DAO has became the trend in Web3 recently as more and more new Web3 projects choose to start as DAOs. These DAOs have various forms, but most DAOs have the followings in common:
1. A governance token, which is used for voting on important decisions, e.g., the election of a governance committee.
2. A permissionless setting that welcomes anyone to become a member (sometimes by buying a certain amount of governance tokens), contribute, and get rewarded.
3. A flat and non-hierarchical structure with less strict rules and less management. Members are not employees, but the owners of the DAO.
4. An open and spontaneous culture that encourages the members to take the initiative and contribute to the DAO, rather than just taking the assigned tasks.
All of these seem to make sense, except that they do not lead to success. IMO, an organization that having these features is not even necessarily a DAO, as the key essence of DAO, automation, is somehow (or maybe deliberately) ignored.
Automation is the key
DAOs == automation at the center, humans at the edges.
— — Vitalik Buterin
This quote is from the original article in which the concept of DAO was introduced in 2016. By that time, it was quite clear what a DAO is: It is a new type of organizations with every piece of rules and regulations written on Ethereum as smart contracts. As a result, the organization can be automatically operated with all predetermined rules automatically executed and thus cannot be manipulated by central authorities, i.e., code is law. However, this dream was quickly scattered by the DAO incident. It turned out that the blockchain technology is not advanced enough to automate all rules of organizations.
However, even if the DAO failed, it is quite clear that the essence of DAO is that it should be run by codes instead of human. Decentralization, or namely the blockchains and the smart contracts, is the technique to guarantee the codes being executed without the inferences of humans. Then, when something is indeed not feasible to be described or executed by codes, humans should be included in the process. This is the DAO Vitalik suggested: “automation at the center, humans at the edge.”
Currently, DAOs run in a completely opposite way: with humans at the center and codes or the automation at the edge. They only play their parts in some very specific occasions, e.g., members vote to decide whether a large amount transaction could be made out of the DAO’s account. Even in this very occasional moment, the automation is mostly a symbolic movement for a decision already made by humans.
It might be hard to see a problem in here, so let me give an example: Bitcoin is sometimes referred as a successful DAO. Bitcoin holders autonomously contribute to the success of Bitcoin by mining, advertising, coding, and building the Bitcoin ecosystem. However, in the center of Bitcoin, it is the consensus described in the whitepaper of Bitcoin and the code of Bitcoin core that lay the foundation. Now, let’s imagine a Bitcoin started without a consensus mechanism and the Bitcoin core, but with merely a mission of “creating the first decentralized digital currency”, a vision of “overthrowing all central banks”, and a governance mechanism “every time a transaction is made, every token holder should vote to approve or disapprove it. The token holders will get mining reward for their contributions”.
Just like many other DAOs nowadays, this is a DAO that could work in theory. Then, as this DAO operates and evolves, with some good talents onboard, it might be even possible that the members come up with a consensus mechanism that eventually automates the process. However, in practice, I doubt this Bitcoin would be as successful as the one that Satoshi Nakamoto created. The fact is, Satoshi Nakamoto’s Bitcoin gave birth to the technology we call blockchain and later on inspired all decentralized technologies known as Web3 today. None of these could happen if Bitcoin is given without its consensus mechanism.
Public blockchains vs. DAOs
In that sense, public blockchains and DAOs have many things in common: Most modern public blockchains are also DAOs. They have governance mechanisms that based on the votes of the token holders to make important decisions. They also hold a fund to reward the contributors. Then, one can argue that it is not a DAO since this fund is not managed by voting. However, voting is merely a semi-automated process of rewarding contributors. Public blockchains, on the other hand, have a fully automated process of contributing and rewarding, which is the incentive mechanism that rewards the miners. In that sense, most public blockchains are better designed DAOs with automated rewarding mechanism for contributors. However, this automation mechanism is not scalable since unfortunately, these are not applicable to the DAOs that are not pursuing to build a trusted ledger.
The road to automation: DAOs need their own ERP systems
It is unfair to deny the effort of automation made by DAOs. To say the least, the governance token, the on-chain voting, and the multi-sig wallets are all automating certain processes of organizations. The key message of article is that DAOs and DAO toolings shouldn’t stop here and presume that these are the only automation required for DAOs. DAOs should be automated in a much larger scale.
If we look into the governance models of some popular DAOs, e.g., Bankless DAO or Gitcoin DAO, it is clear that most processes are not automated. For example, during the fund application process, both the applicants and someone from the DAO management have to take initiative in multiple steps to manually push forward the process. In fact, it is the duty of certain roles to keep tracks of all incoming proposals, assign them to the correct people, and supervise the progress. However, we actually have tools to deal with these duties decades ago, called Enterprise Resources Planning (ERP).
On one hand, it might appear strange since ERP systems are always related to big enterprises that are very different from DAOs. On the other hand, it is also unthinkable that DAOs, known as the new type of organizations for the future, operates in such a way that even the most trivial tasks have to be manually conducted by the highest paid talents of the organization.
One can always argue that such tools are not used trying to avoid centralization like traditional organizations. Hence, some inefficiency is merely a trade-off to decentralization. However, I can’t see the reason why letting a committee or some selected person be in charge of these duties more decentralized than ERPs systems. Even with a centralized ERP system, an automated workflow is still more decentralized in the sense that less human could interfere the process. Another worry is that using such system will restraint the autonomy of the DAOs and poison the open and free culture of DAOs. AS a matter of fact, I am not implying that we should ask SAP to build ERP systems for DAOs, but suggesting that DAOs should build their own ERP systems. A good starting point is to automate the daily routines of the current DAOs, e.g., a workflow of project application that could automatically involve the correct person in the right time so that they can discuss, comment, vote, and fund the project.
Conclusion
Basically, I am suggesting three things for existing and future DAOs: First, organizations with merely spontaneousness and optional usage of governance tokens and voting are no better than traditional organizations and is not a real DAO by definition. Automation is the key and the foundation of DAOs. Second, DAOs should emphasize more on rules, automate the rules in codes, and minimize the human interference in the execution of the codes. Hence, ERP systems should also be used in DAOs to automate certain processes, although they sounds centralized and have nothing to do with blockchain. Third, DAO toolings should learn from both existing DAOs and classical ERP systems and build ERP system for DAOs. Automating the daily duties of DAOs, even without any usage of the blockchain technology, is laudable. However, for the flourish of DAOs, the future DAO toolings would merge ERP systems with on-chain ledgers and smart contracts.