The DAO Design Dilemma
January 26th, 2022

I’m Beeradley, I spend most of my time working with the wonderful folks over at Index Coop. I’ll be unpacking and’ing my Web3/DAO adventures.

Many DAO’s are now facing the reality that they cannot (and should not) strive for full decentralisation, autonomy, nor a completely leaderless and flattened hierarchy of contributors.

There is a decentralisation spectrum, and every DAO is carving out its own unique path along that spectrum.

The reality is that most DAO’s still require:

  • A clearly identified, articulated and widely adopted mission, vision, north star etc
  • An understanding of the work that needs to be done to drive mission critical growth while ensuring financial sustainability (tokenomics)
  • The ability to delegate and make decisions quickly and efficiently
  • Methods of measuring the effectiveness of contribution (generally overarching KPI’s, Objectives, Success Metrics etc)

In most cases, a degree of centralisation and leadership is required to tick all of the above boxes. This can be a somewhat uncomfortable realisation, as leadership and centralisation are the two major repellents that ushered most of us into DAOs in the first place.

We’re calling this the ‘DAO Design Dilemma’.

So how do we design DAO’s to ensure long term success, scalability and sustainability, while prioritising the ethos of decentralisation and inclusiveness, free from the shackles of traditional hierarchy and centralised leadership?

If 2022 is year of the DAO, I’m convinced the DAO’s who prevail strongest will be the ones who’ve worked relentlessly to answer this question.

There are six humans who I’ve found to be especially insightful in their thinking on DAO’s and solving the DAO Design Dilemma.

Alex Zhang
Jess Sloss
David Ehrlichman
Pet3r Pan
Pepperoni Joe

If you’re interested in DAO design as much as me, I’d encourage you to check out the two following conversations.

Alex Zhang and Jess Sloss discussing Friends With Benefits DAO and the concept of Convergence <> Divergence on the Seed Club Podcast.

A panel conversation with David Ehrlichman, SpaceXPonential, Pet3r Pan and Pepperoni Joe where we discuss DAO design as part of the IndexCoop Owlchemy AMA.

The following is my attempt to distill and open source some of the key findings from the above conversations. I hope we can collectively share ideas, experiences and learnings to help each other build a strong ecosystem of DAOs.

May we all slay moloch together.

Here are five design considerations for those hoping solve the DAO Design Dilemma.

1. Optimise for the divergence <> convergence loop

The idea of convergence and divergence is core to solving the DAO Design Dilemma.

"Divergence is the act of separation, or extension into new directions from a common point. Branching off or forking can promote autonomy, speed, and agility, but without a return back to the center, fragmentation can happen." - FWB Season 5: Social Spaces.

In their conversation, Sloss and Zhang discuss the idea of building systems optimised for divergence through ideas, creativity and decision making, while maintaining some framework for alignment and convergence.

Friends with Benefits are moving into Season 5. I’ve been following FWB for some time now and I truly believe every single DAO should be doing the same. They are pioneering concepts of DAO design with inspiration drawn from an incredible range of community focused urban theorists and ecological systems.

The general thesis here is to provide a solid foundation to encourage contributors to evolve their own products and projects, with convergence points to ensure alignment with the overarching goals and objectives of the DAO.

2. Shift to emergent and fluid ‘networks’ over traditional hierarchies

While some hierarchical structure is important, there is huge potential awaiting DAOs who adopt a network based structure.

David explained this so well during our AMA, I’m not even going to attempt to rewrite it. I’ll drop the wisdom directly below.

“For a long time, the hierarchy has been the dominant structure for organisations. It's been the default way of doing things, and hierarchies exist for a reason. They're predictable and reliable. They're really good at executing strategies when it's clear what needs to be done. But when it comes to engaging very large numbers of people to be fluid and adaptive, and when it comes to addressing complex issues and working in complex domains where there is not a clear path forward and where things are constantly changing, the rigid structure of hierarchies becomes limiting, and power and decision making is highly concentrated at the top.”

“I think one of the beauties of DAO's is that they flip that model on its head and they start with the network. They start with the purpose and the people, and they create fluid structures. Just enough structure to support people's ability to connect, communicate and collaborate on behalf of the things they care about. And instead of a hierarchy where there's a single dominant power structure that dictates what people do and how decisions are made, a good hierarchical structure can emerge where there are multiple natural fluid hierarchies based on people's interest and experience and expertise. And then this way, form follows function. So rather than fitting people into a rigid, predetermined structure, the structure emerges from the conversations people are having and the work they want to do together. And this gives autonomy back to the people so that people can determine their own path and have ownership and the things they're participating in instead of command and control.”

