DAOs: Tools for Tomorrow's Decentralized Workforce or Fad?

DAOs are changing how humans work.

A new zeitgeist has arrived in the first score of the 21st century, dissolving digital boundaries erected in the information age and birthing what may be remembered as “the age of decentralization”. Cryptocurrencies triggered this paradigm shift by introducing a universal economy decoupled from national governments. Of course, economies are much more than just currencies and also include sophisticated orchestration of resources and human labor. Thus naturally, cryptocurrency will soon (and already has begun to) influence these other critical economic factors. A particularly interesting evolution underway is the transformation of structured human labor from institutions and corporations into decentralized autonomous organizations (DAOs).

First, what is a DAO?

DAOs are internet-native communities that share a mission and a balance sheet. DAOs can represent a wide spectrum of communities from  large  companies, non-profits, academic institutions to small clubs, sports teams, and special interest groups. In the context of companies, DAOs may also share ownership of the product or service that is created. Already in the tech industry, DAOs are beginning to evolve how humans work, transitioning the workforce to be more decentralized and the workplace to be more distributed. Some modern workforces find DAOs attractive because they place automation logic at the core of operations and humans at the edges, maximizing their time available for creative, intellectual work. Others are attracted to the shared ownership construct bearing similarity to traditional worker cooperatives. Regardless of the reason, it is clear that DAOs are growing in popularity with thousands of DAOs existing today compared to only a handful in 2017. This is only the beginning of a new chapter. As with any new frontier, there are new challenges in this space which beckon for novel tools to solve them. The digital nature of DAOs is placing a high demand for their existence, and especially on the development of innovative software tools. In the remainder of this article, we explore software tooling for DAOs, and assess how venture capital can play a role in cultivating the advancement of tomorrow's decentralized workforce.

Tooling for the decentralized workforce

While the DAO software tooling landscape is still very much in its nascency, some clear categories are beginning to emerge. To bring reason to this landscape, it's cogent to first consider how DAOs have been formed historically (and organically) - on internet forums, email lists, chat groups, and social media. At the root of any human coordination is some form of communication. (Sean Parker once said that communication was the largest market on Earth, and we would wholeheartedly agree.) Thus, the clearest, and perhaps most mature, category in the DAO software tooling space is communication tools. The next clearest category, stemming from the intimate relationship of DAOs and cryptoeconomics, is that of multi-party, digital asset management. Other blossoming categories include governance, administration, product development, community management, and project management. Some technology solutions in these categories today have simply repurposed existing enterprise software with web3 integrations, while others are building completely new software from the ground up. Next, we will summarize these categories and highlight specific efforts currently building solutions in these areas.

Communication tools are essential to any organization's success, and DAOs are no exception. DAOs have largely utilized existing group messaging apps (e.g. Telegram, Discord, Slack, even text) and forums (e.g. Discourse) for community discussion due to each’s convenience and low costs. Still, extending these platforms onto blockchains is an active area of development for DAOs. The future of communication platforms for DAOs will build better bridges to blockchain networks, and offer new user experiences such as pseudo-anonymity, direct value transfer, and verifiable content credibility.

DAOs have an incredible aptitude for raising capital exemplified by TheDAO's ~$50M raise during a couple of weeks in 2016 or the recent ConstitutionDAO ~$47M raise over several weeks in 2021. However, once funds have been raised, DAOs face the challenge of monitoring and managing these funds. With currently over $10Bn worth of assets under management in DAO treasuries today, asset management is a sector that has become increasingly pertinent and will likely see further growth. Projects in this category include dashboard analytics, multi-sig wallets, grant providers, and contributor payment systems.

The frameworks/development category encompasses the wide spectrum of tooling ranging from product infrastructure support to  developing the DAO itself. Early projects like Gitcoin provided freelance marketplaces to match skilled talent with DAO and protocol needs. Now, specialized services exist for smart contract development, DAO scaffolding, web development, and more.

