethereum’s whitepaper, but he included a tidy definition in the seminal work:
[DAOs are] a virtual entity that has a certain set of members or shareholders which, perhaps with a 67% majority, have the right to spend the entity's funds and modify its code.
Like the Daemon, Ethereum DAOs rely on self-modifying code. Unlike Suarez’s creation, however, Buterin envisioned DAOs as fundamentally transparent with clear governance processes and paths for establishing consensus.
This notion is further illustrated by the whitepaper’s delineation between two types of DAOs: “Decentralized Autonomous Corporations” (DAC1) and “Decentralized Autonomous Communities” (DAC2). (These acronyms are our attempt to easily distinguish between them and are not canon.)
Buterin envisions the former as profit-seeking entities with tradable shares and a dividend offering, while the latter serve more as a democratic entity in which community members vote on certain issues, such as adding or removing members. Effectively, DAC1s operate with a model in which “1 share = 1 vote,” whereas DAC2s govern such that “1 member = 1 vote.” Needless to say, readers of Daemon will remember the book’s near-omniscient program did not have such a clear structure.
Now, while Buterin’s quote at the beginning of this section can be viewed as an invitation, it was also — at least, in part — a provocation.
Want to set up a full-scale Daemon or Skynet? ... Nothing is stopping you…
It took nearly three years for someone to take on that challenge. In April 2016, The DAO was born.
The project began with the best of intentions, hoping to become the de-facto venture fund for the Ethereum community, managed in decentralized fashion. Community members collaboratively invested in The DAO, and voted on potential investments.
That proved an enticing proposition to many. The DAO quickly accumulated 12.7 million ETH, the equivalent of $150 million at the time, from more than 11,000 LPs. A warchest of that size would have been meaningful, even among traditional venture firms. For context, the same year that The DAO was founded, storied fund Union Square Ventures announced the closing of a $166 million new fund, not much beyond the Ethereum-native vehicle.
For those that know what came next, it’s hard not to spend a moment imagining just how miraculously successful this entity might have been. Had The DAO done nothing more than hang on to its ETH, delivering zero alpha, it would have assets under management equivalent to $52 billion today. Had The DAO picked even a few winners — and it would have certainly had the broadest sourcing structure in the world — the sums could be significantly higher. The result would be a Tiger Global-scale player in the world of decentralized finance.
Of course, it didn’t play out that way.
In June of that same year, The DAO was hacked. Fully 3.6 million ETH was extracted from the entity and moved to a holding account. To give owners of that ETH the chance to recover their funds, Ethereum underwent a hard fork. No money was lost, but the hack led to a schism within the Ethereum community and illustrated the perils of a DAO structure that had yet to be fully baked out.
What followed was a DAO winter that preceded and endured through the broader crypto cooldown. Still, even during this slower period, dedicated builders were building in the space. Aragon, co-founded by contributor Jorge Izquierdo, began working on tooling for DAOs in 2016. MakerDAO, which had been founded in 2015, continued to grow in prominence, attracting new talent to work in the space.
These early-movers have proven vital over the past 12 months. Part of the reason renewed enthusiasm about DAOs has translated into a tangible renaissance is because newcomers are able to rely on the infrastructure and architecture created by organizations like Aragon and Maker.
Before we talk about the state of play, we’ll think a bit harder about the definition of a “DAO.”
What is a DAO?
Hopefully the section above has given us a sense for the subject at hand. But still, it is worth spending a moment thinking through this most direct of questions: what is a DAO?
Even after learning about DAO lore, it’s a deceptively tricky query to answer. Or at least, to answer well.
To start, we can return to words from which the acronym is derived: a “decentralized autonomous organization.”
What does that mean?
Well, if true to their name, DAOs should be free of a centralized authority (decentralized), operate independent of governments or private sector actors (autonomous), and be, well, organizations.
Simple enough, right?
Not quite. The matter becomes rather hazy when you realize that very few entities we call “DAOs” today actually fit this definition. True decentralization is rare, especially to begin with since most projects need a degree of centralization to get up and running. The same can be said of autonomy.
Critically, these traits shouldn’t be viewed as binary. Answering whether a DAO is decentralized or not is not a “yes” or “no” question but a matter of degree. Decentralization and autonomy are sliding scales, and “DAOs ”position themselves differently on this spectrum.
Since a literal reading doesn’t get us very far, we need other ways to think about DAOs. The slippery part here is that the act of elaboration raises its own questions. Indeed, every person to define a DAO is likely to give you a subtly or meaningfully different response. For example, one gameful interlocutor might reasonably classify a DAO as a group chat with a shared bank account, a second might categorize it as a community with distributed ownership, and a (dreamy) third might simply call it a “vibe.”
All would be right, in their own way. DAOs are group chats, and communities, and many of them separate themselves through their culture or vibe. But though capacious, something about these depictions sells the idea short.
DAOs are — or can be — a lot more than just a Discord channel with a native token. Rather, they are entities geared towards a shared purpose: the creation of value. That is the common denominator across our stated articulations.
Of course, how value creation is defined varies. Some focus on building tangible digital products, whereas others look to accumulate and compound social capital. Still, this fundamental purpose abides.
This is the most basic description of a DAO, and it is unsatisfying. Could we not say that almost any organization is minded towards the creation of value? Don’t companies seek the same end? What about nations and religions?
“Value” is too subjective to give us sufficient clarity. To get a higher fidelity understanding of DAOs we need to go beyond nomenclature, and look at the characteristics that distinguish this form of entity from others.
To understand how DAOs differ from other organizations, we need only look at how they handle ownership and organization.
Rather than concentrating ownership into the hands of founders and investors, DAOs distribute ownership to a variety of stakeholders in an ecosystem, including contributors, users, strategic partners, vendors, and so forth.
Essentially, DAOs are owned by the people who create value in them. This is a radical notion and one with real consequence; by expanding beyond the traditional notion of who should “own” an organization, DAOs empower a broad ecosystem to take action and create value on its behalf.
As referenced earlier, DAOs seek to be “autonomous.” Initially, this term referenced DAOs desire to act independently at the organizational level — free from interference from state or private sector actors.
While this is true of some DAOs, arguably the more consequential form of autonomy occurs at the individual level. Constituents can join a DAO and choose to contribute in the manner they find most compelling. There may be guidelines, but by and large, stakeholders choose their own labor and self-organize.
Again, this is significant. Traditionally, the relationship between individual contributor and overseeing entity is a subservient one — the worker acts in accordance to a company’s demands. That isn’t the case here. DAO “workers” join in where and when they believe they can add value and wish to do so.
By taking this approach, DAOs create the conditions for emergent behavior. Complex systems are able to form in a manner that no individual or group could have coordinated top-down.
Honing in on characteristics like ownership and organization gives us a clearer picture of DAOs, but it’s still difficult to fully contextualize them.
To better understand how DAOs operate tactically, we can compare them to pre-existing organizational structures. Though fundamentally distinct, there’s a lot we can learn by trying to think of DAOs as companies, coops, and networks.
DAOs as companies
Despite their differences in ownership and organization, companies are nevertheless a useful framework for understanding DAOs.
Indeed, larger DAOs often operate in ways that can look similar to corporations, with explicit “departments” for things like product, marketing, engineering, and community. These divisions usually have a team lead that guides and supports other members, not dissimilar to a manager.
In general, leadership within DAOs tends to be fluid and non-hierarchical, similar to a “Teal organization.” As defined by management theorist Frederic Laloux, Teal organizations are self-governed and naturally evolving. They also encourage employees to bring their full selves to the organization.
DAOs as coops
Of course, the above framing only goes so far given that DAOs differ from companies insignificant aspects, particularly with regard to ownership.
