The power of daos: making a company a community
[M] Ryan Selkis, Co-Founder & CEO at Messari
Julia Rosenberg, Co-Founder at Orca Protocol
Kevin Owocki, Founder of Gitcoin.co
Aaron Wright, Professor Cardozo Law School; Co-Founder OpenLaw
(2:23) → are DAOs decentralized in name only or is this how we get from centralized shitcoins to decentralized communities that are community-governed networks?
Aaron - thinks DAOs are part of the solution. Last year seen an explosion of people that want to organize different projects e.g. open-source DeFi projects, trying to fund more things through public goods (Gitcoin), other experiments with pooling capital… and DAOs are the solution there. Long-term vision is that a common core treasury is not managed by one or two or dev teams but by its community. Thinks we made great strides at tech, governance, and structure this year. Seeing a lot of value in community-governed software/ investments/ funding(of different stripes)/ organizations.
(4:08) → is the concept of a DAO defined or is just design space?
Aaron - notion of DAOs started with Dan Larimer of EOS fame amongst others in 2013 when thinking about running a corp on BTC and coined this term decentralized autonomous corporation. The concept got generalized on this concept of a DAO that prominently was featured in the ETH Whitepaper. What qualifies as a DAO is somewhat debatable and broad in scope but one core idea is having an organization that ideally is leaderless; no board of directors or central party in control - being stewarded by a broader group of stakeholders, participants, supporters, devs, … to push things forward. More open-ended and fluid - less top-down and hierarchical. Sees different categories of protocol DAOs emerge in the market - DeFi projects, Gitcoin, investment DAOs, and groups of people who want to work together (evolutions of coops). Lots of categories, still definition challenges.
(6:45) → Kevin, Gitcoin at the bleeding edge of allocating resources from decentralized balance sheets - do you think allocating funds from the community treasury is part and parcel of a DAO?
Kevin - Gitcoin is a place where one can “git coins” and recently launched a DAO which is a fork of Compound governance style where one can delegate votes to other people - maybe only 5% of token holders participate in governance and delegating voting power allows for a better balance of incentives vs time spent in the DAO. Thinks DAO is a design space and we are gonna see all sorts of organizations of various degrees of autonomousness and decentralization. Expects to see both treasury-less DAOs and DAOs with treasuries. He’s focused on building web-scale mechanisms for funding public goods and building crypto ecosystems. Gitcoin is very long in Quadratic funding - way of funding an ecosystem alongside your community - but thinks there’s a wide-open design space here. More heat on treasury DAOs now, people spend more time where there’s resource allocation with smart contracts - very interested to see what the future brings us on this front.
(9:03) → design space one part of it, but only engagement ensures success - Julia, how does Orca make people actively participate and make decisions?
Julia - sees Orca and DAOs as people-first protocols - we are just organizing people and human collaboration and key question to answer is how can we best capture that human collaboration and scale it properly? Now we have crazy loose ecosystems of contributors without any infrastructure to guide them accordingly. What they are doing with Orca is figuring out how to create small groups of working people and create governance based on their expertise rather than token holdings. Expects a new wave of collaboration and contribution once we achieve to delegate control and power to people properly.
(12:04) → feels we had 3 eras: The DAO era and the post The DAO era (cool experiment → disaster → couple years of fallow), the Moloch DAO and The LAO era (early frameworks), and now 3rd wave of innovation and things are really exploding - lots of applications for DAOs and tremendous success from a regulatory standpoint (e.g. US different jurisdictions if you are not decentralized and building a protocol you are a great risk). Which are the ugly risks? Technical? Community? Getting people’s attention?
Aaron - thinks all three. [Tech challenges] In the first era seen great projects (e.g. Aragon, DAOstack, …) amazing tech and even though not ready for yet, thinks issues are going to be addressed in the next couple of quarters. Sees progress on the regulatory standpoint - passed a bill in Wyoming which enables some DAOs to be recognized and operate (step in the right direction). Sees more mature DAOs with more structure so that they can interact with the real world - these orgs are getting quite large (Uniswap, Compound, Gitcoin…), they are a real deal, making huge impact; these are becoming household names and not going away. [On governance] Thinks that particularly in DeFi was overweighting on quorum based voting (to protect certain parties interests - understandable) and he chooses Moloch-style voting (rough consensus) or the more forward-leaning voting and governance systems like Kevin is exploring (probably is the path forward in his mind). We have to improve governance, clarity on the regulatory and structure side, tech, … still very early.
