A deep dive into the DAO building the most trusted standard for ownership to make web3 safe.

On one hand, DAOs feel seemingly obvious to many: blockchain-based organisations which are becoming an essential piece of how communities can coordinate on the web. On the other hand, we’re nowhere close to the technological depth of what DAOs are really capable of.

For all we know, DAOs are important & they’re here not just to stay but to grow. Chances are that many of us want to understand it better, as a crypto-native or a crypto-curious person. This Top100DAOs is the beginning of an exploration into the world of DAOs where we put the spotlight on the best blockchain-based organisations via case studies for you. We look forward to your thoughts and feedback — let’s dive right into it.

What is Safe?

For those that don’t know, Safe (prev. Gnosis Safe) became very popular because of its multisig ability. While EOA wallets like metamask were the most adopted wallets for individual users transacting in DeFi & owning digital assets like crypto & NFTs in web3, co-managing assets amongst multiple users in case of groups, enterprises & DAOs was highly unsafe (pun intended) because users were having to share private keys with eachother or let one person control all the assets in their own wallet.

Naturally, users could risk losing all the assets if they lost the private key. Which gave rise to smart accounts, by a tool named Gnosis Safe.

Today, over 1.5M Safe smart accounts are deployed which cumulatively hold assets worth $70B.

Safe smart accounts solved exactly that by enabling multiple private keys to access a single wallet. While multisig was the most popular feature, Safe protocol offers so much more with such smart accounts. Safe is a fully programmable Smart contract accounts that can be used to cover any type of use-case or user-group through plugins.

Safe is now used by DAOs, collectives, retail users, enterprises & investors to secure their onchain assets.

What is the story behind SafeDAO's creation and the $SAFE token?

GnosisDAO decided to structure Safe as an independent entity called SafeDAO through a governance vote in 2022.

Safe, prev. Gnosis Safe was an internal tool under GnosisDAO which governs the Gnosis chain till 2022. After Safe grew as a critical infrastructure in web3 hitting a major milestone of $100B locked in Safe accounts on ethereum mainnet alone at the time, GnosisDAO decided to create a $SAFE Token to decentralise the Safe ecosystem.

Launch of $SAFE Token establishes Safe as a public good and community-owned account standard.

In July 2022, Gnosis Safe raised $100M from 60+ strategic backers as their Series B funding round & rebranded it to Safe.

Following the raise, SafeDAO was spun out given the pressing need to decentralize its development, growth and governance — preventing Safe ecosystem to be captured by the decisions of core team or investors alone which is the case with traditionally centralised companies (we see you, FTX).

This gave birth to $SAFE, a non-transferrable ERC20 token to decentralise the governance of Safe ecosystem among the 43k users of Safe as well as the Core Contributors, GnosisDAO, 140+ ecosystem contributors, and 60+ strategic backers.

It was designed in a way that no single known entity or person holds more than 10% of the initial voting power — making it sufficiently decentralised as an organisation with plans to only continue decentralizing it over time with more users, contributors & token holders.

In a nutshell, $SAFE token gives its holders the power to govern:

1. Safe protocol

2. Safe interfaces

3. Onchain assets

4. $SAFE Token supply (including the power to decide if & when $SAFE can become transferrable in the future)

5. Ecosystem growth (which chain to deploy on, budget allocation etc.)

Safe is a community-owned account standard because the total circulating supply of $SAFE is allocated among diverse stakeholders

How does SafeDAO's governance process work?

Like any traditional company, DAOs also need to make decisions to progress as an organisation. A governance structure helps Safe's entire ecosystem decide the future of Safe together -

• Investors

• Projects building on Safe

• Users

• Core team

• Other stakeholders

In the case of SafeDAO, $SAFE is the governance token that lets the holder participate in decision-making with voting power proportional to the amount of $SAFE they hold.

The DAO structure makes Safe more sustainable in the long term compared to traditional organizations. In traditional organizations, IP and technology can be steered in any direction by single actors such as high-level execs, investors, or captured by one erratic person in leadership. However, with the DAO structure, Safe becomes more valuable because all $SAFE holders can decide the future of Safe and not get captured by centralised entities.

