Note: By the time I finished this article, I found myself covering only a small part of this topic, analyzing more the issue of how DAOs fund their operations, reviewing historical experiences, and trying to find some lessons from other successful large organizations.
The increasing number of DAOs of the cryptocurrency industry in 2022 ,somewhat similar to the proliferation of public chain projects created in 2018, where most public chains are registered as foundations, a topic we were considering in 2018 when we were running public chain projects, how to make a foundation or community that can operate for 10+ years or more, at that time I also looked into Linux Foundation and Toastmaster Foundation's operating history to try to find the secret of an organization that can run for a long time.
I was reminded of this again when many DAO's were formed this year , recently I asked the question in many DAO community, if a Dao can run for 10 years, what should it look like? Or what are the Necessary conditions ? The answer is "no one pays attention to this issue, the community thinks this topic is too far away, they are more concerned about the present.
However, it is still worth for the DAO community to think about this issue. No matter what value Members want to get from DAOs, if a DAO can exist for a longer period of time, such as ten years, then DAOs can help more people grow and help the crypto industry develop better, which will also generate more social value. Without long-term thinking about this issue, DAOs may die out in large numbers, just like the public chains of 2018.
The full name of DAO is Decentralized Autonomous Organization, no matter how to define it, DAO is always an organizational structure, and looking back at the history, maybe we can find some secrets of long-lasting operation from other excellent organizations. There are always some long-lasting principles to support the growth of the organization, the following organizations are well run, and thy have a long history of success.
1.Yale & Yale University Endowment Fund (~320 years & ~130 years)
2.Nobel Foundation (~120 years)
3.Toastmaster Foundation (~100 years)
4.Linux foundation (~20 years)
5.Coca-Cola (~130 years)
So what is the secret of their success? I don't know. But I have found that they all have a clear mission, vision, and values, and that these organizations own enough money to support their long-lasting operations. Before we get to the secrets of the longevity of these large organizations, I am curious about where their operating funds come from.
A few days ago, I listened to a podcast about Bankless DAO, and one of the topics was the increasingly urgent pressure in Bankless is facing to fund decreasing. At the time Bankless was founded, the community paid little attention to revenue and the campaigners would not talk about it, but now more and more attention is being paid to revenue and the subsequent operations issue, and the campaigners are more willing to talk about The community is also trying to figure out how to solve this problem. Where do these large organizations get their revenue money from? Perhaps DAOs can learn from the experiences of these large organizations.For these organizations, I found some publicly available information:
Yale's funding comes mainly from donations + investments + grants + medical services + tuition;
Coca-Cola's funding comes from product sales;
Noble Foundation's funding comes from wills + investment earnings;
Toastmaster's funding comes from individual membership dues;
Linux Foundation is funded by corporate membership dues and other services.
It can be concluded from the above analysis that these organizations are funded in the form of three types: donations & investments + product services + membership fees.
DAO is the easiest to set up, so it is also the easiest to die out
The Yale & Nobel are few and far between from a worldwide perspective. While many universities in other countries rely on government grants to fund them, science foundations like Nobel are initially initiated by sponsorship and then reinvest the remaining funds to maintain operations. One is for human education, the other is for human science, and it is clear that the vast number of DAO organizations do not have the characteristics and cannot operate in the same way as them.
Linux Foundation use corporate membership fees to maintain operations, Linux Foundation is mainly corporate members, Linux Foundation profit income is very little, but the Linux Foundation for the open source industry to do a huge contribution, companies are also happy to contribute their capabilities. Although they belong to the same open source industry.
DAO organizations in the Crypto field do not have similar influence, so there are no corporate members willing to pay dues, but with the development of Crypto, the maturity of DAO organizations with a clear vision and service capabilities, there may be companies willing to support such DAO organizations, but the number must not be many, in each segment, there may only be 3-5 DAO organizations exist.
The Toastmaster Foundation relies on individual membership to maintain its operations, and after a century of development, has more than 300,000 members worldwide; Toastmaster provides speaking engagements and personal growth training services to its members. If you want members to pay fees, then you have to provide a valuable service.
