The Way of the DAO
Collaboration at the speed of the internet
Hi friends 👋,
DAOs have been everywhere in news lately. They’ve caught the attention and imagination of the world’s crypto-spectators. But as tends to be the case, a cacophony of media input is typically disastrous for the crypto-curious; those who want to learn and understand rather than be delivered hastily written takes on the latest goings-on.
Like many of Web3’s new inventions, DAOs are best experienced in person. But that’s what I’m here for, to save you countless hours on Discord and on Twitter! And being the resident guinea pig here, I have to say that DAOs are positively fascinating. They show an immediate potential to change the way we work, and are a step-change improvement in our ability to harness the intention of the internet.
Let’s get to it 🚀
P.S. There is lots of great writing on DAOs. If this article piqued your interest, I encourage you to check out the DAO section of my Web3 reading repo.
The Way of the DAO
Here’s a fun fact: the namesake for the term ‘DAO’ originally comes from a centuries old branch of eastern philosophy. Daoisim, more commonly known as Taoisim, is a set of principles for living in harmony with the world. Daoists seek alignment with a cosmologically ideal lifestyle known as “the way”, which in Chinese languages translates into the word “Dao”.
Because language is context-dependent, referring to one’s way or dao can mean both the literal path you travel as well as the more existential act of making your way in the world. Daoism offers guidelines for life’s journey; a set of principles allowing one to adhere to the Way as closely as possible.
Today, the term ‘Dao’ has been acronymized by Web3 in a philosophical nod to Taoism. But don’t fret, even Lao Tzu would have a difficult time understanding the connection between Decentralized Autonomous Organizations (DAOs) and his inspired Dao philosophy.
This thin relation between DAOs and the Dao does provide us with an interesting beachhead for conversation. Today’s DAOs are in pursuit of their own Ideal, promising digital natives a new way to collaborate and achieve shared goals. Like Taoism, DAOs offer their own set of principles for this task, a collection of guidelines for cooperation that are entirely distinct from entities like companies.
So just as we’re able to contemplate the difference between Toaist and Buddhist principles, we can also look at companies and DAOs as having their own ‘way of being’. Companies are profit-seeking, have top-down structures, and increase responsibility through promotions. DAOs are mission-driven, radically transparent, and increase responsibility through contribution. Whether one is better or worse depends on the application and context. But the subtle differences in principles are what separates these organizational archetypes.
If this is your first time hearing ‘Decentralized Autonomous Organization’, then try not to focus on the big words. They are woefully unimportant to understanding DAOs. What is important are the principles DAOs operate upon and how they represent a new digital-first paradigm of human collaboration. In short, what we need focus on is understanding the way of the DAO:
DAOs on the Ground Floor
A Network of Networks
The Good, the Bad, and the Ugly
It should come as no surprise that there was a time before companies. In the 1800s, the vast majority of Americans worked outside any collaborative structure at all, mainly as farmers and tradespeople. It was the result of powerful economic forces that pulled human labour into the structure of a company, namely, that of industrialization. This thought is echoed in Mario Gabrielle’s massively multi-contributor article on DAOs:
Industrialization offered the chance for greater wealth while demanding increased labor. That drove the consolidation of workers beneath large organizations with centralized command systems. These shifts meant that by 1950, as much as 90% of the populace depended on companies for wages.
If companies are a response to the forces of industrialization, then DAOs are a response to the forces of digitization. They are a post-internet solution to the problem of human collaboration.
Looking to our past, we can see this is just another paradigm shift in the way humans interoperate. This is well captured by an early piece of internet cannon, the TIMN report (which I found by way of Kei Kreutler’s article, A Prehistory of DAOs).
According to the TIMN report, humans have progressed through four distinct organizational archetypes. These are Tribes, Institutions, Markets, and Networks (T.I.M.N.). Each phase is accompanied by a distinct organizing principle: tribes rely on kinship and lineage, institutions rely on hierarchy, markets rely on competitive exchange, and networks rely on collaborative exchange.
