A decentralized autonomous organization (DAO) is a group organized around a specific mission that coordinates through a shared set of rules enforced on a blockchain. DAOs themselves are just organizational structures that control shared economic resources and/or protocol rules, and each DAO can be different in how it operates. Some DAOs are private and others are open for anyone to join and contribute. For some DAOs, active contributors can get paid by the DAO for their work.
DAOs have been one of my favorite spaces in crypto to spend time in. The ability for people all over the world to come together to build towards a shared mission is exciting, especially when that same group could never have been formed under a traditional company due to various arbitrary barriers (e.g. location, age, part-time, non-traditional education/work experience). For more info on the potential of DAOs, please see my beginner’s guide to DAOs.
This post covers some of my key takeaways from working with DAOs. Most of my experience has been as a delegate for Gitcoin DAO but I’ve also participated in and observed many others. There’s no perfect DAO structure and each one has its own culture so what works for one DAO won’t necessarily work for another. The following reflects my personal experience and perspective and other people might have a different one. The entire space is also constantly iterating to find out what works and what doesn’t.
When initially starting a DAO:
Establish a clear mission. This is critical to keep a diverse and ever-evolving community aligned over time and guide decision-making. If someone comes to the DAO with a funding proposal that is out of scope, it should be an easy no. If the DAO’s priorities aren’t clear, it will be much more challenging to keep the group focused on progressing toward the mission.
Consider progressive decentralization. While the intention of many DAOs is to fully decentralize operations and decision-making, dropping a community into a DAO structure without guidance or leadership will often result in a lack of effective coordination. The founding team almost always has the most context and will ideally set the course for the DAO to progressively empower the broader community over time.
For example, the newly formed Optimism Collective has a working constitution that defines the Optimism Foundation’s role as a steward early on and how the Foundation will help guide the collective with plans to increasingly decentralize its role over time.
Smaller working groups are more efficient. It should not be the case that all DAO members vote on every decision needed in the DAO. It’s impossible to try to keep up with everything and it’s not the best use of everyone’s time, especially as the DAO scales. For this reason, I like the delegate model as seen with DAOs like Gitcoin and ENS, which allow token holders to delegate their votes to a person or group that is able to dedicate the time needed to make informed decisions.
Similarly, delegates don’t need to be involved in all aspects of day-to-day DAO operations either. Delegates won’t be an expert in every topic from finance to technical development to economic design and might not care about reviewing highly specific details. It is more efficient to establish smaller specialized groups that can focus on a specific area.
For example, each quarter in Gitcoin DAO, working groups share what they accomplished in the past quarter and the budget they need for the next quarter to then be voted on by delegates. ENS DAO has been working with Orca which is a DAO implementation that specifically focuses on enabling small working groups called pods. Another example is Aave V3 which lets whitelisted addresses update parameters without having to go through a governance vote. However, governance will have the ability to revoke these whitelisted addresses or add new ones.
Explore ways to establish accountability. It is important to account for how involved each delegate and working group contributor is. In Gitcoin DAO, one attempt to measure delegate engagement is with Steward Health Cards which measure things like voting activity and forum participation. Gitcoin DAO is in the process of building Workstream Health Cards and has also started quantifying DAO contributions so that some of the workstream contributors can work their way into becoming top delegates through engagement and participation in the DAO. These metrics should be refined over time so that it’s not gameable and doesn’t encourage the wrong behavior such as voting just for the sake of voting regardless of knowledge or expertise.
Delegate metrics can be helpful for members who are deciding where to delegate their votes. Sometimes people might just delegate to someone they recognize but that might not actually be an active delegate. I’m also very open to the idea of delegate election cycles which can be a way for people to phase out of the DAO when it’s no longer something they want to work on and keeps delegates thinking about if the DAO is something they want to continue to commit their time to.
Disclaimer: Scalar Capital is an investor in Gitcoin, Element, Optimism, Forefront, and Orca. This post is not investment advice.