With this text, we want to share our thoughts on the tooling that DAOs need to function decentralized and autonomous. In the second part (coming next week), we will present the results of our research on the DAO tools different projects are currently working on.
There are many parallels between DAOs and traditional organizations. They have a mission and provide a product or a service. They need committed people who spend time and effort to develop the product, achieve goals, and help the organization progress over time. DAO working structures can be similar to those in traditional companies. The founders and CEOs make the major decisions, and the employees mainly want to be compensated fairly for their work. DAOs, like companies, need to hire and pay employees (find and reward contributors), develop a roadmap, acquire customers, and raise money.
In summary, DAOs need a mission, a product or service, a roadmap, contributors, rewarding, income/funding, and marketing.
But DAOs are not exactly like traditional organizations or companies. The ideal DAO is decentralized and autonomous. Decentralization is a constant process of distributing power (planning, decision making, and money) away from a central location or group. Autonomy is the freedom of external control or influence.While the ideal concept of a DAO realizes decentralization and autonomy by code (smart contracts automatically perform the results of a voting process), the existing DAOs today are decentralized and autonomous on many different levels and degrees.
The DAO tools Aragon and DAOhaus enable decentralized and autonomous processes by connecting voting processes to a treasury on-chain. DAOs like MetaCartel and The LAO, using those tools, can deposit and spend tokens from the treasury and onboard new members to the DAO in an automated procedure.
Other DAOs, like Gitcoin and ENS, have started as centralized organizations, opened up their structures later, and are now working on decentralizing their structures and operations. DAOs often have a CEO-like figure making all high stake decisions but have additionally arranged decentralized structures like shared ownership and token-voting.
To become a DAO, either from the start or later on, it is indispensable to have a community. Joint decision-making and voting processes only work if people actually participate. This is why we have positioned DAOnative to be community-first, aiming to solve the most important and by far the most difficult hurdle of DAOs, how to organize and incentivize the community to contribute. Our easy to set up task system and claim reward system make it very straightforward for DAOs to engage with their members and reward them for their contribution, in a simple and modifiable way for every need.
We can easily make decentralized and autonomous decisions about financial transactions by connecting voting processes and a treasury on-chain. But humans want to do more than allocate and spend money together. We want to produce other than monetary value and participate in a community by working and creating.
How do we decide upon the distribution and value of work in a decentralized manner? Coordination is easy when one person decides where to go, delegates tasks, and distributes rewards. However, decentralized coordination requires strategies to address different verticals of decentralization.
The internet enables us to communicate from different parts of the world and decentralize localization. Voting helps us to make yes-no-decisions and answer multiple-choice or scalar questions. But how can we make more complex decisions in a decentral manner?
In the following, we categorize the different tools DAOs need to work together in a decentralized and autonomous way.
First and foremost, DAOs need a way to communicate.
Discord is by far the most widely used communication tool DAOs use today. It enables thousands of people from all over the world to gather online, talk and organize around work. But, Discord was not made with DAOs in mind, so it’s not surprising that a few projects are working on web3-native alternatives that are scam resistant and community-owned.
The ideal DAO would have no one person at the top making all important decisions. Instead, many people would be involved in the decision-making process. That doesn’t necessarily mean a totally equal distribution of power at all times (like one person, one vote), it rather means that points of power can shift over time.
The tools trying to solve the challenge of decentralizing power are governance tools like Aragon, and DAOhaus. Those tools use voting as the strategy to decentralize. But the decentralization of power can be realized in other ways, and there is space for creativity. Imagine, for example, the periodic transfer of power realized by NFTs that automatically change owners, giving them decision power.
When people work together, they need to make many decisions regarding the goals, strategy, and distribution of work. In addition, DAOs are global and online and therefore need tools to manage remote work. People are working on web3 specific versions of project management with built-in web3-native features such as token gating and treasuries.
The difference from classic project management is that DAOs might try to avoid one project manager delegating tasks. Instead, DAO contributors choose their assignments, so they must be accessible and comprehensible to anyone. For example, bounty boards provide open lists of tasks that anyone can solve and be compensated for.
Different tasks require different levels of expertise, competence, or trust. So a DAO has open tasks accessible to anyone, but they might want to control access to other jobs and discussions, for example by token-gating.
