DAOs are struggling. While they could be sovereign networks states, organizing citizens around shared social objectives -- right now, they are adolescent investment clubs battling an identity crisis.
This isn’t to say that all DAOs need to resemble some Balaji fever dream, but I think most would agree that DAOs are experiencing growing pains. And in this article I am running a diagnostic to show you:
What’s wrong with DAOs today
DAOs that get it right
And why a new identity primitive is needed
Let’s get it.
Earlier this year, the Tally team deployed a survey to understand DAO pain points. They found that:
DAOs struggle with onboarding and communicating
Incentives are opaque and inconsistent
Holding contributors accountable is hard
There is significant confusion and churn
All this looks familiar, right? I mean consider your average DAO member: on a good day, they join the discord, introduce themselves, and then if you’re lucky, they complete a few bounties before fading into obscurity. On a bad day, well, they probably lurk and/or suggest that you burn half the token supply.
To fix this, DAOs need to become experts at attracting, onboarding, engaging, and elevating contributors.
Attracting high-value contributors requires a higher-order calling. A bold idea and clear vision that transcends speculation.
VitaDAO is a perfect example:
“VitaDAO is a DAO collective for community-governed and decentralized drug development. Our core mission is the acceleration of research and development (R&D) in the longevity space and the extension of human life and healthspan. To achieve this, VitaDAO collectively funds and digitizes research in the form of IP-NFTs.”
And what about KrauHouse?
“Together, we will write the consensus rules that will bring the first fan-governed team to the NBA. The collective of ambitious contributors whose goal is to own an NBA team describes the underlying mission of DAOs in its purest form: Difficult by one, achievable by many.”
Do you want to help fund longevity research? Do you want to co-own an NBA Team? These are big, bold, exciting opportunities. Opportunities, that until now, were practically impossible for the average anon. And it’s not all talk. Real progress is being made. KrauHouse bought a professional 3v3 team, and VitaDAO has Pfizer Ventures knocking at its door. This is what’s possible when you offer contributors ownership in an idea just crazy enough to work. An idea that benefits from distributed, grass roots coordination.
Attracting an audience that aligns with your vision is important, but it's also critical to build out a streamlined onboarding process to reduce the time between verification and contribution.
Today, Discord is the de-facto DAO commons. But when you enter a DAO’s Discord for the first time, things can get confusing fast. Think thirty threads, verification bots, stages, and other digital back alleyways. This agitates seasoned crypto vets, let alone those completely new to Web3.
And Tally’s survey respondents shared these frustrations. One commented:
“For the first DAO I joined, I filled out a form, and no one reached out, so I had to find my way around and look for ways to contribute. It was overwhelming and crazy because I didn't know about DAOs, but I did have Web3 experience.”
We, as a community, need to simplify our processes to create a more tailored and intuitive onboarding experience.
So who does this well?
Friends with Benefits (FWB) serves as a great example. Once you join FWB, you receive a personalized email sharing FWB’s mission, vision, values, and Discord instructions. Shortly thereafter, new members receive an invite to FWB’s monthly “New Member Hang,” where you can connect with your cohort and discuss topics like Discord 101, FWB History, Channels, and Events. Finally, FWB will announce new members in TLDR, their weekly newsletter, which highlights members’ skills/interests.
FWB’s onboarding process welcomes new users with open arms and helps them hit the ground running. It’s a major reason why FWB is constantly cited when discussing DAO best practices.
Growing a DAO is hard work, and eventually, discords can get quiet. Too quiet. Even your most passionate contributors can churn because they lose interest and/or feel undervalued. So, how do we keep the momentum?
Here, we take a page out of gaming playbook. In an MMORPG, users can pick roles that suit their strengths, pursue paths they find interesting, and collect rewards for tackling objectives with other players.
But what does this mean for DAOs?
Let users pick their path: Someone (possibly Einstein) once wrote, “If you judge a fish by its ability to climb a tree, it will live its whole life believing that it is stupid.” This is only to say, we need to position members for success. Developer DAO recognized this early and allows users to pick their “Sauce.” This includes roles like Front-End Development, Design, Writing, Full-Stack, etc. These roles allow D_D to organize members into working groups, where small teams convene regularly to write articles, craft brand books, record podcast, and produce other deliverables.
Use Performance-Based Compensation: With working groups established, DAOs can assign budgets, organize tasks, and distribute compensation via Coordinape (a model used by groups like Lido and Yearn). With Coordinape, you can keep track of individual contributions and distribute compensation transparently. But Coordinape won’t fix your engagement issues alone. DAO’s must also set actionable objectives tied to performance based compensation.
Let’s use D_D’s writing guild as an example. Imagine this working group hit their stretch targets for an epoch (e.g., higher impressions, stronger advertising revenue, better brand awareness. etc.). In this case, a compensation committee, or even better, a smart contact, could authorize above-target bonuses for exceeding expectations. This concept is common within centralized organizations, but we rarely see this level of sophistication used across DAOs. With variable and performance based comp, DAOs can align incentives across stakeholders which is critical in highly distributed organizations with competing interests (like DAOs).
Generate social kinetic energy: DAOs are borderless, distributed, digitally-native communities. These attributes create unique superpowers, but they also introduce unique organizational challenges. How do you create a sense of community, a strong cultural foundation, when everyone is pseudonymous?
Fostering a strong culture requires bringing people together regularly. This could be through weekly competitions, office hours, spotlights, Twitter spaces, developer show and tells, or anything else that gets people to create, commune, laugh, and build relationships. Jericho DAO takes an innovative angle here with their “Subscribe to Encounters.” This initiative is built using oxFrens, which randomly pairs fellow Jericho builders up each week to chat. It’s been a huge success primarily because it eliminates outreach/scheduling fiction, giving users time back to network.
But there’s still something missing. Even if you attract the right audience, build out robust compensation structures, and laugh a lot -- how do you ensure work gets done? It’s hard to hold anons accountable, and that’s why DAO’s need to introduce a reliable and dynamic way to represent reputation.
With the right reputation primitive, DAOs can build a contributor-first culture, where active participants adding value to the DAO are elevated above those who sit idly by.
Dynamic soulbound tokens (SBTs) offer one possible solution, and VC/DiDs offer a compelling alternative. Sismo, Galxe, Disco, and Dynamic are all tackling this -- and the larger identity problem -- using these innovative assets.
Imagine, for example, a platform that rewards you for contributing data (similar to Navigate). The first time you contribute, you receive a free dynamic, soulbound NFT, set at “Level 1”. After each contribution, your NFT is updated to reflect your new level/status within the community.
As you level up, you’re granted benefits that improve your earning power, governance influence, moderation privileges, and even discord access (a new feedback loop).
Creates a new, potentially more powerful incentive to contribute
Signals who should be considered for core working groups, and
Gamifies the experience -- improving retention and catalyzing engagement
A reputation primitive could also capture negative feedback. Say you submitted data that violated a policy on the platform. In this case, the NFT would reflect a strike and reduce the amount of governance influence you have. How these strikes are dulled out could be controversial, but reputation can’t only go up; it needs to be dynamic. And this is how you can hold people accountable. The more these rules are codified through smart contracts, the better, as there’s less room for subjectivity.
This situation illustrates how we could elevate individuals who deserve more say in the governance process but don’t have the tokens to do it. I think, ultimately, this could drive engagement, provide an in-app identity/reputation primitive, and balance governance influence through a “proof of humanity” counterweight -- helping DAOs better organize and execute.