Recently, I've been fortunate enough to have the opportunity to talk about DAO/web3 in a variety of venues, including podcasts and corporate study groups.
At these events, I often tell people that DAO is a community of members who sympathize with the realization of the mission, and that the characteristic of DAO is that the incentives of the community match the incentives of the individuals.
In a sense, actions for one's own benefit are tied to the benefit of the entire community. I believe that this is the most ideal DAO.
At first glance, it seems like a simple organizational system, but I learned from the case of IndexCoop, a famous DAO, that making it work is not a straightforward task.
The short summary is that each contributor was doing what they wanted to do, but there was no way to measure the ROI of their actions.
As a result, the token price dropped by half and many contributors had to be restructured. These experiences, learnings, and reflections are very useful information in Japan, where DAO is not yet widely used, and I can only thank you for sharing them openly.
In this note, I would like to discuss the question, "How can we operate DAO in a way that brings it closer to its ideal form? “
DAO is a concept that is still in its infancy and has no definition, and I recognize that it is too early to seek the right answer, but I hope that this will be of some help in the trial and error process of creating a better system." DAO, which is translated as "autonomous decentralized," tends to focus on the bottom-up aspect, but let's first look at whether that's really enough.
■Table of Contents
"If you want to go fast, go alone, if you want to go far, go together."
This is a quote that is often heard, but I think it has a lot of implications for the management policy of the DAO. It is not a dichotomy between top-down and bottom-up, but rather a gradation of priorities depending on the goals of the organization.
Conventional companies tend to take a top-down approach, driving business forward with a sense of speed. In general, "upper management" decides the strategy, and "employees" execute it. Top-down teams with clearly defined roles, such as fast decision-making by a small number of upper management, teamwork by layers, and layoffs at the discretion of top management, are characterized by very fast decision-making and execution, and have brought many results in the history of countries and companies.
On the other hand, due to its structure of optimizing operations, it lacks the margin to respond to new technologies and other innovations.
This is aptly expressed in Clayton Christensen's "Innovator's Dilemma".
For large companies, emerging businesses and technologies not only appear small and unattractive, but also have the potential to disrupt existing businesses through cannibalism.
In reaction to this, the term "open innovation" has been coined in recent years, and many companies and their success stories have taken a bottom-up approach.
My Starbucks Idea, which saved the day for Starbucks, LEGO, Red Hat, Minecraft, the list goes on and on.
Open innovation is an attempt to break away from self-imposed rules by incorporating knowledge and technology held by organizations and institutions other than the company itself in product development, technological innovation, research and development, and organizational reform.
Bottom-up is community-driven, so to speak, and it can be characterized as decentralized, highly transparent, large scale, and anonymous.
It is characterized by decentralization, high transparency, large scale, and anonymity. It lacks the speed and execution of top-down approaches, but it is a good form for creating new innovations.
However, because of the lack of coercive power, it is difficult to maintain a strong sense of engagement and make it stick. Even if it does take root, it will not work if individual incentives are the priority, as is the case with IndexCoop.
The issue is how to balance the top-down corporate approach with the bottom-up community approach, and I believe that DAO should use both top-down and bottom-up approaches, depending on the phase of the project.
In conclusion, I believe that DAO should use both top-down and bottom-up approaches, depending on the phase of the project. Even though it is still in its infancy, there is a lot of talk about the "community" aspect, and it is easy to dream that people will move to contribute if the project is called DAO.
I personally think that it is better to start from the top down, and then develop it into a working product (a product that can generate profit or sales, or even if that is difficult, a product that can solve some problem), and then convert it into a DAO by selling it as a token. Personally, I think it would be better to make it a DAO by selling tokens after developing it to a product that can solve some problem.
Of course, it's good to have a community even before the product is developed, but it's better to focus on speed and deploy only core members.
I think it's important to be cautious about having a token sale before the product launch, as it could lead to a loss of trust in the community, just like the ICO bubble.
