DAOs have taken center stage.
Ever since 14% of the entire ETH supply was locked in The DAO in early 2016, we’ve spent the last five years distilling what it means to coordinate digital working groups.
DAOs are internet communities with a shared cap table and bank account.
Members work together to create, distribute and capture value relative to a shared mission. Ownership shares economic, social and political components, creating best practices for digital coordination.
In this post, we’ll break down the DAO landscape and examine the relationship between financial and social capital.
The DAOs mentioned in this post are non-comprehensive. I definitely missed some. If your DAO wasn’t mentioned, you probably missed this tweet.
A DAO is a commitment to share value with a community.
DAOs seek to:
A Telegram group with 10 members and 1 ETH is a DAO.
A DeFi protocol with $1B+ of assets governed on-chain by 10,000+ token holders is a DAO.
Regardless of size, DAOs look to solve core missions - evolving a group chat into a success-driven community.
Today, there are more than 100 DAOs managing over $10B in assets.
The first chapter of DAOs are the operating systems used to create them.
These projects offer different templates, frameworks and tools for communities to pool resources and start their first DAO.
They commonly offer smart contracts and interfaces to facilitate on-chain actions for decentralized communities.
DAO Operating Systems make it easy for anyone to start a DAO with limited technical skills.
The first real use case for DAOs were grants.
Communities donate funds and use a DAO to vote on how that capital is allocated to various contributors in the form of governance proposals.
Governance of Grants DAOs was originally conducted through non-transferable shares, meaning participation was largely motivated by social capital over financial returns.
Grants DAOs show that niche communities are more nimble in capital allocation than formal bodies.
Protocol DAOs transition power from a core team into the hands of the community, spawning a new way for projects to issue fungible tokens into the market.
Whereas the first chapter of DAOs featured non-transferable shares, Protocol DAOs were the first to issue transferable ERC20 tokens with a secondary market value.
These tokens are commonly used to govern protocols, meaning tokenholders have the sole authority to propose, vote on and implement changes to the underlying mechanics of the network.
Projects commonly vote on how to distribute tokens, thus opening the doors to liquidity mining, yield farming, fair launches and everything in between.
Protocol DAOs provided a framework for any network to issue a token that was (hopefully) owned and operated by its community.
With Protocol DAOs bringing new tokens into the world, it only seemed logical that groups band together to invest in them.
After a long period of non-profit DAOs, investment clubs flipped the switch for members to focus on generating a return.
While these DAOs come with a lot more legal restrictions than a Grants DAO, they showed that any group of individuals could come together to invest larger amounts of capital with low barriers to entry.
Investment DAOs allow members to pool capital and invest in projects at their earliest stages.
With so many tokens coming into the world, projects need talent. Service DAOs are talent allocators, using on-chain credentials to funnel and allocate resources from one DAO to another.
Service DAOs create decentralized working groups for individuals to work for the open internet - essentially acting as crypto-native talent agencies.
From legal to creative, governance to marketing, development to treasury management, Service DAOs create funnels to contract web3 mercenaries. Work is often rewarded with ERC20 tokens - providing ownership over the value created for a network.
Service DAOs explore the future of work, and what employment looks like in crypto-native world.
What does it mean to be a member of a DAO?
In an industry dominated by speculation, Social DAOs focus on social capital over financial capital. Social DAOs are the natural evolution of group chats, where friends become co-workers.
Where social media turned everybody into a media company, Social DAOs turn every group chat into a digital business.
They challenge what it means to be a part of a community and offer ways to lean into becoming a part of a digitally-native tribe.
Social DAOs show that there is more to crypto than making a quick buck, and that the internet is the best place to meet people with similar interests.
NFTs. You’ve heard of them - and for a while, you couldn’t ignore them.
On the back of mainstream adoption, Collector DAOs popped up to collect them.
Curator groups act as the underlying glue behind a specific artist, platform or series to help establish longevity.
Collector DAOs seek to curate which NFTs have long-term value.
In an age when information is globally accessible, ownership of the narratives through which they are distributed should be, too.
Media DAOs give that power back to those who consume the content.
They break down the way in which writers, streamers, and readers engage with the content they release. Whether it be media mining programs to incentivize contributions or governance over which topics make the front page, Media DAOs turn consumption into a two-way street.
Media DAOs share an outlet’s open agenda to spread awareness and news.