Think about it, DAOs openly charge membership fees and then provide services, what services can DAOs provide that are happy to pay fees given the current state of the industry? Now there are many DAO organizations have issued Token or NFT, only those who hold a certain number of Token can enter this DAO, in a way, this also belongs to a kind of membership dues.
Coca-Cola is a well run and for-profit organization, and it has been operating for over 100 years as a service provider to the customer. the Crypto program is actually providing a service, and because people to price the future value of such services. Around the world, there are millions of companies on the planet providing services to people, which is the most constituent form of the above 5 categories of organizations that have a clear value proposition for providing services to people.
Category of DAO
I think DAO which much like Crypto Token, it is a new species. Tokens are like both stock shares and national currencies, and sometimes it like a cloud of air and worthless. the same analogy exists for DAO.
Maybe the DAO will be like Yale and Noble one day, providing universal value, with good operational capabilities and countless companies & individuals willing to contribute funds to support its long-term operation.
There will also be DAOs like the Linux Foundation and Toastmaster that are funded by their members and then provide some kind of service to their members. There won't be many DAOs of this type.
I think the most common type of DAO will be like a company that provides a clear value and service, and people pay for that service, and then use those fees to keep the DAO running. In that sense DAOs and Tokens are like water, they change, they can exist in various forms, but that makes it harder to run a DAO.
Regardless of the type of organization, one of the reasons it continues to exist is that it can provide value, so DAOs are no exception. People who enter DAO organizations always expect to receive some value, such as investment appreciation, learning certain abilities and experience, and a very small percentage of people are purely contributing, to get a sense of spiritual pleasure and value, but from the current situation, the vast majority of people, or more than 99% of people who join DAO organizations, expect to obtain wealth appreciation, of course, there is nothing wrong with this, as long as it is not illegal. Through investment, construction to obtain wealth appreciation, which are worth encouraging behavior.
Another point I want to emphasize is that the above five organizations, although they have achieved a certain degree of decentralization, but they are all centralized operating institutions, and these institutions are running very well. So, when we always emphasize the feature of Decentralized in DAO, we have to be very careful to define a boundary for it. When we are creating a brand new species, especially when this species is related to human beings, we can first review the history, maybe what we expect has already appeared in the history.
Looking at the history of the five organizations I listed above, the characteristic of Decentralized is not a necessary condition for their operational success. Rather, mission, vision, values, and operational capabilities are necessary for their success.
Let's go back to the topic of DAO revenue
From the previous inference, we can roughly conclude that DAOs must provide valuable services in order to operate for a long time, and now many DAO organizations are more like a forum, just a place to communicate, and furthermore to create some services, which requires the labor and contribution of many people. provide part of the funding, then the company hires employees to create the service, sells these products, receives the profit, then pays the salary for the employees, then continues to create, forming a cycle.
In the DAO world, there are some DAOs that take the above form of funding, raising money and then creating services, such as SeedDAO, but most DAOs start without funding. Bankless was started by issuing DAO's Token, allowing users to participate in governance, giving incentives to community members based on the fruits of their labor, and then giving them liquidity, it seem they own "value", but they don't.
As we said earlier, value is from real services, but many DAOs do not provide valuable services, and no one buys the service, so the value of Tokens issued by Bankless is very weak. During the bull market period, the community relies on initial liquidity and investor expectations to make Tokens appreciate, and the laborers who get Bankless token seem to get good value in return, but when the bull market that supports expectations does not exist, we suddenly realize, what services did we provide? Who is going to buy these services? Where did the value go? From this point of view, because DAOs have not yet provided consistently valuable services, the Tokens they provide now are just losing their support.
Don't take the same approach as BTC to develop price discovery for DAOs
BitCoin was also initially unrecognized as "valuable", but as the narrative changed, deepened and spread, the world seemed to find "value" for BTC, but BTC gained recognition for its originality and precedence, its security, and its scarcity and high level of consensus. The world has only one BTC and needs only one BTC, and many DAOs are still adopting the BTC issuance method to issue Tokens and operate DAOs, which is obviously extremely difficult to succeed, many people think it seems easy to create a narrative. But in the human world, collecting all the "gems" to create a new thing is not universal, and sometimes I think that the emergence of BTC is like a person winning a $5 trillion jackpot, which is unlikely to happen again.
