A look into the reasoning behind the explosive growth of decentralized autonomous organizations (DAOs) while highlighting challenges and opportunities associated with building a DAO ecosystem for the long-term.
But first…
Flakes In the river
On January 24, 1848, James Wilson Marshall, a carpenter from New Jersey, found flakes of gold floating in the American River at the base of the Sierra Nevada Mountains near Coloma, California. He wasn’t looking for gold: Marshall was there on business building a water-powered sawmill for John Sutter, the German-born Swiss immigrant who founded the colony that eventually became the city of Sacramento.
Marshall later described his prolific discovery, “It made my heart thump, for I was certain it was gold.”
Marshall and Sutter tried to keep the gold a secret, but to no avail. By mid-June nearly three-quarters of the male population in San Francisco had left for the gold mines. Throughout 1849, would-be miners traveled across the United States pursuing opportunity and wealth they thought they would never see. By the end of 1849, California’s population had jumped 4x year over year to an estimated 100,000.
Unfortunately, basic infrastructure could not be developed in time to match the population growth of the area - overcrowded mining camps spewed chaos, banditry, violence and more. The region was largely undeveloped resulting in little to no infrastructure to feed, clothe, and house the miners. Creative entrepreneurs found band-aid solutions to address infrastructure issues - such as importing small prefabricated housing from China.
Which brings us to...
The proliferation of DAOs
We’ve seen an explosion in the creation of DAOs over the last 18-24 months similar to that of the gold rush in the mid-1800’s. And like the hopeful miners who traveled thousands of miles in search of opportunity, crypto/web3/DAO builders and enthusiasts believe a better world awaits.
In my opinion there are four major reasons for this DAO boom:
- Maturing Layer 2 (L2) solutions
- For those not well versed, L2 solutions are pieces of code that run on top of Layer 1 blockchains (Bitcoin, Ethereum, etc). These are core infrastructure components that offload the work of processing transactions from the Layer 1 chain. Because these transactions are processed “off-chain”, there’s higher processing capacity, faster confirmation times and lower gas fees.
- This all leads to smoother end-user experiences for the DAO ecosystem: everything from creating a DAO itself to voting on specific proposals to treasury management.
- The COVID effect
- The depression and loneliness stemming from lockdowns led many searching for digital communities to fill the void. The extra time at home and new ways of working also forced people to question their relationship with work.
- Both of these impacts have driven individuals to search for communities that they share values and vibe with. It has driven employees to question what they are working on, how they are getting their work done and who they are working with. All of these pain points have guided people to the DAO ecosystem.
- Crypto/web3/DAO narratives going mainstream
- Between powerhouse VC firms launching crypto media machines, web3 based publishing platforms giving a voice to enthusiasts and the diverse set of content creators continuing to share and educate the broader community, we’ve come a long way in comforting the masses with what crypto/Web3/DAOs are about and how to get involved.
- DAO Operating Systems
- I believe the last major puzzle piece explaining the DAO explosion is the maturation and adoption of “DAO Operating Systems”, term coined by Coopahtroopa in his DAO Landscape breakdown post. Platforms like Aragon, Daostack and Daohaus are piggybacking on macro tailwinds by empowering individuals to create and manage DAOs with the click of a button - no-code for DAO operators.
Future-proofing foundations
Given the novelty of decentralized internet-native organizations, many DAO founders and operators are ill-equipped for the long-run. The hypergrowth of the DAO population boom has left little time for foundational DAO tooling and best practices to develop and mature. This sentiment is best portrayed by Julia Rosenberg’s tweet:
Fortunately, this has not resulted in the banditry and violence faced in the gold rush. It’s primarily resulted in confused and overwhelmed DAO contributors and operators left to deal with some level of pain as the ecosystem learns and matures together.
To expand, I believe DAO founders and early DAO contributors have a lot to balance when thinking about how to attain their long-term goals:
- Achieving product/market fit and penetration
- Scaling DAO operations through tools and processes
- Progressively decentralizing over time
Achieving product-market fit seems to be the most straight forward part to the DAO equation, given current maturity of general product management. There are best practices outlining how to iterate, test and learn to find product-market fit for products, services, communities, open-source software, etc. Not every DAO will achieve product-market fit, but at least there’s precedent and a playbook that can be referred to.
The biggest challenges for DAO core teams involve the oscillation between:
- Finding tools and processes to support DAO operations for the current state and
- Laying the groundwork for longer-term decentralization plans
Even with a blossoming DAO tooling landscape supporting core functional areas of DAO operations, many of these solutions do not provide the composability needed to incrementally build towards progressive decentralization.
Core decentralization themes such as core team involvement, asset management, community participation and token distribution need to be modularly weaved into the fabric of DAO tools to support core functional areas and DAO decentralization goals.
The most successful and widely adopted DAO tools of the future will support DAOs on their journey to decentralization through frictionless and intuitive experiences.
Closing thoughts
The explosion of the DAO ecosystem has shown us that the collective passion and energy is there. The promise of flexibility, autonomy, ownership and more has given DAO founders and contributors all the motivation to continue building their products and communities to realize their goals.
However, the collective community should also acknowledge that the tooling and related infrastructure needed to allow DAOs to scale and move without friction towards decentralization is not there. Without addressing these issues DAO core teams, contributors and communities will continue to feel frustrated, lost and overwhelmed when attempting to push their products, services and protocols forward. It’s up to the community to continue to productively and publicly discuss, debate and push for better solutions that serve unmet needs of core DAO operations and decentralization objectives.
Thanks to the folks who provided major influence and inspiration for this piece and continue to shape my thoughts every day: Nichanan Kesonpat, Jesse Walden, Chase Chapman, Samer Hassan, Jacob Phillips, Julia Rosenberg, Amphiboly, Christian.
If anyone is interested in discussing more about the future of DAOs please reach out on Twitter (@itsdanwu).