Across the board, a suite of tools are acting as the defacto standard for most DAOs today.
Gnosis Safe - Multisig wallets commonly used to manage community treasuries.
Snapshot - Off-chain voting platform for easy token-based governance.
Discourse - Forum commonly used to discuss governance proposals.
CollabLand - Bots providing token-gated access and tipping to community chat groups.
Coordinape - Coordination game to determine which contributors(s) deserve token rewards.
Parcel - Treasury management to easily track and send payments.
SourceCred - Instance to track community participation and reward active members.
Mirror - Finance creative projects through tokenized crowdfunds.
Tally - Governance dashboard to track on-chain voting history across different protocols.
Boardroom - Governance hub for tokenholder management to empower key decision making.
Sybil - Create and track on-chain governance delegation.
RabbitHole - Reward tokens for completing specific on-chain tasks.
Together, this stack allows anyone to spin up a treasury, introduce governance, reward key contributions and engage communities in ongoing discussions.
DAOs live on a spectrum.
The lightest DAOs are social-first with off-chain governance. The goal is to create active discussion and communal belonging - more than to generate a profit.
The heaviest DAOs have tremendous amounts of capital at stake, requiring on-chain governance to execute and ratify proposals.
What we’re currently witnessing is a shift from very heavy protocols to extremely light micro-economies.
Communities are creating social DAOs in real-time, rather than being restricted to on-chain structures to get started.
For the heavier DAOs, on-chain proposals are creating and empowering lighter, off-chain working groups. This is best highlighted by the recent growth around Grants DAOs, allowing trusted community members to move faster with funds, rather than having to meet quorum to execute simple payments.
As DAOs gain momentum, it’s common to see Treasury Diversification proposals. These events allow the wider community to contribute directly to a DAO treasury in exchange for its native token(s).
This shift signals that fundraising can apply to a community-wide treasury, rather than being managed solely by a core team.
Once runway is secured, DAOs need to figure out how to put it to work. The evolution of working groups and subcommittees is one I’m deeply fascinated by, and something we’re watching play out in real-time.
DAOs mature on the back of community-driven services and governance.
As treasuries grow in size and communities grow in quality, core contributions become more and more important to keep the ball rolling.
Through Fire Eyes DAO, I’ve been lucky enough to pass on-chain proposals on protocols like Aave, Balancer, Rocket Pool and Gitcoin.
Governance will become increasingly more important, and feature a much wider design diamond of possibilities. With this, so will the number of teams working to put capital to work through on-chain proposals.
From grants to payroll, token swaps to M&A - expect the next wave of mercenaries to show why web3 governance is a complete paradigm shift. (more on this topic to come in my next post).
Very soon, we could see a world where DAOs are the new LLCs.
It feels inevitable that tokens will eventually replace equity, and with it - so will the legacy legal structures that underpin them.
This post was published in June, 2021.
Below is a growing list of resources to keep up with DAOs, their growth and the key people to watch. This list will be updated periodically, so please DM me with anything worth adding to the list!
[Julia Lipton] - Open Source DAO Market Research
[pet3rpan] - How to Grow Decentralized Communities
[Linda Xie] - A Beginner’s Guide to DAOs
[Kinjal Shah] - DAOs & Creators - Resources to Get Started Today
[Cooper Turley] - How to Launch a Token
[Bankless] - Life of a Protocol Politician
[Kevin Owocki] - Know Thy Enemy - Coordination Failures
[Packy McCormack] - The DAO of DAOs
[Packy McCormack] - Cooperation Economy
[Patrick Rivera] - A Guide to Crypto Tokens
[pet3rpan] - An Introduction to DAOs
[Vitalik Buterin] - DAOs, DACs, DAs and More: An Incomplete Terminology Guide
To the DAO contributors of the world - keep up the great work.
We’ve got a long way to go before DAOs have proven real traction at scale, but this snapshot should show that some of the world’s brightest minds are committed to making that happen.
In the meantime, keep shipping and remember… when in doubt - Just DAO It.
Special thanks to Carlos Gomes for the graphics and to Li Jin, Jesse Walden, Pet3rpan, Lucas Campbell, Kinjal Shah, Jess Sloss, Brian Flynn, Jake Chervinsky, Packy McCormick, and Alex Zhang for their feedback!
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