New phases don’t replace the old, instead they layer on top of one another. Society still relies on kinship-based nuclear families for child rearing, much as it uses hierarchical institutions for functions like government and education. We use markets for job seeking and price discovery, just as we use the internet for organic collective action. My take is that much of the disruption caused by DAOs will occur as a result of two forces:
DAOs will cause societal functions to ‘level up’ in the TIMN framework (eg. governments begin to operate more like networks than they do institutions)
DAOs create a fifth organizational archetype - the fabled Network of Networks (more on this later)
We should expect these changes to be dramatic in their disturbance of the status quo. As we validated in Networked Nations, blockchains are capable of fulfilling the same ‘promises’ made by all institutions, including governments. Though it took companies ~150 years to become dominant, we should expect DAOs to dominate much faster. Software and the internet are change accelerants after all.
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DAOs on the Ground Floor
With all this talk of DAOs, we’ve barely provided the base-level context for what they look and feel like. That being said, I’d like to disclaim that the following is a description of DAOs as they are today. The DAOs of tomorrow will likely be entirely different as a result of embracing yet unseen platforms and custom tooling. If you’re familiar with DAOs you can probably skip this section.
In form, DAOs are digital-first communities that self-organize to collectively accomplish a shared mission. A DAO typically starts with an idea, like: “Let’s buy a basketball team!” or “Let’s buy the US constitution!”, but DAOs can also have more abstract missions like being a social club for the creative class or a governing body for the development of Web3’s top protocols.
Today, DAOs ‘recruit’ by blasting their ideas all over Twitter. In this way, DAOs attempt to reach an audience of people who also believe in their mission. The goal here is to take potential members into a public Discord channel where they might increase their interaction and commitment with the DAO by becoming a contributor. There are many ways to understand what a DAO contributor exactly is. Many people participate in a DAO by simply hanging out in the Discord channel. In a sense, these people contribute to a feeling of community and sustained culture for DAOs - which is incredibly important.
If we were to be more strict, a DAO contributor would be any individual that ‘works’ for the DAO. Anyone can take on work by completing tasks listed on a public ‘bounty board’. These tasks can range from writing smart contracts to designing marketing material, or even simply taking notes at meetings. In reward for their contribution, contributors earn DAO-native tokens, which act as both equity and a financial reward for participation.
Tasks typically feed into a DAO’s major initiatives, which are voted on by the community using token-weighted governance tools like Snapshot. This allows DAOs to reach consensus on major decisions, like whether they should raise money via an NFT sale or by launching products into the market. Our descriptions so far make DAOs out to be a flawless symphony of decentralized harmony, but in reality DAOs host meetings to allow discourse and consensus-gathering among their members.
Perhaps at this point you are thinking, “What about decentralization? What about autonomy?”. And indeed, we have spared precious few words on what are considered hallmark traits of DAOs. The truth is, DAOs aren’t really decentralized, nor are they fully autonomous. Todays’ DAOs benefit from strong, early leadership from core contributors and rely on highly engaged, participatory democracy for decision making. They develop protocols to encode aspects of human engagement (like consensus-gathering) and use tokens as incentives. It’s best to think of decentralization and automation as a promise of future potential rather than present functionality. At their best, DAOs are a method of using technology to build online communities with a shared vision.
For this reason, the solution space of DAOs is far greater than the solution space of any past organizational archetypes. DAOs are as applicable to friend groups as they are to nation-wide social movements. They embody a philosophy of using increasingly effective digital tools to collectivize online and coordinate human labor and economic value (i.e. money). To really understand the way of the DAO, there are two key concepts to understand:
At the very core of any DAO is an explicit mission or vision of the future. KrauseHouse believes in a world where NBA fans are also NBA owners, just as BanklessDAO believes that every human should be their own bank. This explains why DAOs are so numerous - there are as many DAOs as there are ideas for change! In fact, starting a DAO is quite like broadcasting a signal to the entire internet, inviting other like minded individuals to rally under the same banner.