For this reason, cooperatives may be a more apt comparison. Coops are owned and controlled by the workers that contribute to it. This is similar to DAOs in which stakeholders receive tokens which grant governance power and assign ownership. It’s not a million miles away from your neighborhood grocery coop brought into the digital realm.
DAOs as networks
Though the coop framework helps in modeling ownership, DAOs don’t only distribute ownership to contributors — reasonably equivalent to an employee. Rather, they distribute ownership to a range of different stakeholders. That could include users (if the DAO is building a product), strategic partners, vendors, mission-aligned community members, and so on.
The result is something rather different than a pure coop: a network. Members interact with each other in freeform fashion, and roles change frequently and fluidly.
In many respects, this is the most useful framework in which to think of DAOs. While networks aren’t new, of course — organizations in both the private and public sectors rely on them when coordination complexity is large — it’s particularly well-suited to the web3 era. As DAOs grow in size and complexity, a networked-model allows for coordination and alignment in a scalable fashion.
Will these frameworks make sense in two years time? What about five?
Even today, there are probably a dozen or more ways to conceive of this concept.
We think the fundamental goal of shared value creation is likely to remain constant, but given the pace of innovation in the space, we may conceive of DAOs very differently in the years to come. With that in mind, it’s time to dig into the different categories of DAOs.
Types of DAOs
Soon, there may be too many DAOs for classification to make much sense. After all, if you asked someone “what types of LLCs exist?” they’d probably find it tricky to answer the question. We may reach a point in the not too distant future when DAOs have equivalent variety.
For now, though, we can still delineate between types of DAOs. At a high-level, most DAOs are either technically-oriented or socially-oriented.
Technically-oriented DAOs tend to focus on building in the crypto space. They also tend to perform more of their actions on-chain.
Socially-oriented DAOs primarily exist to bring together groups of people, and find new ways for them to interact and convene. Governance is more likely to be off-chain, or non-existent.
Now, there is no hard line between these segments. Just as DAOs exist on a spectrum of decentralization and autonomy, they typically do so here, too.
For example, MakerDAO is fundamentally technically-oriented. But it has an extremely strong social component with high community engagement and interaction.
Friends with Benefits, meanwhile, is social by nature. It acts as a “cultural membership” and digital gathering point for artists, founders, and thinkers. Yet, it benefits from a robust product team that builds meaningful tools like event token-gating (“Gatekeeper”), dashboards (“Pulse”), and an editorial site (“WIP”).
On this spectrum, there are a number of subcategories worth unpacking. In particular, we’ll focus on: Protocol DAOs, Social DAOs, Investment DAOs, Grant DAOs, Service DAOs, Media DAOs, Creator DAOs, and Collector DAOs. (We told you we’d have to say DAOs a lot in this piece.)
As a note, Cooper Turley, a contributor to this piece, has an excellent deep dive into these genres if you’d like to learn more.
As the name suggests, Protocol DAOs are collaborative entities that exist to help build a protocol. An example is something like MakerDAO, discussed above. Rather than being built and governed entirely by a centralized team, the Maker protocol is orchestrated by the relevant DAO.
Indeed, over its years of operations, Maker has constructed a sophisticated structure of fifteen core units. Each unit has a mandate and a budget, managed by one or more Facilitators, that coordinate and pay contributors working to achieve a long-term goal within MakerDAO. Furthermore, each division is an independent structure governed by its own terms but that is still responsive to Maker holders.
Friends with Benefits (FWB) is a classic Social DAO, albeit with the engineering chops we mentioned. The goal here is to create a powerful community. In that respect, the end result is not dissimilar to other online hangouts, particularly those with walled gardens. (Some DAOs also focus on bridging online to offline, hosting IRL meet ups.) The difference, as we’ve discussed, is the conception of self-governance and ownership.
If Social DAOs are primarily about the community, Investment DAOs are mostly about the returns. Similar to The DAO — that first, ill-fated investment entity — the goal of these projects is to aggregate capital and investors for deployment. Unlike traditional venture firms, decision-making is effectively democratic, with LPs voting on relevant opportunities.
Often, different investing DAOs will have different focuses. For example, one might specialize in purchasing ENS names, another might hone in on blockchain gaming, while a third could fund crypto startups.
The LAO, founded by contributor Aaron Wright, is a leader in this space. That parent entity has spun off a number of additional vehicles, including Flamingo and Neptune. MetaCartel is another notable Investment DAO.
In the piece mentioned above, Turley notes that many of the early DAOs were geared toward patronage, operating as Grant DAOs. Often, these exist ancillary to pre-existing projects, acting as a form of community galvanization. Through grants, these DAOs seek to advance the broader ecosystem, support promising projects, and open pathways to new web3 contributors.
For example, Uniswap operates Uniswap Grants, with Compound and Audius doing the same. Though functionally distinct from the parent entity, they’re nevertheless tied together by a sense of purpose, and often a common community.
Service DAOs fill a unique position in the space. Specifically, these entities act as talent aggregators, pulling together human capital which can be directed towards certain projects.
For example, RaidGuild refers to itself as “the premier design and dev agency of the Web3 ecosystem.” Unlike a traditional agency, though, Raid doesn’t have formal employees or a corporate structure: it’s a DAO, instead. The Service DAO has worked with customers like 1Up World, Tellor, and Stake On Me.
Forefront, Bankless, and DarkStar are Media DAOs. These entities produce public content, often collaboratively. Rewards from that content are shared across the group, while governance is also a communal affair. Stakeholders may help decide on topics to cover as well as managing resourcing.
If Media DAOs often focus around a publication, Creator DAOs center themselves around an individual. Just like some fan clubs give an influencer’s most passionate supporters opportunities for consumption and interaction, DAOs have the capacity to do the same. Beyond pure fandom, stakeholders can also actively contribute or work for an organization that supports the creators for whom they are most enthusiastic.
This is a less common construction at the moment, but may become more popular. We’ve seen a number of creators adopt “social tokens” through products like Roll, which lay the groundwork for true Creator DAOs. Early movers include Leaving Records and Personal Corner.
Though sharing some profit motivation with Investor DAOs, Collector DAOs ultimately orient themselves slightly differently. These entities unite contributors around certain assets, or collectibles. NFTs are a common choice.
While the accumulation of NFTs may also yield extremely favorable financial returns, these communities often have no intention of selling their items, at least in the short-to-medium term. The acquisition of NFTs and other collectibles also has a fundamentally different tenor — involvement is as much, or more, about fandom and affinity as it is about alpha.
These groups often take on the role of curators for certain projects, too, adding a kind of institutional longevity and support.
SquiggleDAO, for example, exists to support and collect generative art, while MeebitsDAO collects Meebits NFTs. PleasrDAO acts as an “art collecting empire” across projects. NounsDAO is the gathering point for holders of Noun NFTs, who receive a share in future Noun sales.
Of course, DAOs can exist beyond and between these categories. For example, Krause House is a DAO that is both an Investment vehicle and Social initiative: it was assembled with the goal of purchasing an NBA team, collectively.
As we look ahead, it’s worth reiterating that while the categories above are instructive, we are just at the beginning here. Many of the great DAOs to come will paint outside of these lines.
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Philosophy and culture
DAOs represent a new framework for large-scale human coordination and at the heart of human coordination – decentralized or not – is organizational culture.
No different than company culture at an early stage startup or community culture in an undiscovered music scene, culture can be defined as the behaviors, patterns, and values that emerge between groups of individuals. In their seminal essay, “Squad Wealth,” research organization Other Internet notes that culture can be comprised of anything ranging from “memes, hot takes, internal language, 𝓪𝓮𝓼𝓽𝓱𝓮𝓽𝓲𝓬𝓼, to artifacts that can only be formulated as a group.”