I think it's more constructive to have a top-down approach for the initial 0-10 phase (focus on speed by raising equity from VCs) and a bottom-up approach for the next 10 phases (raising from the market through token sales).
According to the story on Voicy, IndexCoop will be shifting from a bottom-up to a top-down approach, and I expect that many DAOs will be reverting to this approach.
Even if they temporarily become bureaucratic organizations, I personally strongly expect that DAOs will converge on their ideal form, like a pendulum, as a hybrid of corporate and community organizations in the blockchain era.
Even now, many DAOs operate in a hybrid fashion, with the core members deciding the strategy, and the governing token holders voting on the priority and implementation of the strategy. In addition, as the organization grows, there are more and more cases where a division is carved out as a SubDAO and entrusted with its own operations as a subsidiary.
For example, IndiGG, the Indian sub-DAO of YGG, which operates the NFT Game Guild business, raised $6M in funding, and such cases are expected to increase as DAOs expand.
I believe that DAO management will be conducted under various challenges while aiming for speed and innovation, execution and planning, open and closed, internal and external motivation, and mission realization.
Creative actions that are not bound by too quick definitions seem to be the essence of success.
The DAO is a tokenized community, and we tend to focus on the incentive aspect of the DAO, but I don't see how indiscriminate distribution of NFTs and tokens can be attributed to the success of the DAO (in the short term, or even in the long term).
Tokens are more empowering for internally motivated network participants, not the other way around. Members who enter from extrinsic motivation are driven by external rewards such as financial gain and attention, and are optimized for zero-sum, short-term self-interest.
Extrinsically motivated community members can be the root of a negative spiral, so to speak, forming the basis of a weak community and driving away other, more intrinsically motivated participants.
You have to increase the audience that is aware of the project, and at the same time find participants who share your mission and initiatives.
There is no easy way to do this, but these are some of the actions you can take right away.
This is the kind of thing that Mirror is all about (we are looking for community members!). This is exactly what this note is about. Don't go for the whole number, but focus on attracting community members who are intrinsically motivated.
It's all about heat at first, rather than absolute numbers, and that's where the 0 to 1 energy comes in.
The mistake that many projects make here is to focus on marketing with financial incentives, such as airdrops to attract new people. Instead, the core members should sweat and bring transparency to the concept, values, memes, introduction of existing participants, and behind-the-scenes development, which will result in long-term relationship building afterwards.
Tokens can be a powerful weapon that can maximize the number of stakeholders and grow the community, but I think their true value will be demonstrated in the moment when we reward users for their contributions on an empathy basis.
Here is one effective way of marketing to reach your audience.
This is to reach out to key people at the hub of your project and market and ask them to become insiders.
This can be called node membership or, in secular terms, influencer marketing. By giving special NFTs or token allocation arrangements to those who have influence over the target demographic, incentives can be created to reach the right audience.
That's exactly what the aforementioned "one-on-one external outreach to relevant potential participants" is all about, but since it's an incentive-first offer, it's best to consider the assumption that it can be short-term.
In fact, many projects do this kind of NFT drop to gather friends and initial members underwater to prepare the ground for the launch.
The earlier you are in the initial phase, the more you will inevitably need to raise the expectations of your project in the early stages in order to turn prospective users into stakeholders. In the presence of many competitors, it is difficult to get attention just by creating text-based whitepapers and LPs, so using influencers like this would be an effective way to raise initial expectations.
The way to bring in money and people with expectations and make your vision come true is the same as web2, or even better.
The first thing to do when someone joins the DAO is to build a relationship with them, and the second thing to do is to provide them with opportunities to contribute so that they can take ownership.
The former takes a lot of time, but it is an inevitable part of the relationship building process. The process of self-declaration to the community members is an important KPI to make the process better.
If you join a few communities, you will see that only about 10-20% of the total number of people are actively communicating, and the 2:8 rule is also at work here.
In such a situation, it is not appropriate to focus resources on the 80% of participants, but to focus on the 20% who bring a lot of value.