This self-organization is not unique to DAOs, but rather is an emergent property of the internet. Human opinions are like a field of vectors flying around on Reddit and Twitter, each pointing in different directions. Every now and then, a powerful narrative emerges that aligns all the arrows, leading to watershed moments like the GameStop Saga.
John Palmer describes the impact of this emergence well in his article, Scissor Labels:
Anyone who spends time on Twitter is familiar with the idea of popular narratives as an organizing force for online subcultures. Being part of a widely known trend offers legitimization, and an entire ecosystem has evolved for manufacturing, growing, and then utilizing narratives to fulfill the agenda of those involved.
On the internet, narratives are the organizing force that lead to the spontaneous formation of subcultures. The problem is, newly formed subcultures often have woefully few outcomes for sustained action. It’s all too typical for this temporary alignment of opinions to fade and the community to dissipate. This is where DAOs come in, giving individuals an off-ramp from the chaos of the internet, where they can be welcomed into a more controlled and focused environment.
We should view DAOs as a structure capable of harnessing the internet’s emergence into more stable organizational structure. This embodiment of narrative give DAOs immense generative power, providing a singular point for anyone on the internet to direct their efforts towards.
The most powerful narratives will result in the greatest emergence, which is why there is a wide range of environmentally focused DAOs: EcoDAO, KlimaDAO, TheEdenDAO. This also explains the overnight success of ConstitutionDAO. “Success?”, you might be thinking, “Didn’t they lose the bid?”. Though ConstitutionDAO didn’t achieve their acquisition target, fundraising $47M from ~17K users is by far Web3’s greatest display of strength yet. Like breaking the 4-minute mile, it has shown the internet what could be done. In fact, ConstitutionDAO’s symbolism has catalyzed a wide variety of DAOs focused on equity and repatriation.
This is yet another reminder that the most contagious memes aren’t silly internet GIFs, but are cultural artifacts with deep purpose and meaning.
For many, the most shocking quality of a DAO is that they operate under extreme transparency. This can seems downright blasphemous; why should an unknown Discord lurker have the same access to information as a DAO’s core contributor? But this very question reeks of our comfort with the scoped information hierarchies of today’s companies.
Recall that hierarchies are the organizing principles for Institutions in the the TIMN framework. More evolved frameworks like Markets and Networks operate on competitive and collaborative exchange, which we know to be most efficient when information is widely accessible. DAOs are designed in this fashion, encouraging collaboration in the macro (collectively working towards the mission) and competition in the micro (a talent market fighting for tokens).
This changes our understanding of the cause-and-effect of DAO transparency: it’s not transparency for the sake of a romantic ideal, it’s transparency to feed an ecosystem of market and network participants. Permissionless information is necessary for the collaborative-competitive tension to thrive.
This gives DAOs an incentive to be truly digitally native. In the extreme, it should be possible to comprehend the entire state of a DAO from its data. This includes who its members are (which wallets hold its tokens), which contributors accomplished certain tasks, and what proposals were voted and executed on. All this activity is actualized by storing data on public blockchains and storing culture in online documentation.
This dialed up form of digital nativism is difficult for companies to emulate. From the very beginning, DAOs use Web3 tools like tokens and smart contracts to leave a continuous data trail, giving a DAO and its members exposure to the limitless functionality of a programmable internet. Whereas companies have a large legal footprint, DAOs have a large digital footprint.
In Emergent Apps & The Great Rebundling, we identified five core features of Web3 tokens: financialize, incentivize, fractionalize, collectivize, and authorize. Through digital nativism, DAOs can build an ecosystem of online engagement around membership and participation using each of these traits. Whether it’s weighted voting based on your ownership stake (fractionalize), or the ability for all owners to participate in the upside of the DAO’s financial investments (financialize). These experiences are far from native for non-DAO organizations, where payroll and governance continue to be major pain points.
Much of the promise of DAOs is that they are experimenting with communication and incentive structures in a way no collaboration model has been able to in the past. This is only aided by the product velocity of DAO tooling, which is often both funded and developed by the DAOs themselves.