While every DAO organization that issues Tokens but they claims the Tokens are meaningless, people buy DAO token with the expectation that it will appreciate in value, and even when people go to a DAO and offer contributions, the vast majority of them take the expectation of receiving future Token appreciation, and whether we admit it or not, that is the reality.
If DAOs provide Tokens too early but do not provide more valuable services, it will cause Tokens to fail to find value support, but the problem is that people join DAOs or contribute to DAOs in order to get Token appreciation, so when Tokens lose value, it will accelerate the loss of which memebers are providing services, and then Many DAOs will shrink and eventually die out, which is like a company that has no product and no revenue to operate for long. Unless some DAOs shield these people from the start and can find a group of people who never want monetary reward to keep contributing, this also makes it harder to keep running for a long time.
Suggestion in creating DAO
When you setting up a DAO, don't provide any Tokens until you provide a valuable service, and don't try to distribute some non-existent "benefits", but you can mark the workload of DAO members, so DAO organizations need to find a way and a set of tools to tokenize people's contributions. In the future, such contributions may be tokenized using SBT (Soul bond token) technology or DID technology, and they cannot be exchanged, but only exist as a non-liquid reputation value. Issuing Tokens is a double-edged sword that can backfire on the DAO itself, unless you create service value and you know the secrets of using Tokens.
For long-term operational considerations, DAO organizations should tier Tokens
Now Token is like water, it can change into any shape, but this take a challenge to DAO operation, in our discussion above we found that if we incentivize relative to DAO members, we have to specify what this incentive is as well as what it is not, so my idea is whether we can solidify Token. So this time DAO can create a combination of Token, Token is like Class defined when we write code, it contains different parameters and functions, each parameter and function can only do a particular purpose. For example, it could look like this.
Token Class A
{
Token A'
// is a non-tradable SBT, just like every human gene, and can never be modified.
Token A''
// it is an NFT that can mark people's Proof of Work (PoW), which adds a DAO member's PoW mark, but is not tradable. E.g. What is responsible for this project, what is the code submitted each week? What articles have been written? How many members have been developed? What do the project members evaluate team memeber‘s PoW? What is the annual revenue of the DAO fund managed? What projects have been invested in? What talents have been recruited for the DAO organization, etc. Various PoW proofs that can be defined or not quantifiable.
Token A'' '
// Proof of earnings, how much salary has the DAO provided for the contribution of the Member? Rewards? This can be other Token, it can be some NFT, or something else.
Token A'''
// this is an equity token, meaning that these DAO shares get a benefits of the net income generated by the DAO in the future
TokenA''''
// This is a vote Token, which can only be voted, not traded, to prevent ballot trading.
}
What can we learn from historically successful organizations?
From the 5 organizations listed above, we can see that although they are all foundations, they all have different methods of maintaining their operations. When the Crypto community creates new DAO organizations, we can look at these historically successful organizations to find our own positioning and management style.
Now the Crypto community's DAOs all look the same, I suggest that we should not stick to one form. For example, I think each DAO should have its own approach to decentralization. It doesn't have to be a one-person-one-vote democracy, maybe there are other ways to manage and operate, we should find a balance between longevity, creating maximum value, freedom to create, and Decentralized, then this balance is not the same. From the 5 types of organizations I listed above, you can see the difference between the way they manage and operate.
If DAO A's dream is to run an educational institution with a long history like Yale, then you should learn from it
If DAO B's dream is to run a motivational organization that promotes science like Nobel, then you should learn from it.
If DAO C's dream is to run an organization that promotes Linux research and adoption, like the Linux Foundation, then you should learn from it
If DAO D's dream is to run an organization that provides a valuable service to its members like the Toastmast Foundation, then you should learn from it.
If DAO E's dream is to run a company like Coca-Cola that creates fun for consumers and generates superior returns for investors, then you should learn from it.
Remember that when we create a DAO, we should give the DAO a unique mission, vision, values, the way of operating, and revenue to support ongoing operations. If all DAOs follow how BTC works, that means we have little chance of success.
Extended Reading
//A good example of DAO practice
//A good overview of Token Design