One way to find these people is to create an environment where people can self-signal their intentions. For example, you can operationalize the intentions of highly motivated members through threads and channels on the following topics for new participants.
Also, new members are usually reluctant to make their first statement because they are worried that it will be off-target (I still do that myself...wow). So let's start with a greeting through the "gm" channel, the greeting of the crypto community. The more casual "gm" greetings they hear, the lower the hurdle for them to speak up.
Once you have identified the contributions and preferences of your community members, the next step is to continually share and create opportunities for them to participate and contribute.
Many DAOs have an onboarding call, which is a time for an online video session similar to a DAO briefing. In addition to explaining the mission, it is normal to share the specific contribution flow and how to submit proposals.
Of course, this is all done in English, which is a hurdle for Japanese people like us who are not good at English, but it is done by many DAOs as a way to properly communicate the mission.
This is a great way to build a relationship with them, which will lead to subsequent commitments.
I think many DAO owners, myself included, expect participants to be active from day one, but of course it's not that easy.
Only after they become familiar with the community and invest a certain amount of time and energy will they be able to foster relationships with members and develop an ownership mentality.
Simply handing out tokens or NFTs is not enough to get people to take true ownership of the project. The real value of tokens is not as an incentive to participate in the community, but as a means to get people to recognize the value (contribution) that their participation brings to the community.
I have actually joined various DAOs, but I feel that there is still a high hurdle to overcome. It would be great if they had the motivation and aggressiveness to go out and get the job done themselves, but most of the participants seem to be at the level of, "I'm interested in this DAO initiative, is there anything I can do to help?” But most of the participants will be at the level of "I'm interested in this DAO initiative, is there anything I can do?
The question is, "How can I give these new participants a frictionless first success experience in the DAO? This is a big pain I personally feel, and we are working on a product to solve it.
The details will be shared openly with the community below. We're looking for members who can develop and design, so if you'd like to join us, we'd love to talk 🙇🏻♂️! (Even if it's just gm first!)
Another way to foster synchronous unity is to create a working group with members who have participated in each week, and assign projects to them, similar to SubDAO.
In this way, it is also a good idea to set up a system in which the senior group teaches the junior group how to contribute by creating layers based on when they joined the community.
Also, while long-term participants are the most desirable, the community needs to have a cycle. There are projects such as MolochDAO that support the amicable departure of members.
It is said that the number of years you can concentrate and commit to a community is about two years, and it is important to consider early on a system where people can be replaced in that time span.
With the exception of Bitcoin and Ethereum, MakerDAO and Uniswap are examples of DAOs that have been working with the DeFi protocol for a long time, so there is a lot to learn about how communication and operations are developed on their Discord. All web3 projects are open. Every web3 project is open to all!
Finally, I would like to summarize the process of starting a DAO and developing it into an autonomous operation.
Decide on a mission and a name.
To start a DAO, you need a name for the DAO (or a working title) and a purpose for the organization. The purpose should be stated not from the creator's point of view, but from the point of view of the members and supporters (why do you want this DAO to exist?).
Create a roadmap Make your profile public.
Invite your trusted friends to be the first members and create milestones together: how do you want the DAO to work, what do you plan to build? Leave decisions about tokens, NFTs, and governance systems for later, and focus primarily on value creation at this point.
Once you have a draft of the founding members and roadmap, you can create a "coming soon DAO" profile to attract more members.
Create a Discord server.Decide how to contribute and what to reward.
Set up the most common and repeatable tasks that the initial members can do to start up the DAO.
Then, propose rewards for those actions. Rewards can include special outcome NFTs (designed for status, not speculation), whitelisting for future NFT mint rights or token offerings, options to purchase future NFTs/tokens at a lower price, etc.
We would like to get to the initial release of the product at this stage if possible.
Issue NFTs, tokens, and develop sales methodCreate a token gate at Collab Land
A common example is to introduce a DAO token (which can be a cryptocurrency) or an initial NFT collection representing membership.
