I have witnessed the evolution of some DAOs. From the beginning, when the vision was to have full community involvement in governance, to splitting responsibilities into smaller groups—called pods—progress and learning have been coming quickly. Remember that these DAOs are at most six months old and have tens of thousands of community members.

The original picture for those who started these DAOs was, to begin with a small community and a shared token representing the membership and voting rights. Once the tokens were exposed to the decentralized exchanges -where anyone can add liquidity to any token- a new value was given to the token. This attracted a new breed of community members, who, aside from seeing the value of a community-driven execution towards a mission, see their investment grow with it.

The DAOs learned this and took advantage of this new dynamic, raising capital for the organization's coffers by issuing membership tokens. This, in itself, resembles too much what shareholders and company shares look like.

Tokenomics is no different from a cap table structure. It is just more flexible and malleable since no securities laws are involved.

Where are we now?

In this article, I discuss the evolution of some of these organizations' governance models. You can see how fast they are evolving. Most of them are moving towards a centralized decision-making flow. Does that sound familiar?

This is what is going on today. Most of these organizations, after having several thousands of members involved in the decision-making, have seen the slow pace and sluggish movement on execution. Inherently, humans are communication beings. We are connected, and we work very well in groups. But our communication is linear; that is, one person to another -or more- is linear in time. So, the fastest way to get a group on consensus is determined by the fastest way to have everyone on the same page. The smaller the group, the easier it is to make this happen.

When more people are in the decision-making group, new dynamics enter into play. For example, subject matter expertise is significant. If a decision is made on a matter that requires more specific knowledge, you will need to bring all the groups to the same page by upgrading their knowledge on such matters. This is hard and slow.

Some DAOs have resorted to splitting governance based on the subject matter, thus limiting the groups to members closer to being on the same page before making decisions. This includes core governance. Core team decision-making needs expertise and organization knowledge, including its history and context, with which not everyone is up to speed. This leads to a central core team that never relinquishes its control. Does that sound familiar again?

When I looked at the old chats on the Discord servers, the mantra was much different from what it is today. In the early days, you would read philosophy-centric statements about how power and decisions must be shared and distributed among the community's stakeholders. Blockchain-based technologies would enable this.

Today, all these DAOs are governed by a legal entity on the backend where the core team sits—and gets paid—and the rest of the community is relinquished to non-core matter decision-making. If you look at the proposals voted by the different DAOs, they have evolved from core matters to ancillary and orbiting matters. No one discusses leadership or matters related to leadership. The dust has settled. Now to work.

Now that the stakes are higher—the coffers hold large sums of money—the investors backing the community want to lower their investment risks. You know the risk if you are a Web3 believer and have invested money in this experiment. When you are a VC and have locked a chunk of your last fund on this community, you want to ensure there are guardrails to its survival.

What is the point of a DAO if it’s not at risk of disappearing at any minute based on a community decision?

Core teams are now retreating to their towers and overseeing the community movements. They take votes on the matters that can tamper with the status quo and let other matters fester to get the community focused on other things. Does that sound familiar?

Wrong incentive

If all this sounds familiar, then you are in the wrong DAO. Get out and move on. The centralized nature of money has corrupted the very fabric of its mission. Now, the mission of this DAO is to protect the investment and ensure the monetary value of the DAO goes up.

The DAOs are now expected to launch a token for governance. Furthermore, they are expected to have a governance model based on proposals voted on-chain. These proposals will be executed on smart contracts, removing intermediaries and dependencies. But first, these organizations are bound to a vision and a mission.

Remember, DAO is not always the answer to a problem. In some situations, a traditional business entity might solve the problem better than a community-driven organization.

When you see a DAO that has been tainted by centralized investment money, you can see some of the following symptoms:

1. The core team becomes more “established”.

2. The coffers are controlled with more scrutiny.

3. The decision-making becomes more procedural, slower decision-making, and more control over what proposals come through.

4. Finally, you see yourself looking at the token price on the market more than the Discord conversations about governance.

When that happens, you know that the core team and the DAO's ultimate goal is no longer the mission but the means to the mission. This is when things get complicated, and politics runs amok.

When everyone is aligned, enthusiasm is funneled to execution. But things get ugly when the core team's goals depart from the community's. Some DAOs split governance into groups to address these misalignments, as each group can now worry about a piece of the puzzle rather than working with the whole picture.

How real decentralization looks like

Those communities born from the pure nature of solving a problem are the most successful ones—and probably the most resilient. Mission-driven teams are all looking in the same direction and focusing on the same agenda. Some good examples are ENS, Juicebox, and Links.

Before looking inside of the community, I would encourage to check the Tokenomics of the DAO. These tell a story better than any manifesto or bylaws.

The first signs of healthy decentralization start with high voting activity on the Snapshot, plus periodic voting on the governing rules.

Other good signs of a good decentralized community are solid financial transparency and communication with the members. Having clear sight of what is on the chests of the organization and being able to see that through the block explorers tools—like Dune—is also a good practice for decentralized organizations.

Similarly, when a DAO runs economics through a legal entity, the entity's financials are usually disclosed in the same form as the on-chain financials. Some DAOs require a legal structure that forces them to create a legal entity. Note that this is not a bad sign. There are well-established models of good DAOs that run legal entities where the directors are the same as the core team. However, the bylaws establish a bind between the entity’s activities and those resolutions voted on by the DAO.

On the community side, no community is perfect. As humans, we move back and forth with our own convictions. Sometimes, we find small pockets of activism or interest groups that try to sway the vote in their direction. These are not ominous signs of a DAO but good signs. You want to see a balance between the different extremes of the community represented, allowing a healthy conversation. These DAOs are usually the most resilient as they have a balanced approach to voting.

Finally, the community's engagement is also another good sign. When a community has a high engagement index and a lot of activity on its communication channels, it’s a sign of interaction and work. Online members and monthly active users are good metrics to watch when joining a DAO.

Conclusion

Beware of the DAOs that sell you the decentralized story before the objective. DAOs are another tool for accomplishing a mission, but not the best one in most cases.

When the DAO's community management seems a bit pushy, beware of hidden agendas or parallel tracks you might not be aware of. DAOs that defend the community and embrace activism and change have leadership willing to relinquish control for the sake of the DAO.