SafeDAO follows a 3-step governance process:

Phase 0: Forum discussion

This phase is optional, this step is where community members discuss new ideas on the Safe community forum, since any successful proposal will need to garner momentum inside the community first.

Duration - No minimum or maximum time frame on how long a proposal remains in this phase

Who - Anyone can post

Form - No formal requirements

Phase 1: Safe Ecosystem Proposal (SEP)

If discussions makes meaningful progress on an idea that can be executed, an SEP is made to provide a structured overview of the proposal that acts as basis for further discussions and also as foundation for decision-making during the next phase.

Duration - Minimum 6 days

Who - Anyone create a SEP

Form: Post in the SEP section of the Safe community forum. The forum post has to follow the SEP template.

Phase 2: Community Vote

Community Vote is the final step whose outcome is implemented by SafeDAO. The final ratification of an SEP requires a successful vote on the Snapshot space that fulfills the following requirements —

Duration - Proposal must have a voting delay 10 of 1 day and a voting period of 7 days

Who - To prevent spam, only SAFE holders with at least 20,000 $SAFE can post proposals on Snapshot. Governance participants that do not reach this threshold should find a proposal sponsor (such as a Safe Guardian) to launch a Snapshot vote.

Form

• Voting system - Restricted to single choice voting. One outcome needs to be “Make no changes”

• Quorum - 10,000,000 SAFE

• Majority - Relative majority of the SAFE used for voting on Snapshot

• Proposal title - [SEP #<number here>] <SEP title here>

• Proposal description - Has to follow the SEP template

• Proposal discussion link - Link to SEP on the Safe discussion forum

Here’s how proposals reach an outcome based on what $SAFE holders’ community vote:

What is SafeDAO's Constitution and how does it guide its operations?

Defining a mission, goals, and principles in the constitution helps all members of the DAO understand its purpose and ambitions — much like nation states.

DAOs use technical methods to improve coordination, but a governance smart contract alone is often insufficient. Without a clear direction, DAOs can face conflicts and lack guidance when assessing proposals. To address these issues, SafeDAO introduced a constitution that serves as a north star for members to rally behind.

Mission

SafeDAO aims to establish smart contract wallets as the default means of interacting with web3.

They aspire to work towards this mission by establishing standards for composable smart contract wallets, nurturing the Safe Ecosystem, and catering to the needs of various user groups and use cases in web3. SafeDAO promotes the common welfare, sustainable development, robustness, and diversity of the Safe Ecosystem.

Goals

1. Foster a vibrant ecosystem - SafeDAO benefits from a thriving ecosystem that supports and empowers projects integrating with the Safe Protocol or promoting its use.

2. Resilience through decentralization - The Safe Ecosystem shall be independent from any single entity. The Safe Ecosystem components, including governance, should be decentralized and permissionless.

3. Tokenize value - SAFE should represent the value of the Safe Ecosystem. Mechanisms should be created to link the growth of the Safe Ecosystem to the growth in utility of SAFE.

Principles

1. Safe Protocol is a public good - The Safe Protocol is core infrastructure for web3. Any changes that may be introduced do not compromise its public good nature and carefully balance the interests of different stakeholders in the Safe Ecosystem. This incentivises the unity of the Safe Ecosystem and, as a result, maintains the property of Safe as a portable account.

2. Token utility is aligned with ecosystem interests - Any utility of SAFE directly or indirectly adds value to the Safe Ecosystem. Changes to token mechanisms need to consider the effects on different stakeholder including user, builder and token holder.

3. Use of treasury is limited to achieving SafeDAO goals - The usage of any assets associated with the SafeDAO treasury is credibly linked to one or more of the SafeDAO goals outlined in the SafeDAO Constitution.

Milestones - what’s next for SafeDAO?

After a recent proposal which passed the vote, SafeDAO has decided crucial milestones before any other proposal is raised on turning the transferrability of $SAFE on will be raised, as it will serve to be the next critical point in the Safe’s journey. These milestones are —

• Milestone A: The $SAFE claim period has passed ✅

• Milestone B: SafeDAO constitution has been ratified ✅

• Milestone C: A governance framework has been ratified

• Milestone D: A resource allocation framework has been ratified

• Milestone E: $SAFE token utility has been ratified

Not included above but assumed to be in place:

• Activities around liquidity provision and market making have been aligned on

• A future proposal on enabling transferability include a complete documentation of its SafeSnap specification in the proposal text

The DAO has currently achieved milestones A & B whilst the rest are still in Phase 0 on the discussion forum.