Julia - thinks it’s a people and community problem - the biggest challenge is how do you decentralize power and control away from centralized protocol teams. Thinks that the reason for 3rd wave of DAOs is the idea of shared ownership and control - but not how it works today. Thinks many communities have felt powerless in their ability to affect change within these ecosystems. Main problem - How can we foster participation and contribution within these ecosystems? This is what Gitcoin, Orca and others are working on.
“It’s a people problem with technical constraints”
(15:40) → one gets to solve many human coordination problems with capital - Kevin, what did you learn from being one of the largest facilitators of incentives for DAO participants?
Kevin - “don’t launch a token and focus on your mission way before launching a token or DAO”. From the start, they’ve been focusing on our mission of growing and sustaining open source software and building a mechanism for Software Developers to “git coins”, and just focusing on that mission and that intrinsic motivation was key from the start for them. The 2017’s misnomer “If you take a human and you put in a token you will get out an action” - not how it works. What has work for them: being laser-focused on a mission and then layering the governance and token on top of that mission from there - humans are more intrinsically motivated especially when it comes to good causes that we give them credit for… The DAO is just a worldwide coordination mechanism to help this group of people with a common mission facilitate their goals (e.g. if one is not in the US s/he can use the DAO to coordinate with them - if not, one would have to fly to NY to sue them, now since they have decentralized governance, people can participate from all over the world and that’s increased Gitcoin’s target market by millions of people).
“Knowing in one sentence or less why your DAO exists is very important when people have short attention”
(18:28) → differences in DAO structuring in The US and Europe? Which are the benefits of incorporating a DAO? How are you navigating the design space constraints as DAOs interface with the real world?
Aaron - one concept they implemented is wrapping a DAO in an existing legal structure in the US - clarifies legal risks (limits liability and other obligations…) that are beneficial if want to participate and have capital and enables the ability to enter into contracts with others (e.g. if DAO wants to interact with the real world - hiring, contract some meat-space related thing…). Successfully deployed that across 8 DAOs ~ +$200M of ETH been contributed, purchased 1800 NFTs, backed +90 projects, deployed millions into DeFi, and also enables them to do things like deliver K1s to all the members and deal with all the compliance-related matters… Increasingly as these DAOs emerge from their childhood face and become more mature, the need for more structure is important. Regarding US vs EU: US is very flexible in terms of organizational structure (whole menu of different orgs that one can create - coorps, […], coops, …). This amount of flexibility in the corporate law site is not the same in other parts of the world - oftentimes one needs to appoint a manager in charge of the org (which cuts against the whole ethos of DAOs). Thinks leaderless orgs are necessary to capture a lot of the value that Kevin was describing and most candidates are spiring for.
Julia - thinks there’s a lot of confusion - “if I am in a DAO I do not have any legal risk whatsoever” → not true. Big part of why DAOs exist is decentralizing legal risk and worries that as we start incorporating DAOs, they look like trad orgs and we lose the core ethos of what a DAO is - decentralizing power and moving away from these dictator structures. Thinks there’s a key difference in the autonomy aspect of a DAO - when there’s a lack of automation in a DAO, incorporation is necessary cuz there is where human inputs are needed and problems arise but when one starts to incorporate and have centralized legal structures that are beholden to certain regulations in certain jurisdictions one loses some of that autonomy (forced to follow regulations). Thinks there’s a lot of innovation to be had here. At Orca they thought of spinning up infrastructure PoDs - having specific PoDs and groups that are tasked with services like providing legal infra or access to centralized services (e.g. signing up AWS account). That way one minimizes potential points of failure within this DAO ecosystem.
Aaron - completely right. Points out that right now if one is incorporated into a DAO it’s likely to be in a General Partnership which is arguably the worst structure on the planet - liability is really high; worst position to be in. At some point is going to blow up. That’s why seen an effort to press on some of these structuring points
“We’ll get there and hopefully is something lightweight, that works and maintains the ethos”
(25) → What is that general partnership and why is not the best business to be in?