While every DAO finds its own ways to engender culture with visual, linguistic, and behavioral norms, two traits seem to be particularly commonplace across the DAO landscape: the tendency for constituents to act like owners, and the expectation of radical transparency.
Acting like owners
Ownership is hugely influential when it comes to the culture of DAOs.
Not only does it incentivize individuals to participate, it fundamentally changes how contributors think of their effort and labor. All work is grounded in the pursuit of a larger purpose, of which the upside is shared. Ownership imbues feelings of creation, success, and ~vibes~. It’s natural that an owner feels more financially and psychologically incentivized to support peers, uplift the work of others, leave ego at the door, and do their best work than a traditional worker.
Jesse Walden, the co-founder of investment firm Variant, was particularly prescient on this subject. In this essay, “The Ownership Economy,” Walden noted:
As the role of the individual in value creation becomes more commonplace, the next evolutionary step is towards software that is not only built, operated, and funded by individual users—but owned by users too.
DAOs are, in a sense, precisely this kind of “software.” They elevate the individual and give users a chance to contribute and own. That’s powerful.
Transparency plays a crucial role in any organizational culture as it establishes trust between all players. DAOs enable this at an unprecedented level due to the public and immutable activity of any DAO’s ETH address on the blockchain. This creates both an implicit and explicit checks and balances mechanism that allows for a community of stakeholders to both stay informed on how a DAO is exercising its capital while ensuring a leadership team is making decisions in line with the community.
Radical transparency of this kind incentivizes collaboration over competition, and empowers individuals to take ownership over their work because of their deep understanding of organizational context.
Ultimately, a DAO’s culture is defined by the one-to-one relationships formed between groups of individuals that can be distilled into a repeatable set of behaviors and patterns.
Through new forms of fractionalized ownership and transparency, DAOs have the potential to create new organizational structures where users are no longer passive participants on a platform, but are active, properly incentivized owners of a network – with trust and coordination at the center. This distribution of power and culture leads to more agility, resilience, and antifragility that could help create a world in which large groups of people on the internet can contend with even the most powerful of centralized corporations.
DAOs have become a core organizational primitive across the web3 world. In tandem, a burgeoning ecosystem has arisen to support the core functions of these organizations.
Below, we’ll highlight influential stakeholders in the DAO landscape. We should note that this is by no means an exhaustive list — the map is not the territory. Web3 is growing rapidly and changing every day, with new entrants changing the space’s complexion constantly.
Nevertheless, we’ll outline players across the following functional areas:
We’ll also mention other notable organizations and opinion leaders.
Let’s get DAOwn to business.
In order to participate in a DAO, there first must be a DAO.
Several projects currently vie for supremacy, including Aragon, Syndicate, Orca, Tribute, and Colony. These are not always directly competitive, as each solution offers a unique value proposition and feature set.
What do these projects do? A simple way to think of them is as a crypto-native version of Stripe Atlas — they allow DAOs to get off the ground. That includes things like membership management, treasury tooling, and infrastructure for governance.
Over the coming years, we should expect to see more products come to market to support DAO formation. Just as white-label solutions are used to handle tasks like content management, we will soon reach a point where a multitude of options exist for new DAO-builders.
Founded in 2016, Aragon provides a suite of applications to create, manage, and govern DAOs at scale. This includes Aragon Court, Aragon Govern, Aragon Voice, and Aragon Client. As one of the first teams dedicated to DAO infrastructure, the Aragon Association has become an important service provider for DAOs, claiming notable projects like LidoDAO as users.
Contributor Will Papper is co-founder of Syndicate, a decentralized investing protocol and social network focused on Investment DAOs. Its mission is to democratize the world of investing by allowing individuals and communities to launch investment vehicles far faster and more cheaply than traditional funds. Syndicate’s solution includes legal support and social networking protocols that allow investing communities to convene, communicate and deploy capital.
DAOs often find it difficult to maintain high participation rates at scale. Orca Protocol has a clever solution for this, while also reducing bottlenecks in deployment of funds and resources.
Specifically, Orca leverages a “Pod Model'' in which a single monolithic treasury is replaced by smaller “pods,” each with its own sub-membership and wallet. In essence, each pod functions as a mini-DAO within a larger DAO construct.
This is a big unlock, bringing composability to DAOs by creating the infrastructure for pods to attach and detach as needed, kind of like DAO-legos. It also keeps groups smaller, making coordination and engagement easier.
Part of the MolochDAO ecosystem, Tribute provides a framework of open-source solutions that DAOs leverage to better scale. Its tech stack includes solutions to cancel proposals, create non-voting shares, kick out members, use NFTs for membership, whitelist tokens, and much more. Tribute is fundamentally modular, allowing DAOs to pick and choose the solutions they need.
Inspired by ant colonies, Colony offers a collection of Ethereum smart contracts to start a DAO without any coding needed. Colony simplifies governance, authority, compensation, and more.
Colony itself is maintained by the Metacolony — a yet-to-be-unveiled DAO. The Metacolony will continually develop and maintain tools to be used by those that tap Colony’s infrastructure.
Once a DAO is formed, it needs to facilitate communication among its members. Healthy discussion is, of course, the key to information sharing, which unlocks good voting practice, treasury management, and broader coordination. No DAO wants to become the Quiet Place.
A number of tools have emerged to facilitate conversation, with Discord, Telegram, and Twitter chief among them.
Arguably, the primary means of communication and coordination for DAOs is Discord. For those that have yet to enter the eye-bulging-rapid-fire world of web3 servers, Discord is a free voice, video, and text chat platform that has quickly reached ubiquity in the ecosystem.
Its characteristics make it particularly appealing for DAOs. For one thing, starting a Discord is relatively trivial and thanks to its channel and sub-channel architecture, organizing communication is straightforward and flexible. (Even if it doesn’t quite quell the madness.)
Critically, as Discord has become the default in web3, a number of useful bots and plug-ins have arisen to support it. Chief among them is “token-gating” functionality. As alluded to previously, some DAOs restrict access to those that hold a certain number of native tokens. For example, if we were to start RandomDAO, we might insist that anyone who wanted to join the Discord needed to hold 420 $RANDOM tokens.
Tools like Collab.Land make it easy for DAOs to ensure that access to private chats is granted only to those that meet token requirements. Other widely used bots include MEE6 and Statbot.
Additionally, it’s worth noting that Discord integrates well with existing sites; as more communities transition to DAOs, expect this to become an increasingly vital feature.
The most common alternative to Discord is Telegram. Though popular among the crypto crowd, the chat app hasn’t had the same adoption from DAOs as Discord. That’s in large part because Telegram doesn’t offer the same level of granularity, specifically with regard to bots and sub-channels.
Perhaps because of its comparative simplicity, however, Telegram is often a breeding ground for DAOs that are just getting started, before they graduate to Discord.
“How is Twitter still free?” is something of a running joke among the platform’s most avid users, for good reason. In many ways, Twitter has become somewhat of a public good, especially in the crypto world. The amount of information and insight that flows through that platform on a given day is remarkable and its supremacy as the industry’s de facto social graph has cemented its importance. (Others are coming for that throne, of course.)
While Twitter doesn’t address DAOs’ need for private, high-volume chat, it remains an important communication tool in the ecosystem — particularly for discovering new projects — and we’d be remiss if we didn’t at least acknowledge it.
One of the biggest challenges to any collective, whether it be a local community or multi-national corporation, is coordination, especially at scale. Historically, we’ve used hierarchies to manage this problem, but what is the best solution in a flat, decentralized structure?
