CORE CONCEPTS

Today we’ll dive deeper into Decentralized Autonomous Organizations (DAOs). We’ll also explore a popular tool called Snapshot, which DAOs use to vote on governance proposals and record important decisions on-chain.

UPDATE - June 1st, 2022 - the last section now includes a live example of a vote taking place on Snapshot.

What are DAOs

The concept of a DAO emerged in a blog post by Vitalik Buterin circa 2014.

Since then, much ink has been spilled about DAOs. I won’t attempt to summarize these articles but will post a number of links at the end for further reading.

There’s a natural tendency to compare DAOs to traditional organizations like corporations, cooperatives, and startups. However, I would advise that you try to think of them as an entirely new type of organization.

Some of the unique attributes of DAOs make people excited about their potential to transform the future of work. They embrace concepts like self-management and holocracy, and reject hierarchy and top-down decision-making.

Over the course of history, there have been various breakthroughs in human collaboration and organizational design (see chart below). DAOs or DAO-like structures, also known as teal organizations, might crossover from being a fringe thing to a more mainstream one in the years ahead.

DAOs have principles that are similar to teal organizations like Patagonia and Zappos, but implement those principles in different ways.

DAOs are organizations in the sense that they represent a group of people working together towards a common aim, but the aims are diverse and often fluid. Some DAOs make products; some buy things together; some are purely social. Some manage multi-million dollar treasuries; some don’t manage any funds. Some DAOs are small and exclusive; some have tens of thousands of members and are open to anyone. (Klima DAO is in the latter category.)

DAOs are decentralized, although in practice there is a wide continuum of decentralization levels. You can join a DAO from anywhere in the world. You can be anonymous or pseudonymous. DAOs have full-time, part-time, and observer roles for people. They don’t have a C-suite or board of directors. Some DAOs pay people at regular intervals, much like salaries, only with cryptocurrency. Some award grants and bounties for positive contributions. Some have no compensation. Many DAOs begin with a founding team that establishes a structure and rhythm and over time aspires to become more decentralized.

DAOs aim to perform certain functions autonomously through smart contracts. “Smart contracts” are autonomous pieces of code living on the blockchain that run when predetermined conditions are met. Smart contracts enable trusted transactions to be carried out among disparate, anonymous parties without the need for a central authority or external enforcement mechanism. They also stand to make many organizational and business processes more efficient and transparent, because the rules are set upfront and then enforced through immutable code.

There are many applications for smart contracts: voting is one of the most obvious ones.

Voting on Snapshot

Snapshot is a popular decentralized voting system for DAOs.

It provides flexibility on how voting power is calculated for a vote, instead of just the traditional one-person, one-vote rule. Each DAO can determine its own voting eligibility requirements, often a minimum number of tokens.

Snapshot supports various voting types to cater to the needs of different DAOs, such as quadratic voting and ranked-choice voting.

Creating proposals and voting on Snapshot is user-friendly and does not cost gas as the process is performed off-chain.

Now let’s take a look at how this works. Go to snapshot.org in your MetaMask-enabled browser.

The Snapshot homepage displays the icons and membership numbers of various DAOs. For example, ENS - the dapp that you purchased your web3 username from - is a DAO. Gitcoin is a DAO that supports open source software development and allocates grants to public goods projects. Aave is an open source borrowing/lending protocol. Uniswap is a decentralized exchange. Bankless DAO is effectively a web3 media conglomerate.

We’ll be interacting with Aave and Uniswap in couple days, but for now we can ignore all these DAOs.

Step 1. Connect with MetaMask

Click the Connect icon at the top of the homepage and sign the transaction. You’re giving Snapshot permission to see what’s inside your wallet.

Step 2. Search for Klima DAO

Once you’re connected, and your ENS name is displayed at the top of the page, type in “Klima” in the search bar. You should see an icon that looks like this.

Step 3. Join Klima DAO on Snapshot

Click the Join button and sign the transaction. This step will add the Klima DAO icon to your sidebar on the left of the page, making it easier for you to keep track of the DAOs you’ve joined.

Step 4. View the proposals

Once you’ve joined, you’ll see a list of proposals that have been brought to a Snapshot vote. Unfortunately, at the time of writing, all of these were closed. There aren’t any active proposals available for voting. There is an example a live proposal included in the next section (although it may no longer be available by the time you view this). In addition to voting on any active proposal(s), you can scroll through the page to see the types of issues that have come up in the past.

Some of the proposals are quite technical and are related to the DAO’s token and treasury management strategy.

Proposal “KIP-10” is more accessible and contains a proposal related to the DAO’s compensation framework. You can click on it and view the details. The vote was held over three days in February and used a single choice voting mechanism. There’s a description of the proposal. Finally, you can see each individual vote and the voting power of each participant. (Some voted using their ENS wallet and some with a standard anonymous wallet address that begins with 0x…)

Ultimately, the members voted to increase the DAO’s fee structure from 10% to 30% in order to have a longer runway and cash-on-hand to pay active contributors. This is akin to a company asking its shareholders and customers to approve a higher operating margin so the company’s long-term prospects can be improved… it would never happen this way in the traditional corporate world!

In a DAO, however, the primary users of the service are also the owners. This gives them an incentive to make short-term tradeoffs for long-term benefits. In the case of Klima, a DAO whose mission is to create a reserve currency backed by real carbon assets, its members voted on-chain and demonstrated their commitment to keeping the DAO’s team intact.

Step 5. Cast your vote on a live proposal

I will update this section once Klima DAO has an active proposal that you can vote on. When you vote, your voting power will be equal to the amount of sKLIMA (staked Klima) in your wallet at the time of voting.

There is currently a proposal on Snapshot that is open for Klima DAO members to vote on [as of June 1, 2022]. You can access it here, although the vote will likely be closed by the time you read this.

Like the example shown above, today’s vote is related to helping the DAO extend its runway by utilizing reserve assets to pay contributors.

After reading the proposal, scroll down to the bottom of the page to the Cast your vote section. You’ll see this is a simple, single-choice vote with only two options: “for” and “against”. You can also see a tally of actual votes and the number of $KLIMA tokens held by each voter. At the time of writing, these add up to 77% “for” and “23%” against the proposal.

To vote, simply click the button corresponding to your choice. A pop-up will prompt you to vote and then MetaMask will request that you sign the transaction. Click these buttons, waiting a few seconds, and the screen will update to show that your vote is in. (It will also display the number of tokens behind your vote.)

After voting, if you click on your name (“You”), it will bring a record of all votes cast from your wallet address. Because this is my first vote with this wallet address, there’s only one record present. But you are free to click on other wallet names to view their voting history -- and you can view all DAO proposals they’ve voted on, not just Klima DAO proposals.

Some final thoughts

It takes some time and exposure to the inner workings of DAOs to fully appreciate their potential.

Even if you decide to go no further in the world of DAOs than what we do today, don’t write them off.

Yes, some have cringe-worthy names and do cringe-worthy things. But there is also a massive influx of extremely talented people working full-time on DAOs - and they carry a genuine desire to make the future of work more humane, creative, and meaningful.

And, by the way, if you haven’t checked your sKLIMA balance, do so now on Zapper. You should see more sKLIMA tokens than what you had previously! By holding onto your sKLIMA, you are earning compounding rewards.

Further reading:

This is by no means an exhaustive reading list. There are some (paywalled) articles from the New York Times and The Economist about DAOs, as well as more technical pieces from web3 writers.