Digital nativism can also explain how DAO’s trend towards both decentralization and autonomy. As a sustainable community forms, tokens become more widely distributed by those most dedicated to a DAO’s mission (decentralization). As smart contract-based tooling improves, DAO’s close the gap between decision and execution, allowing more of the DAO operation to be run on code. We can imagine a day when DAOs automatically disburse funds for contributor payment or acquisition, based on the on-chain confirmation of a completed task or finalized vote.
A Network of Networks
Early in the article, I enticingly name dropped a possible extension to the TIMN framework, saying that DAOs would enable a ‘Network of Networks’ archetype. My thought behind this is as follows:
One of the many promises of DAOs is that they provide the individual with immense leverage for their time and skills. Consider the world’s best chip designer. Right now, their optimal path for compensation and career fulfillment is being hired by a world-class company like AMD or Intel. Such companies ‘win’ by locking up the best talent in the job market, as often enforced by non-compete clauses and garden leave policies. While this might be a net-good for the individual and for the company, this imposes a great cost on society. That individual’s expertise is now missing from the market.
It’s far more likely that we can maximize social impact by allowing the best talent to be shared between organizations. This is the Network of Networks archetype; a form of entity-level collaboration where collective good is measured across the boundaries of distinct organizations instead of within.
This positive-sum mentality is enabled by the DAO’s looser hold on talent, allowing knowledge to be shared more broadly and encouraging ‘talent composability’ amongst an open market of collaborators. This model is likely to be better for individuals, who can now diversify their job exposure across various organizations and projects, and whose work can command a market rate that recognizes the true asymmetry of human talent and intellect.
I speculate that this emergence is far more likely to come from the world of DAOs, where talent and information flow more freely than in the legal labyrinths and inter-competitive landscape of traditional companies.
The Good, the Bad, and the Ugly
Though DAOs promise much, they also face great challenges as they try to be more than just digital collectives. In an open market of freelance talent and transparent work opportunities, many DAOs struggle to retain top contributors. Under the current model, a core member from any team can drift in and out of their self-selected employment, giving a DAO roadmaps a risky fair-weather property.
And though they aim to be accessible to all, most DAOs actually struggle with diversity and inclusion. After all, it’s often well-off knowledge workers at desk jobs that can spare the time and money to participate in internet side projects.
Perhaps the greatest challenge for DAOs is their ability to interface with the legal system. It’s no wonder most DAOs restrict their mission to acquiring on-chain assets like NFTs, or to building protocols within the Web3 ecosystem. Our DAO-to-legal interfaces are nascent, with very few lawful bodies recognizing the DAO structure with any legitimacy. This brings great uncertainty to DAO efforts in the real world.
If a DAO does buy a basketball team or a does purchase a piece of land, who is legally responsible for its ownership? Who should pay the taxes on purchases? Does every member participate in the DAO’s collective liability? Is liability equally distributed or adjusted by token holdings? Answering these require both an innovation on the part of DAOs and on the part of our legal systems and regulators.
Another important question here is: can DAOs scale out into the real world? Our most influential companies hire tens of thousands of people and manage billions in physical capital. Today’s DAOs only employ dozens of people on a part-time basis, and own very little physical property. Will the same principles of transparency and decentralization still apply at the scale of hundreds or thousands of active participants?
These questions are a double-edged sword. They’re what make the future of DAOs as fascinating as it is uncertain. Each DAO is a small experiment, testing an entirely unique combination of human interaction, automation, and work incentives. For any one problem, only a single DAO needs to find the winning combination for the rest to benefit. And in finding a solution, we are closer to unlocking a rich new world of digital participation: giving online communities permanence and presence in the real world, enabling fluid part-time employment at the speed of the internet. This feels much more like the real catalyst for talent dispersion than when we first started shouting ‘globalization!’.
For now, I’ll be watching DAOs closely, taking note as they evolve and iterate to overcome each hurdle. DAOs are the newest ‘way of being’ for human organization, one native to the internet, enabled by free access to information, all in pursuit of a collective mission.
What an exciting future awaits!
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With gratitude, ✌️