DAOs rely on a number of different tools to manage their community and optimize coordination, including Coordinape, Collab.Land, SourceCred, and DAOhaus.
Used by DeFi bluechip protocols like Yearn and Sushi, Coordinape helps DAOs coordinate and distribute resources to contributors.
For example, Coordinape’s “Circle” product allows DAO contributors to “gift” a limited number of GIVE tokens to those they believe are are bringing value to the organization. While this has the benefit of being fun and rewards participation, it also creates a de facto “compensation map,” illustrating who is driving the project forward. Furthermore, the compensation process is functionally decentralized since anyone can choose to reward anyone.
Critics of this mechanism argue that peer-to-peer compensation can lead to a popularity contest in which the the loudest, most extroverted members receive outsized allocations.
Collab.Land offers a token-gating bot for Discord and Telegram. It’s also useful in assigning roles to DAO members on either platform. Due to its relative ease of use, Collab.Land has become a much-used tool in the industry and should see its usage rise as the number of DAOs increase.
Guild, though yet to be fully launched, is an alternative with a similar feature set.
DAOs use SourceCred to measure and reward the contributions of individuals to a project. Those that bring value to a DAO through their efforts earn “cred,” based on parameters set by the organization. Cred is a powerful way to simply quantify contributors’ reputation and work.
DAOs can also issue “Grain” with cred, which can be used as a wage-equivalent. SourceCred differentiates between the tokens, noting:
If cred answers the question "who provided value?", Grain answers "how should we reward people given the value they provided?"
DAOhaus is a “no-code platform” for launching and running DAOs based on a framework built by MolochDAO. The platform allows users to coordinate through a central hub where they can check activity, governance proposals, and treasury health. Membership can also be managed from here.
Since the platform was based on MolochDAO’s structure, DAOhaus users can access all the tooling provided by that parent organization, with the benefits of a user-friendly wrapper.
Let’s switch gears and talk about how DAOs compensate contributors. As we’ve mentioned, some offer payment features as part of a larger DAO suite, but specialized offerings exist, too. Superfluid and Sablier are particularly notable.
One way to think of these tools is as “payroll for DAOs.” They help DAOs handle payments on a recurring basis, on the blockchain, with minimal gas fees.
For those new to crypto, a lot of the terminology in this area may sound confusing. The important thing to note about these projects is that they make it easy for DAOs to pay contributors on the blockchain.
Superfluid is a protocol that allows for programmable cash flows. Using its unique ERC-777 standard, you can define “streams of value” so that compensation automatically flows to a DAO’s contributors, constantly. It’s kind of like setting up your company’s payroll so that, instead of getting paid twice a month, your employees are compensated live, for every second they work. All without any further intervention on your end.
Like Superfluid, Sablier is a financial streaming platform. Created in 2019, Sablier supports any ERC-20 token and doesn’t charge a fee to use the contract.
One remarkable feature of Sablier is that it is truly autonomous. The team that created the project burned the administrative keys that control the layer 1 contract. What that means is that Sablier’s makers no longer have the ability to stop the creation of new streams. It is, in the words of founder Paul Razvan Berg “a 100% decentralized public good.”
Solving for governance and coordinated decision making at scale is one of the hardest problems DAOs face today.
Why is it so hard?
One of the great unlocks of web3 is its censorship resistance and “permissionless accessibility”. In other words, anyone, anywhere can transact with each other or engage in decentralized protocols and applications without third-party interference. No government should be able to stop you joining a DAO, for example. (At least, in theory.)
This permissionless access can be a double-edged sword at times, particularly as DAOs grow and scale. Without hard caps on membership, DAOs often become larger and more diverse over time. Eventually, popular DAOs may have membership numbering in the tens of thousands, with each individual bringing differing skills, experiences, values, opinions, and backgrounds to the table.
To be clear, this is a good problem to have. That web3 enables individuals to transition from laborer to owner is one of its most fundamental, and compelling attributes. But as communities grow ever more decentralized, the need for robust governance increases — otherwise you may end up with a splintered organization in which every participant is merely screaming into the wind.
Several teams are working frantically to address this issue, building tools that help organize and motivate members. Snapshot and Discourse are two deceptively powerful products that are widely used in the space.
Snapshot is an off-chain, gasless voting platform mostly used by DAOs that issue ERC-20 and ERC-721 governance tokens. Expensive gas fees on Ethereum preclude on-chain governance for all but the largest token holders.
Snapshot has exploded in popularity by providing an easy to use and cheap governance participation method. Essentially, DAO contributors can head over to their organization’s Snapshot page, see the topics up for vote, and weigh in. For example, here are the proposals Sushi’s community has recently voted on.
With a few notable examples, like MakerDAO, most token-DAOs now integrate Snapshot voting into their governance process. It’s important to note that “SafeSnap”, a product produced by Gnosis (discussed below), allows for on-chain execution of off-chain voting. It does so by harnessing the combined power of Snapshot and Gnosis Safe.
What does this mean?
Basically, DAO participants can still vote off-chain — saving on gas fees — with the results subsequently, and seamlessly enacted on-chain later, without the potential for interference.
Discourse forums are like the “Senate floor” of DAOs and represent a place for formal discussion and feedback on proposals. Discussion and debates surrounding governance proposals may occur in back channels like Discord, Telegram, or even Twitter, but oftentimes submissions end up on a Discourse for a more focused, long-form discussion. As their function is more formal, Discourse forums also act as an archive for the discussions and proposals related to the DAO.
Many community DAOs require members to commit upfront capital to participate. This capital is then pooled into the DAO’s “treasury.” Like traditional companies, DAOs want to manage their assets effectively and hopefully increase their holdings. To that end, many invest their treasury into assets across the digital ecosystem including into NFTs, social tokens, crypto projects, and so on. In effect, they act as decentralized investment funds.
Lest you think such experiments are insignificant in scale, it’s worth noting that DAOs collectively manage tens of billions of dollars today. These are meaningful entities with complex needs.
Most DAOs have ambitious plans, but shrewd management can be difficult. For starters, the crypto sector is extremely volatile. As asset prices rise and fall, a DAOs assets may plausibly move 20% or more on a given day. To protect against these swings, DAOs have to diversify.
Llama, Parcel, Coinshift, and Gnosis are designed to give treasury managers the tools and insights they need to handle such turbulence.
Llama is a DAO that focuses exclusively on assisting other DAOs (meta!) with treasury management. LlamaDAO has had some large clients coordinated through Gitcoin grants. It has created dashboards, reports, treasury management guidelines, coordinated sales and financial statements for protocols like Aave, PoolTogether, Uniswap, Gitcoin and FWB.
Parcel is a treasury suite used by some of the largest DAOs in DeFi, including Aave Grants, Compound Grants and Synthetix. Currently in a closed beta, Parcel is serving 8 DAOs and has been used to issue $3 million in bulk payouts for various programs. As DAOs scale, they will need the solutions Parcel provides to manage the flow of funds to grant recipients, pay contributors, and deploy treasury efficiently.
Coinshift looks to solve a similar problem. So far, the project has secured the support of heavyweights like Consensys, Messari, Uniswap Grants, and Balancer Grants. The company has raised money from Sequoia, Ethereal Ventures, Weekend Fund, and others. As of January 2022, Coinshift supported 247 "safes" holding $1.6 billion in assets.
Gnosis Safe is a service developed by GnosisDAO that provides a better user-experience for DAO multisig wallets.
What is a “multisig”?
It’s simply a wallet that requires multiple signatures for a transaction to be approved. Instead of a single person being able to ratify a payment, several parties are needed. DAOs traditionally use this framework to manage funds, protect against misuse, and decentralize power.
