DAO health: 9 starter metrics

As collaborative work becomes more digital, its digital footprint becomes a meaningful source of insights into the health of the collaboration and ways to improve it over time.

While in Web2 contexts this information is sometimes used to exasperate the information asymmetry between employer and employee, sharing this information freely with the DAO members is part and parcel of the DAO’s transparency ethos.

A typical DAO "Collaboration Stack"
A typical DAO "Collaboration Stack"

As DAO membership crosses the 1,000 members threshold, using this data to proactively manage the health of a DAO is no longer a luxury but a necessity.

This post is meant to act as a “stake in the ground” starting point for a conversation around the most important metrics that every DAO should be tracking. I am confident that my thinking here will continue to evolve, and I’m looking to learn from the wisdom of the community around this topic.

What is a healthy DAO?

Identifying good, actionable metrics cannot start with what is easily measurable. Instead, they start with a thesis on what a healthy DAO is and therefore, what metrics we may want to collect as a result. From there, we can start making some pragmatic compromises on what we can feasibly measure.

A healthy DAO is too vague of a starting point, so I’m decomposing it to a definition that we can better work with:

Healthy DAO = healthy community + healthy governance + healthy finance

We can now take it dimension and break it down to a handful of metrics that matter.

Throughout this exercise, we’ll focus on views that show us how the metrics we chose evolve over time. With no clear benchmark yet for “what good looks like?”, looking at trends provides us with greater insights than any specific point in time.

Community health

1. Member conversion funnel

What is it? at its most simplistic form, the member conversion funnel tracks the change in the number of members who have joined and left the DAO over a certain period of time. In DAOs that have defined a more robust membership model with multiple membership tiers, it also tracks promotions/advancements from one tier to the next.

Why does it matter? members are the essence of a DAO. Without members, the DAO cannot accomplish its purpose. The member conversation funnel provides more actionable insights than simply looking at gross members’ growth and can direct the DAO’s energy to a more pointed issue. For example: should we focus on amping up our recruitment efforts? or figure out why so many people join and then immediately leave?

As the DAO matures, more nuanced views can be utilized by layering different member “demographic” attributes over the visual or transitioning to a more complex cohort-based analysis.

2. Small world score

What is it? a normalized score (between 0 and 100) which measures the fit between the overall shape of the DAOs collaboration network and a small world network - a network where the typical distance (the number of steps required) between two randomly chosen members grows proportionally to the logarithm of the number of members in the network

Why does it matter? DAOs want to create communities in which complex ideas can spread but are less susceptible to groupthink. Research (check out the references section here) had found that small-world networks are ideal for that purpose. looking at how the DAO’s small score evolves over time, can give it a sense of whether it’s trending towards or away from that ideal and take the necessary action. As the DAO matures, decomposing the small world score into its components can provide even more pointed insight.

3. Top-5 connectors & outliers

What is it? a list of the top-5 members with the highest betweenness centrality score and a list of the top-5 members with the lowest closeness centrality score.

Why does it matter? as the DAO scales, the “extremes” of the community become a critical source of insight for community health initiatives. Yet figuring out who those members are is becoming harder since no single member of the community has a nuanced sense of the entire community. Betweenness score is an algorithmic method to identify the extremes which enables both taking pointed action with those individuals (preventing burnout, reducing attrition) and identifying broader patterns in the community.

Governance health

4. Proposal approval rate

What is it? the % of governance proposals in a given period of time that get approved.

Why does it matter? perhaps counterintuitively, in the context of governance health, more is not always better. The approval rate for proposals has a “goldilocks” zone (let’s peg it at 65-90%) - too high of an approval rate may suggest: groupthink, lack of psychological safety or moving too slow/cautiously; and too low of an approval rate may suggest: real discord or misalignment, unhealthy conflict, or trying to move too fast/riskily. Whether the approval rate falls inside, above, or below the goldilocks zone will lead the DAO to take different actions to improve governance health and the health of the DAO overall.

5. Voting participation rate

What is it? the % of community members who have participated in a particular governance decision. A more complex version of this metric can overlay additional community information, such as different membership tiers, on the visual.

Why does it matter? a bit part of the DAO ethos is engaging the entire community in governance decision rather than leaving it in the hands of a select few. Tracking the community’s participation in governance decisions can give us a good sense of the progress we’re making towards that ideal.

6. Rolling voting participation rate

What is it? the % of community members who have participated in governance decisions over a certain period of time.

Why does it matter? While ideally, we want a large portion of our community to participate in governance continuously, we may not be there yet. Making progress towards that aspiration requires a more nuanced understanding of how the community is engaging with governance. A good starting point is figuring out whether the same people engage in governance continuously, or different people engage in governance more sporadically. Comparing and contrasting the “single decision” voting participation rate and the “period of time” voting participation rate can help shed light on that.

Financial health

7. Top 10 outflows

What is it? tracking the Top-10 spend categories of the DAO token from the DAO treasury evolve over time.

Why does it matter? Where the DAO spends its tokens implicitly reflects where its priorities lie. Comparing the spending pattern to the DAO’s explicit priorities can give us a good sense of whether these two things are well aligned.

8. Plan vs. actual spend

What is it? A month-by-month (or week-by-week) tracking on the amount of community token the DAO intended to spend, according to its seasonal plan, compared to the amount that was actually spent.

Why does it matter? As DAOs mature, basic fiscal predictability becomes essential to healthy finances and ensuring smooth on-going operations.

9. Community token Gini index

What is it? The Gini Index is a measure of wealth inequality in a social group. It varies between 0 (when everyone is holding the exact same amount of wealth) and 1 (when a single person is holding all the wealth) and therefore offers a quantitative measure of inequality in the group.

Why does it matter? As DAOs are meant to be owned by their communities, understanding the pattern of ownership becomes important. The trajectory here is more important than the point-in-time value: is DAO ownership become more concentrated or more distributed over time? In which direction do we want it to trend? and what can we do about it?

In Sum

In this article, we’ve defined a basic model for DAO health and suggested a starter set of 9 metrics that can enable a DAO to track and manage its health over time.

Is this the perfect set of metrics? probably not. Is this exactly the right set of metrics for your DAO? again, probably not. But is this a good starting point to being the conversation about this important topic? we sure believe so!

About TalentDAO TalentDAO aims to give 1 billion people access to ‘decent work’ through self-sovereign work arrangements offered by thriving, successful DAOs. We offer analytics products and talent strategy consulting services to the decentralized autonomous organization (DAO) ecosystem.

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