The project management category consists of tooling built to enable frictionless collaboration and work autonomy amongst the decentralized workforce. These tools generally take the form of web-based project trackers, task boards, gantt charts, etc. Successful development of these tools for DAOs must consider additional web3 design  constraints such as user-controlled privacy and verifiable credibility. An under explored regime is explicit design for mobile and deskless workers.

How does one onboard onto or offboard out of a DAO? How are contributors recruited and compensated? How are formal relationships with other businesses or DAOs handled? DAOs must solve these and many more administrative-type problems.  DAOs can rapidly grow from small group chats to thousand person teams, so these solutions need to be adaptable and scalable. New administrative tools will help community managers maintain in close touch with internal and external community members on a variety of platforms through fewer channels.  DAO onboarding systems will need to optimize balancing both accessibility and selectivity to attract strong, diverse talent. Encoding contributor quality and integrity is a growing trend that may help establish robust and universal methods for membership processes. For example, there is current development of decentralized identity (DID) and verifiable credential protocols that will improve integrity in the ecosystem and maintain contributor privacy.

Decentralized governance has garnered much activity since the advent of Decentralized Finance (DeFi). Some early pain points for DeGov have been prohibitive gas-costs for voting, lethargic proposal processes, and cluttered forums. Several young projects have spearheaded tackling these problems, but have only scratched the surface of this glacial domain. This space can be expected to have an importance (to be as important or as significant) as mighty as any governing body in a sovereign nation state. DAO governance will be a vital source for important information impacting consumer-facing applications and invested financial traders. Verifiable and confidential governance can have vast applications on many different levels and corners of society. Tooling in this arena thus has the potential to attract high attention (DAU and retention) from a diverse set of user bases including national governments.

A new opportunity for venture capital

The budding DAO ecosystem is in a vibrant and exciting phase. The creative DAOs forming today are eclectic, open-minded, and intelligent with a high enthusiasm to build and ship. Whether this energy dampens, only time will tell. We do know that many stakeholders are vested for at least 3-5 years which is a long runway for software applications to innovate. With the advent of innovations in the DAO ecosystem, DAO operations will likely never reach a one-size fits all solution which means DAO software tooling will have continual demand and opportunities for growth. DAOs will always be faced with the decision to build or buy services they need. We can thus expect several forms of relationships to manifest in this market: traditional businesses may service DAOs (B2DAO), DAOs may provide products and services to businesses (DAO2B), or DAOs may service other DAOs(DAO2DAO). This presents a fertile market opportunity particularly for VCs with experience in B2B SaaS. While the terrain of DAO tooling is certainly unique, many landmarks and obstacles are similar to those encountered in B2B SaaS within the last 5-10 years. With a lot of the same infrastructure being used ( cloud computing, personal computers, mobile, etc.) VCs with knowledge of B2B SaaS can quickly pattern match trends and make reasonable predictions about the potential growth of this market.

Another interesting growth factor to consider beyond the crypto-native interest in DAOs, is the transition of global workforces to deskless, digital, and remote domains. Today, 1/7 jobs are remote (½ in the U.S.), freelancer/contract-based work increased over 20% for small and large companies between 2019-2020, and the Covid-19 pandemic has incited 'the great resignation' in the U.S. as workers leave legacy companies seeking  more independent and flex-work alternatives. Human labor is evolving into a 'satellite' workforce, where individuals work remotely orbiting their workplace from their computer or mobile phone. It is possible that DAOs witness an influx of interest from this new demographic of satellite workers that find favorable work within decentralized communities.

Lastly, aside from the market opportunity for investing in DAO tooling, VCs should still take the time to understand DAOs because of their potential impact on the VC industry itself. DAOs and VC firms have a lot in common considering that the majority of DAOs have operated as investment vehicles. DAOs already have hinted at a product-market fit in regards to mission-driven fundraising and capital deployment. DAO-based VC firms are already forming, like Seed Club or The LAO, and traditional VCs wishing to invest in the DAO space may consider embedding themselves deeper into the ecosystem to remain relevant and competitive.

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