Unlike some alternative solutions, Gnosis Safe supports ERC-20s and ERC-721s assets, allowing DAOs to hold NFTs in a multisig wallet. Since many NFTs have seen huge price appreciation, strong treasury tooling here has become increasingly important.
Other notable organizations
DAOs have the opportunity to bring the next 100 million users, or more, into web3. As the foundational structure for organizational development and deployment, DAOs will reveal new ways to coordinate across personal and professional engagements, rethinking how we operate and make decisions as a collective, together.
As the tools and tactics mentioned above come together, it’s worth highlighting some popular projects that have brought them to life.
PartyDAO is a decentralized collection of developers, writers, engineers and designers who design and build DAO tooling. Their first product, “PartyBid,” allows users to pool funds to bid on NFTs. Users have used PartyBid to pool funds to bid on Cryptopunks, Andrew Yang’s NFT, and CrypToadz. With the release of “Party Splits” at the end of September, PartyDAO now enables the fractionalization of NFTs, distributing ownership.
Mirror, founded by Denis Navaroz, is a decentralized publishing network. Mediated through the WRITE token, users can pay WRITE to mint their own Mirror domain, to which they can publish articles and influence the approval of new members via their voting power.
In quick order, Mirror has become the de-facto place to publish thoughts on web3 and kick-off community efforts. For example, “Crypto, Culture, & Society,” initiated by Mirror’s CTO, used the platform to outline a crypto learning DAO, raising 25 ETH in the process.
Seed Club is a DAO that builds, supports, and invests in tokenized communities. The community includes many top influencers and founders in the social token space. Already, Seed Club has worked with prominent DAOs and communities including PartyDAO, Forefront, The Generalist and SquiggleDAO.
We’ve spoken of FWB already, but the DAO’s influence is worth a slightly longer discussion. Just this week, the large social DAO announced it had raised $10 million funding from a16z, Pace, and others.
FWB is the home to one of the largest collections of crypto-thinkers and hosts wide-ranging discussions. One channel of the Discord might talk about music, another about NFTs, while a third riffs on investments. In addition to acting as a kind of web3 social club, FWB members are actively building products for the community, as discussed. It is, in short, emerging as a true cultural, generative home for crypto.
By definition, The LAO is not quite a DAO. Rather, founder Aaron Wright’s entity is a “Limited Liability Autonomous Organization.” Though maintaining many of the traits of a DAO, The LAO is an actual Delaware incorporated entity. By grounding the product in the traditional legal world, The LAO seeks to streamline and simplify thorny legal and tax issues for its members.
Beyond its differentiated structure, The LAO is remarkable for the influence it has in the Investment DAO space. Not only has it received more than $65 million in contributions, it has spawned a wave of subsidiaries. That includes Flamingo (an NFT collective), Red DAO (a digital fashion DAO), Neon (a metaverse DAO), Neptune (a DeFi liquidity DAO) and more. As noted in the diversity of the DAOs aforementioned, limited liability structures can be helpful across the entire spectrum of crypto-related projects.
Given these entities have been extremely active in crypto over the past couple of years, paper returns are almost certainly insane. Wright himself tweeted that Flamingo was on track to have $1 billion in AUM:
MetaCartel is a decentralized group of builders who originally worked to support Dapp development but have since pivoted to incubating DAOs. MetaCartel educates people on DAOs, conducts case studies on real-world DAOs, and assists in everything related to the development and bootstrapping of a new DAO.
MetaCartel has also spun out an investment arm, called MetaCartel Ventures. It has, in turn, invested in several other DAOs.
Moloch DAO was originally founded to fund the development of Ethereum public infrastructure related to ETH 2.0. Since then, Moloch has expanded into a Grants DAO, supporting projects like Tornado Cash, Lodestar and Dapp node through its grants. Numerous sub-guilds have been created to assess projects that apply for funding.
Additionally, MolochDAO offers an open-source DAO framework with their v2 smart contracts. We noted earlier that both Tribute and DAOhaus have benefited from Moloch’s work here.
Rabbithole is a learn-to-earn DAO, giving consumers a pathway to learn about crypto, while receiving rewards.
In the process, Rabbithole provides crypto-protocols with user-acquisition. The number of protocols and products in crypto have exploded over the past year, making it hard for some projects to find and retain active, skilled participants.
Through “quests,” Rabbithole helps protocols acquire trained community members, who have demonstrated their ability in the process. Aave, Opensea, Matcha, Perpetual Protocol and PoolTogether have already worked with Rabbithole.
With new DAOs gaining traction every day, expect this list of influential organizations to grow rapidly in the months and years ahead.
Why start a DAO?
Outlining the landscape as we did in the previous section makes something abundantly clear: DAOs are hard. Even at the best of times, it’s extremely difficult to coordinate large groups of people to orient towards a common goal. DAOs take on this challenge, add on layers (and layers) of technical and social complexity, and introduce massive economic volatility.
The result is something like trying to found a nation on a new planet, in which the population grows 5,000% a year, and your natural resources vary wildly on a daily basis.
So, why would anyone want to start a DAO?
Beyond the enjoyment of starting something genuinely novel and still revolutionary, there are three core reasons to start a DAO:
- Ease of capital formation
- Shared upside
Ease of capital formation
Simply put, DAOs are one of the easiest ways to pool funds that can be managed by a group. It is much simpler and cheaper than setting up a traditional investment firm, for example.
Because DAOs are built on public blockchains, they benefit from global financial infrastructure from day one. It’s simple to spin up a shared wallet that is controlled by a collective. And though crypto onboarding still leaves a lot to be desired, once you have a wallet and some tokens, you have the ability to transfer those tokens to any other account in the world, no matter where they’re based. Essentially, a DAO allows you to spin up a cross-border fund with collaborative functionality baked-in.
Capital formation is important because it empowers communities to invest in projects they care about. Over just the past few months, DAOs have raised capital to collect NFTs, build software, create internet-native social clubs, produce music, promote carbon removal, and more.
As we’ve outlined, DAO membership is usually enforced with crypto tokens. For many DAOs, If you hold a specific NFT or number of ER-C20 tokens, you’re considered an “official” member. These tokens can serve a number of functions related to governance, access, status, value capture, and so on. This last point — value capture — is vital because it allows people to earn a living by contributing to a DAO.
Historically, financial upside in projects has been concentrated among founders, early employees and investors. Crypto tokens provide a fluid way of rewarding an array of stakeholders, including freelancers, service providers, and even customers.
It should be said that there are valid concerns around the lack of accessibility of some tokens. As some DAOs have become more popular, their token prices have risen, making de-facto membership expensive.
Many DAOs are starting to address this by introducing grant programs and fellowships which sponsor high-potential members with limited financial means. Over time, we hope to see more such initiatives.
Most DAOs have a strong culture of transparency, as we noted in the “Philosophy” section. To that end, many DAOs feel more like open source projects than corporations. Aside from just building in public, DAOs communicate, onboard, transact, and govern in public. That contributes to meaningfully different interactions and behavior.
Here’s how that plays out across communication, membership, and governance.
As outlined, DAOs tend to use Discord or Telegram for synchronous communication. Typically, there are public channels which anyone can join to learn more about the project.
There are private members-only channels, too, and while they don’t give off the most transparent vibes, they’re still a great record of the DAO’s history and decision making over time.
Since DAO membership is usually denominated in crypto tokens, relevant information can be viewed by anybody. On-chain, you can see how many tokenholders there are, discover the value of membership, and check who has bought or sold tokens over time.
Interestingly, since crypto tokens are used for membership, DAOs can reward members of other DAOs based on their token holdings. For example, Rabbithole could offer rewards to anyone with $FWB tokens in their wallet. This may usher in a “membership composability” in the coming years, allowing communities to collaborate in more pro-social ways.