One way of controlling access is to let members earn credentials for their work and make some tasks only accessible to those who already earned a specific amount of XPs. That makes sense for positions in control of directly publishing to the public, like a blog or Twitter account, or work on deploying smart contracts.Tools that promote credentials are using NFTs that DAO contributors earn after accomplishing work and trust or platform-native tokens (e.g. XPs on Rabbithole). DAOs can then also have leaderboards to track the contributions and rewards of their members.
The automation and decentralization of paying contributors bring many difficulties: First of all, we need a trustless way of proving that the work is satisfyingly done. How do we do that when something is not easily quantifiable? Then, we need to reward people adequately. But how do we decide about the value of different work?Tools like Coordinape and Sourcecred want to distribute the evaluation of work to everyone but are making it dependent on subjective feelings and opinions.
DAOnative’s community-first approach combines project management, access control, rewarding, and credentials in one system. The focus lies on growing and engaging the community through participation and rewarding.DAO members grow within the community, earn XPs by solving challenges and tasks, get rewarded, and level up their position over time by increasing their credentials. In the beginning, members can solve smaller tasks; after leveling up, they have access to more crucial operations, and later they can create challenges on their own. By using DAOnative, DAOs can create an automated process for anyone to grow within the community and for power to shift over time.
DAOs are not legal entities (yet), which can bring difficulties for people working in those organizations because they need to figure out how to pay taxes and health insurance. It’s important to have projects like Opolis supporting DAO contributors with payroll, taxes, and benefits.
Other projects are already allowing to create LLCs during the DAO creation process (e.g. Syndicate) and there are also advances in terms of providing better legal frameworks (e.g. Colorado’s Cooperative Laws).
We can argue that a DAO should be open and easy to join, in order to work towards more decentralization. When DAOs are open and have decentralized processes to decide who can join or has to leave the DAO, it can be very hard to keep track of who is actually there.
DAOs work with pseudonymous people, and usually, DAOs don’t require any sort of legal identification from their contributors. However, we want to work with real people and identify malicious actors. When a DAO has hundreds or thousands of people participating in different ways (even if it’s just reading all messages), it becomes harder to know about the people's intentions.To protect the DAO from malicious actors, they could decide to have strict access control or use alternative mechanisms of identification to increase sybil resistance.
Security leaks are one of the most severe challenges for DAOs. The infamous hack of The DAO and more recent hacks such as BAYC’s Discord demonstrate the importance of security tools. One of the main DAO challenges is protecting governance and treasury from being captured, whether from the inside or the outside. Those risks can be minimized directly by security tools, or indirectly by secure internal coordination and governance mechanisms.
It is the challenge and purpose of decentralized autonomous organizations to be more resistant to abuses of power than traditional companies.
DAOs need tools for making decentralized decisions about work distribution, people development, and spending. If anyone can join a DAO and the participants don't necessarily know each other, DAOs need to protect themselves against malicious actors with access control and security tools. How a DAO controls access is an important decision that determines the power structures in the organization and permeability to the outside.
Currently, there are DAOs with different levels of decentralization and autonomy, and we will see various forms in the future. For example, some DAOs operate completely without on-chain voting and treasury but distribute work quite decentrally. On the other hand, other DAOs have, despite on-chain implementation, unequal distribution of power (e.g. whales).
Today, DAOs raise and spend money or coordinate work to operate as a company. What else will DAOs do in the future?
Although DAOs with a specific mission could and maybe should dissolve after accomplishing it, most DAOs today aim to be durable and sustainable. However, their mission and structures will change over time; some parts will dissolve, others will merge, or two DAOs will become one. The evolution of the DAO landscape will become even more exciting and meaningful with a growing ecosystem.
In Part 2 of our DAO tooling research, we will present the results of looking at 42 tools that are being built to help DAOs solve some of those challenges.
Every DAO is different and needs different tools, depending on its size, mission, and the field they are operating in. But here at DAOnative, we believe they all have one similarity: they only work as and with a community. So before setting up tools for infrastructure, a community needs to grow. Therefore, the initial stages of creating a DAO consist of nurturing a relationship between the DAO and the individuals. DAOnative wants to help DAOs grow their communities in an exploratory and playful way.
Read more about our DAO management framework here.
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