It’s time to make a DAO! Anyone can make their own DAO with Aragon or DAOstack, or just by forking Molloch. Even better, you can use an augmented bonding curve to fund your DAO, thanks to the amazing work by the Commons Stack folks, and there you have it! A fully-functioning DAO with just a few days of work!
The problem is — why did you make a DAO?
The overpromise of the DAO
If you’ve gone to a DAOfest or seen some of the articles and videos coming out of the DAO industry, it seems like DAOs will solve all kinds of problems, like:
- DAO will allow everyone to have a voice!
- Lots of people will join when they see they have a voice!
- You can weight decision-making based on reputation!
- Funding will be easier/magical!
- It will be easy to join!
- The organization will have a better chance of outliving the founders!
- DAO is better for collaboration!
- DAOs reach better decisions than hierarchies!
- It’s better for the environment!
- New kinds of business models are suddenly possible!
If all of that sounds too good to be true, it’s because it is too good to be true. Now, obviously, I spend a lot of my time thinking about, writing about and contributing to DAOs. I believe that DAOs will provide some solutions to many of those problems… but they don’t yet. The problem is… marketing.
Another word for “marketing’ is “disinformation”. The marketing of DAO tech is done by DAO tech companies who have a limited runway and need to find business models at some point, or need to raise money on markets by getting enough traction to seem viable in today’s business world. That’s problematic, because it means that these companies and individuals have an interest in misinforming people. It’s particularly problematic for me because they call me and ask for my advice after being misinformed. Or maybe it’s great for me because I love criticising other people and seeming smart! Either way, let’s get some of the information straight.
Before we speak about what a DAO isn’t and why you don’t need one, let’s briefly discuss why DAO tech has gathered so much hype (and why I devote a big portion of my life in the dGov/DAO realm).
Personally, I don’t think DAOs are a new form of “doing business”. The current form of doing business works well. Hierarchy is a well-proven methodology of profit-making. In other words, there is no problem to solve when it comes to business. Yes, it can be difficult to raise money, but being an entrepreneur is hard. Doing anything worthwhile is hard. Suck it up.
Distributed/decentralized forms of governance, including DAOs, make sense in the context of problems that hierarchy has failed to resolve. DAO may become a type of organization that can help humanity with collective problems, such as water quality, armed conflict, economic inequality, and shared resources. We don’t want to continue killing ourselves and one another, directly and indirectly. Arguing can be fun, but solving problems and resolving conflicts is more productive.
Hierarchy and majority-rule cannot address problems of coordination, fairness, and collaboration. We have ample empirical evidence that new forms of collaboration are urgently needed. DAO offers hope for collective intelligence. Right now, that’s only a hope, and if you want to experiment, you might want to try a DAO.
But… you should be aware of these (current) limitations.
Oligarchy doesn’t need a DAO
If you have a team of 20 or fewer people, and you need to make decisions together, get in a room together and make decisions. If you need a moderator or expert in group collaboration, get an expert. Learn how to use weighted decision tables. Learn some advanced communications skills. Don’t use a DAO.
Several people have approached me and told me they have teams of 5–7 people and they now want to use a DAO for collaborative decision-making. This is just plain silly. Get in a room together and make decisions. Using a digital decision-making tool will erode the relationships of those 7 people and create a competitive environment where people are campaigning for their ideas, instead of listening to one another. Almost all the digital tools we have today have shown us this beyond a doubt (Loomio is an exception, but you don’t need it for a small group).
If you want an oligarchy of 5–7 people, have an oligarchy. Don’t use some complex online voting platform that will slow down your decision-making. And get help if you are coming across interpersonal issues (read my book or contact me directly, or contact my “competitors” like Enspiral.)
It won’t solve your money problems
The work being done on sharing economies and cooperatives is promising in developing communities where people can reduce or eliminate scarcity by sharing resources.
However, DAOs today don’t do that. DAO technology lets people vote on a monetary budget (in ETH) and distribute funds. It doesn’t make the funds appear in the account. So far, DAOs don’t enable sharing of those funds, just pooling funds and then allocating them according to a vote. Who wants to do that? If I have some money, I want to decide where it goes, not give it to a voting pool.
DAO tech today doesn’t allow sharing of any other resource (like a time bank). It doesn’t allow “growing the pie” or redefining what money is. It’s just a pooling and allocation technology.
Discussion of funding wouldn’t be complete if it didn’t include Augmented Bonding Curves. I don’t understand Augmented Bonding Curves. I have tried, but it’s too confusing to me. What I do understand (and feel free to correct me) is that bonding curves depend on some form of monetary speculation to increase the price of tokens in a pool of tokens. As far as I can tell, by some feat of magic, the tokens initially have some value, maybe because someone puts some other form of money in the pool, and then people continuously join and raise the value of the pool tokens. I have 3 problems with this concept.
I don’t understand it, and I have more math background than 98% of the population. That means 98% of the population can’t use this thing.