Decision-making and money-movement is also transparent with DAOs. Community members can propose new initiatives and vote on key decisions. That turns governance into a social feature.
For example, Nouns DAO has raised over $50 million from NFT auctions over the past three months with members voting to spend this capital by donating to charity, building an iOS app, and publishing a comic series.
Though by no means a panacea, the DAO structure does have clear benefits.
How to start a DAO
If the section above has piqued your interest, you might be wondering how you can go about starting a DAO.
Though not trivial, forming a DAO is easy when compared with the much, much harder task of creating a DAO with enduring value. Frankly, the nascency of the space means we still don’t truly know what a persistently exceptional DAO looks like yet.
If you were just looking to spin up a DAO structure for the sake of it, the playbook might look something like the one outlined by contributor Jess Sloss in the tweet below:
Sell some NFTs, seed your community with cool people, gate a Discord, and drop some tokens. Job done.
But that is really only the beginning of the task ahead. To understand how to build a DAO with true value, it’s helpful to zoom out and look at the four phases involved in most DAO launches.
1. Call to adventure
2. Distribution of ownership
4. Incentivization and reward
Call to adventure
Versus terms like “mission” or “vision,” a call to adventure more precisely describes what participants are buying into with a DAO.
Certainly, joining is about progress towards a goal, but the road ahead is especially hazy and truly untrodden. Those that join are signing up for adversity, potential failure, and a battle against the odds within a dynamic, fluid structure.
A few fantastic calls to adventure from DAOs:
- KrauseHouse, which seeks to be the first DAO-owned and managed NBA franchise.
- GitCoin, which is building and funding “digital public goods.”
- FWB, which is establishing a strong presence at the intersection of culture and crypto.
Distribution of ownership
After capturing the attention of true believers, DAOs need to distribute ownership.
This is a significant task, and a critical design decision. Some DAOs start with ownership distributed via tokens from day one, as was the case for NFTx and Sushi. Others chose to build with a smaller team and then distribute ownership once the product or community has proven demand and momentum. Uniswap and Compound are examples here.
Ultimately, there are many ways DAOs distribute ownership to contributors. One approach is an “airdrop,” where tokens are distributed to members based on previous actions, like the purchase of an NFT. Another is via “bounties”; for example, Rabbithole provides tokens when users learn about crypto projects on its platform. Others open up the purchase of tokens via decentralized exchanges, like Uniswap.
When done well, ownership distribution puts tokens into the hands of individuals and organizations with aligned values that will contribute and help the DAO going forward.
A few examples of how different DAOs have distributed ownership:
- Squiggle DAO required you to own a Squiggle NFT to join the Discord. Later, $SQUIG token was airdropped.
- SuperRare distributed $RARE tokens to artists and collectors that used its NFT platform.
- FWB requires members to own 75 $FWB tokens. These can be bought on Uniswap, or received via a grant.
Deciding on how to make decisions as a group is an important phase of the DAO startup process. The groups that handle this decision-making are often called “Governance Structures.” A meaningful segment of web3 is avidly focused on this subject, and is constantly examining new methodologies and approaches. Even Ethereum founder Vitalik Buterin recently weighed in on the subject.
In its simplest form, governance is a process of building legitimacy in the decisions taken by the DAO or teams operating within the DAO.
There are many types of governance structures, but the most common method of decision making is called “Token Weighted Voting.”
In this system, one token represents one vote. Members put forth proposals and tools like Snapshot allow users to indicate their preference on the subject at hand. The outcome of those votes are either automatically executed or confirmed by signers of the multisig.
Some governance structures end up looking more like direct democracies with members voting on most proposals, while others act as representative democracies in which a core team with a mandate votes on behalf of the group. Governance structures often evolve over time.
The DAO version of “how a bill becomes a law” might go something like this:
- Discussion and shaping. A member puts forth an idea in Discord, the idea is shaped through conversation and early consensus is built.
- Formalization of proposal. A proposal might be posted on Discourse, leading to more formal conversation and commentary. In the process, the proposal can be improved.
- Voting on the proposal. Using Snapshot, the DAO empowers token holders to vote on a proposal within a set period of time.
- Execution of the proposal. Once the vote closes, the multisig signers execute the transaction or action.
The point of governance is to make good decisions and propel the project forward. Good governance ensures voices are heard, legitimacy is stewarded and momentum is built.
Incentivization and reward
DAOs coordinate effort towards a goal; incentives drive that effort. The first rewards DAOs offer are usually native governance tokens, which give ownership to early contributors.
While these tokens may not have immediate value in the market, they represent the relative value individuals are contributing to a new organization, and the shared ownership of DAO’s collective value.
Not all rewards are fiscal, of course. Types of DAO incentives include:
- Token rewards. These are the types of tokens mentioned above, giving ownership and influence to holders.
- Social capital. Valuable members may be rewarded with formal titles on Discord, or through NFTs. Being a “moderator” or “leader” can grant social status within the confines of the DAO.
- Bill-paying tokens. Contributors may be rewarded with more widely circulated currencies like USDC or ETH. This functions more similarly to a salary since there is higher liquidity and holdings can be easily exchanged for local fiat currencies.
While these rewards can be powerful, to reach true scale DAOs will need to find ways to pay contributors enough that they can pay their bills.
One way of doing that is creating a market for the DAO governance token. Tools like Uniswap and Sushi make that possible, but they can be complicated to use. Furthermore, only extremely well-established organizations are likely to see meaningful trading volume here.
Instead, most DAOs will need to get USDC or ETH into their treasury as a way of paying for effort from contributors. DAOs can do this by exchanging governance tokens when possible, or generating on-chain revenue. For example, a DAO might choose to sell NFTs for ETH, which can be added to a treasury, and then paid out to contributors according to their contribution. DAOs might also agree to perform certain services — think blockchain development — for organizations in exchange for remuneration.
The question of how to structure rewards is something most DAOs spend significant time on. DAOs are typically less well-defined in this area. There’s no boss, structured compensation plan, or even clear set of roles. No central HR department can make decisions around salaries.
Absent that control, DAOs reward contributors through different mechanisms, some of which we’ve discussed already:
- Bounties reward contributors for completing a well-defined task with a set number of tokens.
- Grants reward contributors for undertaking a larger, less well-defined challenge with a set number of tokens.
- Coordinape Circles reward a working group for their efforts with tokens crowdfunded by other contributors.
- Salaries may be given to core team members on a regular schedule to reward their efforts. This is usually paid as a mix of USDC, ETH, and native tokens.
DAO models, processes and tools are being built day by day, often by the very communities who need them. There is no real playbook yet, though both Sushi and Index Coop have set out structured approaches to hiring and compensation.
Ultimately, as evidenced above, in many instances there are currently only one or two commonly used technical solutions for each phase of the DAO’s needs — a far cry from the abundance of SaaS tools that compete to serve every niche.
While participating in an emergent model like a DAO has its challenges, it comes with tremendous opportunity to shape the next internet.
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Working for a DAO
If you’re not ready to start a DAO, those interested in the space can earn their chops by working for one. To understand how to go about this, we’ll walk through a hypothetical hiring process and unpack the different steps, including:
- Choosing your discipline
- Finding the right role
- Getting paid
Choosing your discipline
When it comes to working for a DAO, it can be hard to know where to begin. What roles exist at DAOs? What talent is actually needed?
The good news is that it’s more straightforward than you might think. Though there’s certainly lots of variation depending on the focus of the DAO itself, there are a few common roles.
- Community managers. DAOs are, of course, communities. That makes this role especially important — moderators and managers are the glue that hold the project together, and help it move forward.