At this stage, there will be two types of member attributes: members who have earned membership through their initial contributions, and members who have earned that right through the purchase of tokens.
In other words, we have a mix of the "work and join" model and the "buy and join" model. If you want to attract more committed and passionate members, it is important to restrict the distribution of tokens to select buyers.
Set up a Snapshot.
This is the phase where you transfer some of the decision-making power of the community management policy to the members. This includes important decisions such as which features to prioritize for development, what to invest the treasury budget in, how to budget for grants, who to allocate tokens to, and how much to allocate.
Involving as many members as possible in these decisions will help foster ownership.
Financial structure Determine the financial structure + liquidity + expense management. Enable Gnosis Multisig to decentralize treasury management
Diversify your DAO treasury and determine what assets to allocate your budget to, such as native tokens, primary NFTs to be minted, governance tokens, tokens from collaborating DAOs, and legal tender.
Or partner with a liquidity provider or lender such as Compound to generate more interest and the currency needed to reward contributors through loans, exchange rate guarantees, and yield programs.
**Formulation of compensation and grants .
Formulate rewards and subsidies Create a project-based employment structure. Formulate programmatic incentives, etc.
From here on, it's almost the same as in the corporate world. Recruit contributors such as engineers, BizDev, influencers, customer acquisition, partner projects, etc.
Use Fiat, Token, Stablecoin, and NFT based reward models. It is important to automate rules-based rewards such as giveaways and airdrops.
Membership feesSecondary use feesTransaction feesLicensing, etc.
The DAO's business model, which has not been talked about much yet but is very important, is a long-term revenue model that includes annual membership fees (aka "property taxes") for owning membership NFTs, royalties from secondary NFT transactions, toll services and gas fees, DAO-owned IP licenses, etc.
Separate the governance layer from the operations layer.
This is the phase where the governance (policy, budgeting) and service operation layers of the DAO organization are separated. At this point, the token may be split into a governance token, which has voting rights, and a utility token, which is the currency of the ecosystem.
Governance tokens are often issued as compensation for contributing to the DAO and are not intended for circulation, but they can often have value.
Famous examples include the SLP currency token and AXS governor token in Axie Infinity, or the DAI staple coin and MKR governor token in Makers Dao.
DAO is a project in itself, a project and a community. A web3 product (=DAO) that creates value while increasing the number of stakeholders around the world is inevitably best managed by a community, and how to expand the pie is important.
As I mentioned at the beginning of this article, it is still difficult to say that there are successful examples outside of the DeFi domain, and many of the famous web3 projects are operated centrally by organizations that have received substantial investment (OpenSea, Metamask, Solana, etc.) rather than following the flow described above. I'm sure that many killer DAOs will be born over the dead.
Google, Facebook, and the iPhone were the last products in their genres when they were released, but they quickly became the de facto standard in their industries and changed the world beyond their boundaries.
The killer products in the web3 space, which will surpass Opensea and Metamask, will be born from the community. The killer products in the web3 domain that will surpass Opensea and Metamask will be born from the community in the not-too-distant future, or perhaps even in 2022 (the germ of which will surely be born, and we hope to be the one).
This megatrend is definitely coming, and you need to be out there, preparing your products early (I can't help but feel respect for the fact that all the projects that are blossoming now are players who have been preparing since the winter days a couple of years ago...).
Our mission at YoursDAO is to "accelerate the future of living with DAO by 10 years", and we aim to be the killer product. We are aiming for the middle of the road and developing our community in our own way so that we can be like pickaxes and jeans in the gold rush, but we still have a lot of work to do in product development and marketing...
So we are looking for people who can challenge the world in this new area of web3. As the first step of this challenge, we are about to launch a product that can be called the DAO version of LinkedIn, and we are looking for the initial core members.
The details will be open to the community and we hope to make improvements together, so if you are interested, please join us and ask about the YoursDAO product in the #intro channel.