Ah, DAOs - decentralized autonomous organizations. A lot has been written about them. I am not really discovering anything new in this piece - more so angling the concept to that of which I know which is 1) the creator space and 2) the pitfalls of traditional corporations. The piece is broken out as follows:
So what is a DAO? It’s “a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain” as Linda Xie highlights in her piece. At the most basic level, they use collective participation to fund things and get things done.
The big difference between DAOs and the !Traditional Corporation! is that DAOs have:
Smart contracts: They automate some activities through smart contracts (contracts that execute when certain conditions are met) - which basically reduces any need for humans to be ~making decisions~ (which reduces a lot of inefficiencies and overhead costs)
Decentralized decision making: They are also decentralized - so big suits don’t have all the power. People do, primarily through voting through tokens.
Structurally: Think of it like an organization but with some of the parts (Human Resources, Ops Team, Middle Management) fully automated through smart contracts.
Stakeholders vs Suits: Instead of five people in a boardroom making all the decisions, it’s the stakeholders.
“Companies are a collection of legal contracts and DAOs are a collection of smart contracts.”
DAOs are meant to be transparent, accessible, global, and have a flat hierarchy, the opposite of the traditional corporation. It blows up the traditional, triangle corporation.
DAOs can do a lot of different things (and this piece is nowhere near comprehensive) - ranging from managing projects, acting as funds for investments, acting as an exchange, and collective buying etc. They start off with a core team, evolve to a broader community, and eventually open up to the rest of the world.
cross country team
Coopahtroopa did a great piece on this, highlighting that DAOs are “internet communities with a shared cap table and bank account.” DAOs can be used to finance, govern, and share value as Packy points out in his DAO piece.
I kind of think of them like this - with operating system DAOs being the base that the rest of the DAOs spin out from. The other DAOs would be anything ranging from capital allocators (Grant DAOs) to art curators (Collector DAOs) etc.
All of the above DAOs are supported by a variety of different tools such as tools to manage treasuries, voting platforms, governance proposal tools, coordination platforms, and so much more (which Coopahtroopa lays out in his piece here). Corbin Page created this map of core services for DAOs below - breaking out the DAO services into different components.
Just like a corporation, there are many inputs that have to go into the functioning of a DAO - token services, governance, treasury management, etc. DAO ops are INCREDIBLY important. Ops are the lifeblood of an organization.
DAOs use three main points of leverage to operate:
That meets a lot of our “needs”.
Another important note is that "organizations move at the speed of trust." If everyone is equally invested in the DAO and it’s path forward, trust should be built in (more or less) implying that DAOs can move pretty quickly.
This list is so far from comprehensive. I’ve pulled ones that I found interesting, but fully recognize that I have left out many.
DeFi Projects
Automated Market Makers
Funds
MolochDAO: Fund projects that advance Ethereum. What’s cool about this DAO is that it has been forked to create other DAOs - similar to The LAO, which also invests in Ethereum projects.
PleasrDAO: Buy NFT art - but it’s so much more than that - “It stands for community, freedom, and decentralization. It’s a collective built by the community, for the community. While its early stages have been collecting iconic works, we look forward to democratizing ownership of the DAO and the pieces within it.”
Friends with Benefits: culturally
forefront: https://forefront.market
seedclub
bankless
fingerprints
index coop
Dave dao
Forefront
There are models beyond this like Louis Grx highlights in his thread - and that will only expand from here.
So with all that being said - what is the main conclusion?
real world
still has to own c corp or llc
Over $1 billion has been funneled across ~100 DAOs (as of June 2021).
Human Nature: Humans are humans. We saw what happened with The DAO: someone saw a hole in the code and exploited it. It was meant to be the next iteration of an economic organization. But it wasn’t. Hackers hit it, and Ethereum core team had to do a hard fork of the Ethereum blockchain. For all of human history, humans have been self-serving and only really interested in elevating themselves - especially in the individualistic societies of the West.
Legality: A lot of them also are not legally recognized (unless you are in Wyoming or Malta) so they operate without protection for members, which can be bad.
Rug Pulls: I think there is still the worry of the “get-rich-quick” mindset. Corporations actually offer iterations of what DAOs offer - voting rights, board of directors, dividends - DAOs promise to add efficiency and decentralization on top of that. But they also rely on humans incentivized by tokens - and humans are notoriously fickle.
A bit complex: Of course, there are a ton of decisions the DAOs have to make in the build-up - both on-chain and off-chain. It’s still complex - and there are still barriers to entry that have to be navigated.
DAOs are community ownership. It’s not a bunch of suits dumping money - it’s collective stakeholders determining the path forward, which is really important. They incentivize through monetary compensation, but also the element of decision making.
But with that too - one human always wants to rise to the top. Napoléon Bonaparte exists within us all. And theoretically, the structure should prevent that from happening - but community is HARD and disruptable.
This is really just the beginning of DAOs - people are working on building accounting standards for DAO reporting, which could credential the system. I would imagine more guardrails like this will come up, with will be important.
Adam Cochran also had a great thread on the problem that DAOs face (with remote work as the backdrop). They require a certain clarity of vision, collective coordination, and a clear process
Also, things change - and that’s important to remember in the everevolving crypto space. Ho Nam wasn’t speaking about DAOs here - but the sentiment still resonates in this space I think. Are DAOs the next LLC or are the way that we think about businesses going to be disrupted entirely?
It’s a tough space to operate in. We aren’t great at operating in a decentralized way, because instinctually we need people around us. Human nature is social, interactive, and DAOs remove an element of that - but I think we are quickly adapting to the Online as our primary mode of operating in the world.
And with that adaptation, DAOs could easily become our main way of business and ownership - and that would be incredibly powerful.