- Recruiters and promoters. Especially in the early days, DAOs need to evangelize, attracting great people to the project. Recruiters are valuable here.
- Scribes. Huge amounts of information are created and disseminated via DAOs. Writers can be influential in recording this information clearly, and contributing to marketing and lore.
- Artists. NFTs have emerged as a popular way for DAOs to earn revenue. Artistic abilities and sensibilities may be highly sought after as a result.
- Engineers. Some DAOs have started to build their own tooling, or other products in the web3 space. If you’re a coder, or want to become one, DAOs offer an opportunity to learn.
- Treasurers. As we’ve mentioned, DAOs manage large AUMs. They need fiscally shrewd operators to help manage and deploy spend effectively.
This is far from exhaustive, of course. Game designers, digital marketers, and all manner of other functions are useful to DAOs.
Finding the right role
How do you find openings in the DAO world?
The truth is that there’s no formal discovery process with most opportunities surfacing serendipitously on Twitter, in gated Discord chats, or on crypto podcasts. Though this opacity makes it harder to break in, the lack of a “job board” can feel like a feature rather than a bug. People find opportunities they care about by engaging with communities they trust, first.
Once you’ve found a DAO you want to join, then what?
The onboarding experience tends to vary drastically based on the DAO, though high-quality organizations often excel on this front. After all, new members are better able to contribute when they have the right context and support.
To this end, some DAOs host structured new member onboarding calls, akin to open houses in college. Index Coop, a decentralized asset manager that creates crypto index products, hosts weekly new joiner sessions, and provides a detailed guide called the “Cooper Owl Quest” on how to get started.
DAOs that center around user-generated creativity like NounsDAO take a different approach. Nouns has created a playground and opened up tooling so members can begin engaging with the community’s work, and subsequently get funded by the community treasury.
Once you’re in, it’s time to start adding value™.
For DAOs, much of that happens through collaboration. Rather than a centralized management team that defines work streams, DAO decision-making power is distributed. Everyone is empowered to express their vision for the future and the leadership team usually emerges from those who can identify the needs of the community and work towards addressing them.
This bottom-up approach is visible across the DAO landscape. For example, a team of six dedicated Sushi contributors applied for a grant to help with user troubleshooting and create a multilingual customer service portal. Such initiative is classic in DAOS — contributors identified a pain point in the Sushi ecosystem, proactively proposed a solution, requested and received resourcing, and got building.
Where is this work done?
As we’ve mentioned, Discord and Discourse are popular places for conversation. Much of the remaining collaboration occurs in places like Google Docs, Notion, Airtable, Figma, and Github. While powerful platforms, none were built for the exceptionally fluid teams of web3.
For one thing, these platforms store user information on centralized databases and access is typically assigned based on an individual’s role within an organization. DAOs operate differently, with changing roles and contributors that may wish to remain pseudonymous.
We should expect a native web3 productivity stack to emerge in the coming years. This might grant permissions based on token holdings and past contributions within a community.
We’ve mostly covered the different types of rewards DAO contributors receive in exchange for their efforts.
One additional subject worth noting is that DAOs sometimes tie compensation to certain KPIs. The UMA project has created a framework that pays out more synthetic tokens if a DAO hits predetermined targets before a given expiry date.
While this can be motivating, there’s the risk that a community will over-index on the wrong metrics. Furthermore, bad actors may find ways to game the system such that they maximize contribution to certain KPIs, but skirt meaningful work. Any time an algorithm or program controls access to wreath, it's inevitable that someone will try to manipulate it.
In the best sense, blockchains and blockchain-based systems like DAOs are designed to operate outside of the purview of the law. Thanks to the technology deployed, these entities adhere to autonomous rules encapsulated as blockchain-based code. Nevertheless, the technology is regulatable.
Today, DAOs operate with different assumptions than many traditional legal entities and other business associations. DAOs are fluid by design and are not run by boards or managers, but rather aim to be governed by democratic or highly participatory processes or algorithms. Unlike traditional organizations that are rooted in a jurisdiction, DAOs stretch across the globe, stitching together thousands of members regardless of where they live; the only requirement is an internet connection. DAOs often attempt to avoid written agreements or other forms of legal formalities, with members primarily agreeing to abide by and govern their affairs using software and the rule of code.
While not defined in most jurisdictions, Wyoming (the original creator of the limited liability company) recently passed a law that grants legal company status to DAOs that operate on a blockchain, provided they are organized as a Wyoming limited liability company. This rather forward-looking view from the “Equality State” offers liability protection for DAO members. Without such safeguards, a DAO could be considered a general partnership, opening up members to personal liability should an issue arise. While Wyoming is the first-mover, we’re seeing many other jurisdictions think deeply about the future of DAOs. Examples of DAOs that have leveraged limited-liability state structures include The LAO (a venture-based DAO), mentioned earlier, and some of its associated structures.
Tribute Labs (formerly OpenLaw) has been exploring alternative structures, including a “Unincorporated Not for Profit” or UNA. This can be created when a group of individuals wants to form an association without having to formalize it through registration. The UNA structure was used in the construction of MUSE0, a digital museum, where collectors and artists donate NFTs and the community decides on whether it should enter the permanent collection.
Though no paperwork is required to start a UNA, if the purpose of the unincorporated association includes the intent to make a profit, then a general partnership has been created. Effectively, UNAs are great for groups that want to take actions that are not for-profit in nature and require the creation of guiding principles.
DAOs are growing in importance, and there is early indication that blockchain-based governance will have a significant impact on the way firms are governed—both by digitizing traditional governance mechanisms and offering fundamentally new ways of organizing business enterprises.
Legally, the path forward is clarifying and proponents should feel cautiously optimistic about the road ahead.
While there are lots of reasons to be bullish about DAOs, this is a space in its infancy. Reaching mass-scale deployment and adoption will take time and effort.
Even with that in mind, DAOs are not perfect. Though the modern corporation has its issues, and DAOs are a response to their flaws, we should not pretend the company structure gets nothing right. To do so would be to ignore the lessons learned over hundreds of years.
Fairly managed companies, for example, take two critical responsibilities onboard, as part of their operations.
- Fiduciary responsibility. Corporate ownership and management rarely overlap perfectly. As a result, those responsible for a company’s decisions (think executives or the board of directors) must act in the best interest of shareholders (the true owners) rather than in their own best interest.
- Minority protections. Different shareholder groups often have different stakes in a company. Fair corporations must operate such that the company benefits all shareholders equally, relative to their stakes. A majority shareholder block cannot force other shareholders to comply with demands that disproportionately reward the majority, at the expense of the minority.
These are basic operations of sane businesses, and those that fail to comply with them face the credible threat of legal action. However, it’s hard to recreate similar actions within DAOs, at least without making trade-offs.
For one thing, there is no traditional court to fall back on in the case of a breach. Moreover, because a DAO is, at its heart, a trustless computer program running as a smart contract, it cannot determine whether fiduciary responsibilities have been met by a certain proposal, or minority shareholders have been sufficiently protected. Such a judgment is fundamentally subjective and cannot be well-interpreted by software.
That might not matter most of the time, but it becomes of huge importance should a DAOs voting power fall into the wrong hands. For example, if a bad actor (or malicious group) successfully grabbed 51% of voting weight (or surpasses whatever threshold has been set), it’s possible they could propose and ratify changes to the organization that disproportionately reward them, at the expense of the rest of the community.
A DAO might be ill-equipped to stop this, particularly at a software level. To the DAO’s code, a legitimate proposal and one that threatens the organization’s existence can look exactly the same. Since the humans within the community would be unable to protect themselves in the situation above, resolving the issue requires input from a trusted external source capable of making this kind of evaluation.