It turns out David was facilitating and helping build decentralised organisations long before the Ethereum ICO. He is the author of this incredible book which so aptly applies to growing healthy, sustainable DAOs. Well worth the read.

3. Explore horizontal scaling and subDAO opportunities

To fully embrace a fluid network structure and optimise for convergence and divergence while still maintaining cohesive objectives, DAOs need to adopt and experiment with innovative horizontal design. In the latter half of 2021, there was a lot of discussion around subDAO’s and horizontal scaling.

Pet3r Pan shared an interesting piece outlining his thoughts on potential KPI Driven SubDAO structures.

We had Pet3r on the DAO design AMA to discuss in more depth.

“Even though the initial working group structure makes a lot of sense in terms of how you initially organize the community, they usually don't scale very well….If there was one thing I learned last year, it was really that we almost found the limitations of the functional working group model.”

“The core principles behind this idea (subDAOs) is really just to minimise the overhead and decision making complexity required, and push decision making to the edges.”

“Focusing on scaling horizontally while you're increasing the amount of teams that are trying new things to accomplish the key outlined objectives of a DAO.”

The idea of giving subDAO groups just enough structure and guidance to ensure higher level alignment, but plenty of space to move quickly, break things and explore innovative solutions is huge.

In Pet3r’s article, he suggests small subDAO teams working in three month sprints broken by an intensive reflection/governance period.

“During these two weeks, everyone in the sub-DAOs is expected to participate in shared discussions. If a team’s work is found to be ineffective or needs improvement, they either can quickly iterate their plans or are given a notice period for which they may continue on for another 4 months but need to iterate on their work plan.”

The possibilities for subDAOs are virtually endless.

In IndexCoop, we’ve implemented the first iterations of a subDAO model with separate Nests and Pods.

Index COOP Nest + Pod Model
Index COOP Nest + Pod Model

Pepperoni Joe, responsible for most of the Coordination of Index 2.0 and the shift toward a Nest and Pod model, explained his thinking on the future possibilities of subDAO model.

“Increasingly, what I see with DAOs, is more fluid organisms. We’ve adopted a subDAO model in Index Coop with our different Nests, and these Nests can be seen as mini organisations within their own right. And I think what that might ultimately lead to, is these parts of organisations might work with other organisations as well. These SubDAOs might support other DAOs and do what those subDAOs and teams are really good at in a more fluid way. DAO’s become these networks of organisations and high trust teams who grow in a more organic and fluid way.”

4. Design for humans

As we leverage tools to increase ownership, think deeply about structure, horizontal expansion and product, it’s so easy to forget DAOs are, at their core, just gatherings of humans.

People are embedded in all of these structures with all of their inner-experiences, emotional baggage and intrinsic motivations.

SpaceXPonential is community lead and educator at ForeFront. We were so lucky to have her fresh take on human-centric design in our Owlchemy AMA.

“Often, DAO design puts the overwhelming emphasis on the structures, on technology, on processes, instead of realising that all of these are chiefly interpreted through the inner experiences of human beings.”

It has been incredible to witness Space, and the ForeFront team implement human centred design. They are proactively encouraging contributors to prioritise mental wellness and seeking to individually understand the economic requirements of their core contributors, individually.

Very excited to watch ForeFront grow over the coming months and years.

5. Embrace and encourage network leadership

It’s clear that most DAOs do require some form of leadership. Rather than traditional, centralised leadership, a reimagined, more fluid stewardship approach will foster more efficient DAO design.

“Every network and every DAO is unique. It's impossible to develop a precise instruction manual for cultivating networks & DAOs. However, it is possible for network & DAO leaders to tap into 4 powerful principles that are at work in all living systems—including human systems.”

In our recent AMA, Pepperoni Joe discussed the evolution of Index 2.0, sharing the insight that broader community involvement community decision making

“And I realised that it was actually this co-creation process, which is what contributors really wanted to do. It wasn't me rustling up this new org design and saying, here we go, let's do it. But actually involving the people who are here, day in, day out, to help craft that final end state of where we want it to be. And so that's what Index 2.0 really was.”

Closing out by expressing huge amounts of gratitude to the guests of our Owlchemy AMA who so generously shared their time and wisdom. And to the Index COOP. Incredibly excited for the coming months and years.

If you have any questions, please give me a follow and drop a line over on the blue bird.

Happy days.

Arweave TX
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