Aaron - DAOs are envisioned to be open permissionless orgs and in a GP one is liable to other people’s faults. Imagine a subreddit with a bank account and some rules (legal requirement now) -one is responsible for any shitposter, wrong contracts,… Lots of folks YOLO in… but many gonna get rekt.
(27:05) → is it possible to do business with a DAO without being incorporated?
Aaron - yeah, one would have to think about it as a partnership. Not a great way to do business. We went through this exercise from the early 1900s to the 1970s and the whole world said they did not want to operate and wanted to operate as partnerships (to the extent that they all moved over to limited liability entities). However, in The Lao network, they enter into contracts all the time on behalf of the members and it works really well… thinks we’ll see other structures that can do the same thing but are a bit more lightweight.
(28:27) → how to mitigate risks and liabilities in these subgroups? How do you incentivize people to do work without putting them at risk if they make a mistake?
Julia - people first problem. When one has small working groups of working people is much more obvious how resources need to be distributed whereas in DAO ecosystems today is very difficult to incentivize and attribute value to work. We have to be really specific in creating these core working groups and initiatives and how we can properly fund and attribute the resources to each of those things.
(29:57) → how do you navigate the payout? How do you ensure that the proper documentation is in place for whoever the contributor is worldwide?
Kevin - Gitcoin recently partnered with Bankless DAO to commission a report on DAO coordination. It covers the demographics of DAO members, how do they operate, how much do they make… Reported tools used to compensate contributors - a majority of them were project-based or bounties. A tool called Coordinape that’s doing well in ETH ecosystem (#1 way to earn tokens). According to the survey - working hourly was the 5th most popular way of coordinating contributors for the DAO.
Aaron - their structures are smaller due to regulatory constraints (each DAO up to 99 members) - very flat and people hop in. Because people are pooling their own capital into it are already incentivized - less formal, not specifical payouts to specific parties. For example, in Flamingo DAO, they purchased this high value, rare cryptopunk and some members were having fun with it (play 3d avatar in Dark Forest (p2e game)), Other members run marketing on Fridays (cuz they want it this way), and others do more data analytics work - no payouts occurring, coordination is occurring by pooling capital instead.
“Is a flatter structure where people are not paid by the hour but voluntarily contributing - more in the vein of Wikipedia than the vane of a corporation”
Julia - the way they see happening with Orca PoDs is that it can be both. A top-down structure in that a team figures out services they need for the org and creates these pods with open memberships for someone to fill. The reverse can happen - highly motivated people group together and form pods and become their own little service as they wish (mini DAO). A lot of development in coordination, it’s just is figuring out how people want to contribute to these ecosystems.
(34:40) → where are you seeing the best tooling emerge to actively get involved and participate? Is it bespoke on a project for project basis?
Aaron - Discord best tool for organizing the conversation along with Snapshot, and a DAO framework of some sort with Gnosis. Coordinape very interesting to pay folks, a lot of emerging projects that will be a piece of these - Orca, Parcel, others with payments and organization… Opportunity for devs - tech not there yet (starting to come into focus, but a lot of work to be done). Thinks it’s gonna get a point where there’s no frontend - one’s gonna have lots of things organized on threads via discord or a more modern version of it where people are congregating around ideas, votes aren’t happening through snapshot hub but through upvotes and downvotes and that’s gonna trigger SC transactions. There is where he thinks not only wales and DeFi degens but also normal folks in DAOs - mainstream DAOs.
Kevin - Gitcoin DAO is fairly happy with its delegation (core tool for them) - when one gets its GTC retroactive distribution they made everyone delegate their governance rights. Lots of people want to hold GTC (+18K token holders to this date) but do not want to participate in day-to-day decision-making for the DAO. The vast majority of the voting power is aggregated into 100 stewards - one can withdraw its consent of the governed at any time so people can have their opinions represented without spending time on governance at all. having 40-60 people making a decision is easier than 1000s of people.
(38:30) → what’s the difference between members in a company voting to appoint a board of directors vs Gitcoin’s delegation model?
Kevin - not a lawyer, doesn’t know… Aaron?