Pseudonymity further complicates matters. Many contribute to DAOs using “throw away identities,” meaning that there’s little reputational risk for bad actors. In a completely adversarial environment in which a DAO was open to anyone, there would be little disincentive to violate the properties mentioned above — at least void of any external incentives. Given the chance, some might consider it worthwhile to leak a DAO of its resources, especially since they could operate without attribution.
Why haven’t we seen more attacks like this?
In part, this could be due to the other incentives at play. In many DAOs, token supply is concentrated in the hands of a few founders or reputable investors. These individuals are typically thinking long-term and have disclosed their identities, meaning there is reputational risk at stake. Any attacks would likely get shot down by these whales, even if the rational economic decision for them would be to support it. This likelihood deters such maneuvers from even being attempted.
Those charged with managing a DAO’s multisig could also act against the interest of the community with relative ease in many instances. However, the social capital accumulated with the world of the DAO and web3 norms dissuade this kind of behavior, even though there's nothing preventing them from acting selfishly.
Other approaches have been proposed to address these risks including rage quitting and vetoing.
Moloch DAO features a “rage quit” mechanism that allows token holders to exit a DAO with a proportional share of their assets. Critically, rage quitters leave with the share they had before a proposal was officially passed, except if they voted in favor of it. Essentially, if you don’t like the decision a DAO has just made, you can pack up and take your tokens with you.
For a potential attacker, the existence of this exit mechanism is a major impediment. If a contributor believes an attack is underway, they can depart with their funds, rather than being forced to join in. Even if would-be robbers accumulate a 51% majority, they may not be able to access any funds.
The downside of the rage quit mechanism is that it's a pretty nuclear approach. Furthermore, it doesn’t work particularly well for DAOs that hold non-fungible assets like NFTs. If you, me and 98 of our friends each put in 1 ETH to buy a few Bored Apes and you decide you’d like rage quit, how do we allow you to leave with your fractional share of holdings? There’s no easy answer.
Ultimately, any large DAO that uses this method couples it with a comprehensive vetting process for members. That ensures social capital is at stake, warding off rogue proposals from happening in the first place.
Instead of rage quitting, some DAOs protect against attacks through vetoing. In this instance, a trusted entity or mechanism steps in to ensure the legitimacy of proposals and shutdown malicious acts.
For example, Nouns DAO’s founders can veto malicious proposals, though they plan to “provably revoke” that right over time. Again, the approach here relies on social capital rather than code.
Some protocols have attempted to tackle the problem head on, by providing subjective input. Aragon Court, for example, helps handle these kinds of disputes thanks to a network of “guardians.” When an issue comes up, judgement can be deferred to this independent court who are rewarded for their impartial efforts. Kleros’ “justice protocol” is a similar solution.
Beyond the threat of attack, DAOs have still to resolve a number of open questions around the efficacy of their structure. Is a decentralized approach likely to yield the best results?
High-impact startups have converged on a fairly default operational playbook in which those at the top of the hierarchy drive an organization’s direction, IP is proprietary, hiring is structured, and confidentiality is critical. That approach has yielded some pretty exceptional results over the past few decades.
DAOs, of course, act differently, favoring a flat structure with complete transparency. While this model has proven very effective in contexts where decentralization is vital (Bitcoin and Ethereum can be thought of as DAOs), it's unclear whether it is optimal for other types of organizations.
It will be incredibly interesting to see DAOs compete with centralized teams in specific markets, and observe where the model’s relative strengths and weaknesses lie.
Perhaps what’s most exciting about the world of DAOs is that we have barely scratched the surface of its potential. Though new technologies inevitably surprise us with regard to how, where, and why they are deployed, it’s nevertheless worthwhile to try and envision the future they might portend.
On that subject, we’ll touch on the importance of DAOs to our future, changing conceptions of ownership and creativity, and a potential new age of organization.
The importance of DAOs
The widening wealth inequality gap is one of the biggest headwinds we face as a society, and the aftermath of COVID-19 has only exacerbated this problem. This isn’t just a moral issue, it’s an economic one, too. The hard truth is that labor and wages are not the optimal solution for building sustainable wealth; asset ownership and access to capital is. Historically, those who had capital benefited disproportionately relative to those who provided labor, usually in exchange for a fixed wage. Again, if you want to become wealthy and obtain financial freedom, you need to own assets — capital > labor.
Web3 is many things to many people, but one of its core pillars is this concept of ownership, as we’ve discussed. By spreading this capital more widely, the space has the potential to drag millions of people out of traditional wage labor and towards ownership.
The backdrop of currency debasement only fortifies the feeling that crypto is becoming a broadly investable asset class at the exact moment the world needs it.
DAOs are a critical part of this movement. Not only do they act as opportunities for wealth creation in and of themselves, they are also likely to play leading roles in the education and upskilling of those entering the ecosystem.
As many of us know, there’s a growing fear among citizens of all classes that advances in automation, AI, and robotics will replace many of today’s jobs, and that fear isn’t entirely misplaced. However, the explosion of web3 and associated DAOs may spawn hundreds of new industries, thousands of new organizations, and millions of new jobs that didn’t exist before.
Creativity may be particularly affected. As rote labor is automated away, talents that are higher-acuity may rise to the fore. An increasingly mechanized world may also encourage connection, even through the digital realm.
DAOs are a neat embodiment of both trends. Creator DAOs will give artists the ability to engage with their fans, and in many instances, create generational wealth. Much of this will, in turn, be shared with those that help generate it.
Micah Johnson is an example of this possibility coming to life. Johnson, a former MLB player and active artist, is the creator of an NFT-based character named Aku. Not only has Aku become a popular avatar, Johnson’s work has been sponsored by Visa. It’s not hard to imagine how the “Akuverse” might expand in the coming years, spawning a true DAO with an engaged community.
New organizational structures
As of right now, all traditional assets are effectively legal constructs with the rights of asset holders enforced by the courts.
As more and more assets move on-chain, smart contracts and programmatic incentives will replace the legal system as a way to guarantee ownership. Similarly, DAOs will replace legal entities as the primary method of coordination around these assets. Rather than forming companies, individuals will instead create DAOs to manage on-chain assets.
As we’ve mentioned, DAOs are a paradigm-shift over traditional companies in that they can be global from the get-go, permissionless to join or contribute, and minimize frictions such as identity, employment contracts, job interviews, and even real time compensation. While there are plenty of kinks in this process today, there’s every reason to believe they will be ironed out over time.
Simply put, crypto offers stronger protections for property rights and a global, "permissionless" financial system that anyone can leverage to convert assets into capital in a far more efficient way than today's archaic alternatives.
Whether DAOs will live up to their extraordinary promise remains to be seen. The last decade has been stranger, darker, and more miraculous than we could have imagined. The next may bring even greater shifts.
It is reasonable to believe in powerful, positive change, though. If you offer free, open access to a wildly visionary new sector, some will find a way to improve the livelihoods of many. And both the few and the many may find themselves working not for a company but a DAO — a fluid, ever-changing corner of digital space, absorbing the internet.
DAO reading list
Many exceptional thinkers have written about DAOs before — either obliquely or directly. Here are a few of our favorite resources:
Squad Wealth by Other Internet
A Prehistory of DAOs by Kei Kreutler
DAO Landscape by Cooper Turley
The DAO of DAOs by Packy McCormick
State of the DAOs by Bankless
Organization Legos by Nichanan Kesonpat
Sushi and the Founding Murder by Mario Gabriele
The New Coordination Frontier by Gitcoin x Bankless
Come for the creator, stay for the economy by Patrick Rivera
A beginner’s guide to DAOs by Linda Xie
Protocols and Creator DAOs by Darkstar
The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.