What is the role of the Safe Foundation in the success of SafeDAO?

SafeDAO, being a Protocol DAO, set up an independent foundation in Switzerland to protect its strategic assets, such as IP, Github repositories, and strategic investments, and to issue the SAFE Token. This legal structuring is important for Safe to be compliant and ensures a favorable regulatory environment, political stability, and established reputation as a global financial hub.

Often DAOs have preferred setting up foundations like this in Switzerland because of 3 popular reasons:

1. Legal framework: Switzerland has a clear legal structure for foundations. This helps DAOs create an organization with a proper legal status. The Swiss Civil Code gives instructions for creating foundations and managing them.

2. Crypto-friendly regulations: Switzerland is friendly to blockchain and crypto projects. The Swiss Financial Market Supervisory Authority (FINMA) provides clear guidance and regulation for crypto-related businesses. This is good for DAOs because it reduces uncertainty and risks when they operate in less-defined legal environments.

3. Tax benefits: Swiss foundations can be set up to offer tax advantages for the organization and its supporters. The Swiss tax system grants exemptions on income and capital gains for foundations that serve public benefit purposes. This makes it appealing for DAOs with goals that benefit the community or are altruistic.

SafeDAO has made one of its highest priorities to balance pragmatism with decentralization while being mindful of legal risks.

What are the challenges that SafeDAO faces?

With sufficient decentralisation in place, Safe is constantly experimenting its way to become more efficient with time, ensuring that the DAO is run by the community for the community. However, to achieve this, there are some challenges that SafeDAO highlights as important areas for DAO tooling development from their experience.

These areas include improving transparency, providing better analytics, and enabling effective delegation for its members.

1. Transparency: Tools that provide transparency can help to create trust and accountability in the community. For example, tools that track voting records and decision-making processes can help to improve transparency among SafeDAO members.

2. Analytics: DAOs can leverage data analytics to make informed decisions. For example, tools that track the performance of proposals or provide insights into member behavior can help SafeDAO to optimize their operations.

3. Delegation: Delegation is a complex process as of today, and DAOs need tools that make it easy to delegate and manage responsibilities. For example, tools that allow members to easily delegate their voting power or that provide a transparent overview of delegated responsibilities can help to improve internal governance processes.

Why is it important for a protocol to decentralize when it attains maturity?

Decentralization is a key aspect of blockchain technology, allowing for trust to be established without the need for a central authority. This makes it an ideal technology for projects to decentralize by structuring as DAOs. When a company or organization is centralized, it means they have control over everything, including your personal data.

This can cause some serious problems like:

1. Transparency - It's hard to know what's going on behind the scenes when everything is controlled by one group.

2. Accountability - If something goes wrong, who's responsible? It's hard to say when there's just one authority figure in charge.

3. Security - If all your data is stored in one place, it's like putting all your eggs in one basket - one mistake and everything could be compromised.

Decentralization empowers users with control over their own data and assets, ensuring they have a say in the direction and operations of the network.

For blockchain-based products, decentralization is crucial because it aligns with the fundamental principles of the technology and ensures a more transparent and secure system that evolves based on the needs and preferences of all stakeholders. It is especially important in products dealing with sensitive financial and personal data.

More direct input from users and a more adaptable network, ensuring long-term sustainability and success.

Decentralisation leads to continued growth in user adoption, increased value of the SAFE token, and the development of a thriving ecosystem of projects and applications built on top of the Safe protocol.

When a network is decentralized and the decision-making power is distributed among its users like in the case of $SAFE, it allows for a more adaptable system that can evolve based on the needs and preferences of the community.

By empowering the community to have a say in the direction and development of the project, Safe can create a self-sustaining ecosystem where users have a vested interest in seeing the network thrive. By decentralizing, protocols can achieve a level of sustainability that is not possible with traditional company structures.

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Thanks to Theo Butel, Lukas & other members at SafeDAO, for valuable insights that helped us put this case study together.

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