It’s based on currency speculation. In my limited brain capacity, I think that currency speculation is the opposite of real value. Mutual credit currencies and time banks are based on “real value” of some sort. Even though they call it investment, investment is a speculation that something will be more valuable in the future. I don’t want to be building humanity’s future economies on speculations and arbitrage and math that most people can’t follow.
It doesn’t solve the basic economic problem of non-profit and for-good motives. If you are creating, for example, a DAO to beautify your city, that’s a valuable endeavor. Let’s say lots of artists and gardeners. Business still won’t pay for it. Donors might pay for it. You might end up with a beautiful city but there won’t be much currency speculation for the money in the DAO and the DAO will still spend more than it gets. Money doesn’t magically come in from somewhere because you have a speculation, er, I mean investment, mechanism.
I want to believe that making a DAO will solve funding problems but I have no evidence. I do have evidence to the contrary, in several DAO projects that made the assumption that somehow, their failed business model would un-fail if they made it a DAO. Didn’t happen.
Voting isn’t collaboration
As mentioned above, one of the promises of distributed/decentralized governance is that it will help people make good (or at least rational) decisions on common goods. Even if we are just talking about blockchains, the idea of the DAO is to “align incentives”. In some cases, this seems to be happening, at least along the lines of financial interests. However, being given a yes / no vote on proposals is a stunted form of governance.
In fact, voting is pretty much the opposite of collaboration. When someone says “let’s vote on it”, that’s equivalent to saying “let’s stop the conversation and give up on any solutions outside of our current consideration.” Sometimes it is appropriate to vote, when collaboration is truly impossible. But when you start every conversation with “here’s an idea, let’s vote”, it’s inefficient and discourages real conversation and collaboration. And it’s definitely not the way to solve divisive issues or issues where there are bound to be “losers” in the deal.
Reputation is complex
A number of DAOs use “reputation” to weight voting for those who have more interest or reputation in the DAO. This one-dimensional measure of reputation is both superficial and random. Even within a fairly limited decision set, reputation isn’t one thing. Some people are financial experts and others are blockchain experts. Some people may be better proposal-makers but worse at executing proposals.
The current systems for allocating reputation are based on initial terms that are determined by the DAO’s creators, plus issuance of reputation for performance of tasks in the DAO. The results have been semi-effective but mostly have resulted in systems where the early users gain enough reputation to have long-term influence just by virtue of being early adopters. In the case of DAOfest, it also resulted in skewed reputation and ability for people with good marketing skills to create mutually-beneficial voting blocks that don’t necessarily reflect the needs of the DAO as a whole.
If your governors have never used a beta…
In 2018–8 I had my first experiences with using alpha technologies outside of an R&D lab. It was complex and expensive. If you are creating an organization based on normal humans who are not tech-savvy or willing to put up with lots of glitches, don’t try it. The tech is not ready for average computer users.
Do you want to lose control?
The idea of a Distributed/decentralized organization is that it will create a participatory form of governance where there is no “boss”. Most founders aren’t really willing to give up that kind of control, at least not when it comes to budget allocation, hiring and firing. I have not yet seen an organization in the DAO space that truly has group decisions about money and staff decisions. I’ve seen a lot of organizations where the founders, when faced with the idea of giving up control to a larger group, quickly decided it was a bad idea.
A DAO is great if you are thinking that the people who join should have full control and you should have equal control to all of those people. If you think that you want to continue to lead the organization, but call it a DAO, that could be great marketing, but it’s not distributed governance. Most people don’t want to give up control. There’s nothing wrong with that; but if that’s the case, DAO isn’t the way to go.
The upside: great Multisig!
Now that you know all the things a DAO won’t do, what will it do?
The most successful organizations so far have been those who have used DAO to make simple decisions (Should a token be listed? Should an insurance claim be approved? Should we change this parameter? Should we fund this event?). Another great use case was that of dOrg, where DAOstack was used as a sophisticated multisig wallet. Instead of having salary approval in the hands of one CFO who signs the checks, the company employees approve one anothers’ salaries, and money is paid out automatically. That’s pretty cool, so if you are looking for that type of functionality, DAO can provide some advantages over other multisig wallet technologies.
One example might be an industry coalition. A bunch of organizations might get together to promote some common good. For example, Ethereum foundation has created the Marketing DAO. Funds could be put in that DAO from any Ethereum-based project, because everyone wants to increase the use of the Ethereum ecosystem. As contributors, those coalition members can then allocate their pooled funds according to a vote on the most worthy projects. That’s a pretty good idea. We’ve seen people using forks of Molloch as well as Aragon and DAOstack for that type of functionality.
Best practice: wait a year
A lot of people are building a variety of governance models. Enthusiasm is on the rise for DAOs, direct democracy, collective intelligence and better collaboration tools. I fully expect that within a year or two, we will see some impressive pilots and useful tools emerging as a result of this enthusiasm. If you truly want to create a distributed organization or DAO, there’s no better time to explore and learn. But for implementation, wait a year or two.
And… if you’re interested in an ongoing discussion, please join the dGov weekly meetings at 2 pm CET, at https://zoom.us/j/341202900