A Primer on DAOs
This article provides a (very) brief introduction to a complicated topic that means many different things to many different people. DAOs have many layers of complexity that are hard to capture in a single article. In the coming months, Zapper Learn will be offering many more deep-dives into different aspects of DAOs, written by subject matter experts. Until then, enjoy this cursory look at a very cool trend in Web3.
What is a DAO?
Decentralized autonomous organizations (DAOs) are communities of people working towards a common objective while leveraging blockchains to coordinate and scale efforts to achieve their goals.
DAOs are Web3-native, and as such they tend to be organized according to the values of blockchain technology: openness, transparency, and decentralization. DAOs are an emergent model for facilitating and scaling human coordination in a way that gives members autonomy over their work and reduces issues related to bureaucratic gridlock.
How do DAOs Work?
At the most basic level, DAOs are a reimagination of the way human beings collaborate. They work to eliminate traditional company hierarchies by reducing the top-down approach to setting priorities and delegating tasks. Members of a DAO also generally have equitable access to resources such as the DAO’s treasury, worker output, and administrative or technical resources the DAO has invested in to optimize work.
In addition to this reduction of traditional organizational hierarchies, members are empowered to set their own schedule and choose how much or how little they want to contribute to a given project. This way, members contribute to a DAO based on their personal interests and capacity.
Web3 organizations are just starting to experiment seriously with the DAO model to coordinate, optimize, and scale work. This means that some groups are farther along than others when it comes to figuring out how best to set up their DAO, what tools to use, and how exactly their DAO will adhere to Web3 principles like decentralization, transparency, and autonomy for workers. Right now, most DAOs are a work in progress inspired by a unique philosophy that sees the future of work as less hierarchical, more autonomous, and increasingly flexible for workers.
Optimizing Work in a DAO
DAOs are constantly evolving and new tools are being developed everyday to make life in a DAO easier and adhere more closely to the principles of openness, transparency, and decentralization. There are a few tools that have emerged as essential to get started in a DAO.
The first tool is a multisig. Multisig is short for multi-signature wallet, which is simply a crypto wallet that requires multiple keys to sign a transaction before it can be executed. This ensures that any expenditures are agreed upon by all DAO members, and no individual member of a DAO can misuse funds. It also means that with a simple voting mechanism, funds can be released to members who need resources & payments to execute a project.
Many DAOs are experimenting with using a governance token to compensate members & provide active contributors with voting power. Governance tokens are a tool that can be used in many different ways to move DAO participation on-chain, enshrining financial decisions and member votes on a public ledger.
Finally, a mechanism to facilitate voting is necessary. The platform Snapshot has emerged as a fairly reliable and efficient way to organize member votes, calculate voting power, and distribute voting proposals for DAOs, but different voting platforms are bound to emerge in the coming months as DAO participation becomes more widespread and the need for scaling and increased efficiency grows.
These are just some areas where relatively effective tools have been developed. Other platforms are looking at how to make token-gating as efficient and equitable as possible, and how technology can be used to effectively and seamlessly release payments to members as tasks are completed.
Improving the DAO Model
For those who want to see the DAO model take on a greater role in the way our societies organize labour, there are still some kinks to be worked out on both a technical and theoretical level.
When it comes to tooling, there is a wide world of on-chain infrastructure that can be built to optimize the resources available for onboarding DAO members, delegating tasks, tracking member participation, and distributing compensation equitably and efficiently. Some of the building blocks like multisigs and voting mechanisms have started to take shape, but there is a lot of room to improve these platforms as DAOs grow and proliferate.
For many DAOs, there is also the issue of effectively managing growth and member interest. If a DAO has 1,000 members across the world interested in contributing to the DAO’s mission, tooling is needed to make sure every single one of these members can participate and be compensated accordingly, without duplicating efforts or having work become redundant. This is a problem we hope can be solved using blockchain technology & other technological innovations, but we are very much just starting to think about how to solve these complex problems.
Prioritizing Web3 Values
Conceptually, each DAO needs to decide for itself how to handle the issue of decentralization, particularly when it comes to eliminating or reducing company hierarchies and traditional flows of wealth distribution.
For some DAOs, it might be enough to use DAO tooling to make collaborative work and resource allocation simpler for members. Others might want to look critically at what it would mean to eliminate company hierarchy entirely, and ensure organizational wealth flows more equitably from executives and investors to the members who are putting in the work to build and maintain Web3 organizations.