Aaron - boards more fixed in terms of duration (difficult to kick out people) but what Kevin and other projects are experimenting with quadratic voting, delegates… more liquid and fluid structures which presumably, more responsive to people that participate in the community - fascinating. Applying hard thought lessons from past organizational structures and applying them in a real-time world is direction we’re moving. Do big delegates have more responsibility and liability? Possibly -not clear yet. Experimenting with these more liquid structures is where the magic is gonna happen and how we are going to evolve away to better structures.
Julia - thinks it comes down to accountability - voting for a board of directors it’s a very cumbersome process. With Gitcoin’s structure, one can undelegate its vote and delegate it elsewhere according to its values - a more flexible system.
(41:50) → is Orca going to accommodate to other governance models than the “one token - one vote” mantra when it comes to decision models?
Julia - within the PoD is one membership (token) one vote but they see them working with today’s government ecosystems - one could delegate rule-making abilities of the PoD to a Compound Governor Bravo contract (the entire ecosystem of token holders can vote who gets to sit on these subcommunities). Important to have many flat ecosystems where one’s voice and contributions are equal to those around within today’s governance structures - if one gets lots of people in a Zoom call nothing is gonna happen, more likely achieve consensus with fewer people.
(44:50) → what’s the way to launch a DAO post initial vibe offering? Best practices? Standards? How to operate these to market?
Aaron - on their end they handle it from soup to nuts - from the structuring and setup, the onboarding including some basic compliance to get things moving,… they provide DAOs with a dApp to start coordinating… they have community support - thinks part of the reason behind their previous successful DAO launches is that they have somebody who is like a mod in a subreddit or a whip in congress that helps people focus what to vote on (summarizing or pushing certain decision-making processes along) super helpful to achieve rough consensus. They also handle tax and compliance pieces… Approach not turnkey but curated - all DAOs (8 as of now) are determined and facilitated by all existing members of the DAOs. The Lao kind of beget Flamingo, Flamingo kind of seeded the concept around Neptune (DeFi DAO) - now Flamingo kind of metastasized into a p2e DAO (ReadyPlayerDAO), also one DAO focused on the Zed Run ecosystem, also a DAO forming around this alien (high priced cryptopunk), and a metaverse DAO that’s forthcoming. Also an internet museum called Muse0. A curated model is helpful in the long run. Another path is the Initial Vibes Offering (IVO) and the more used YOLO approach: set up a multi-sig, collect capital and make a run at it. Thinks there is a lot of wisdom to that in moving fast but we’ll see when it stops being legal.
Kevin - the things he likes to see when DAOs are launched is that they are launched upon a fertile ground - has to be something original. A pattern he’s seen is people listening and driving for years understanding the space before jumping in. Once one does that, s/he may want to use the right tool for the job - simplest thing is to have a gnosis safe with a bunch of keyholders that one shares with and then one can use Compound, DAOhaus, Aragon, Moloch DAO…
“Just choose the right tool for what you want your governance structure to be. Start as simple as possible and let the complexity and growth emerge from simple seeds”
In a world where there is decentralization expect many DAO frameworks, assets and even l1 chains to launch DAOs on. Cambrian explosion of innovation… no one knows which the winner is going to be. Now is about experimenting, interacting, failing fast, start simple, and let complexity emerge from there …
Julia - Echoes that. Now a lot of analysis paralysis - incentives, tools, structure…? Start as simple as possible. At Orca, little wrapper around people, wrapper about gnosis safe and start creating the ability to click these PoDs together, start forming these ecosystems as it develops… grow with your org.
(50:27) → So to recap… Vibes → YOLO → Discord chats right?
Aaron - thinks people overlook having someone shepherding things along (someone who is like a whip in Congress, mod on the subreddit…) - big difference cuz people are busy, most won’t contribute full time to things and it creates a pleasant environment that people want to participate.
(51:08) → so more Community Organizer vs Protocol Politician
Aaron - thinks so, Protocol Politician fascinating concept but community piece is really important - not different from other different communal orgs like Wikipedia. Focus on community first.
(51:48) → is DAO season coming? If not, what are you looking for? KPIs / projects to watch for the next 6-12 months?
Aaron - a year and a half ago about $7M in DAOs and a couple of thousand people playing around with them. Depending on the metrics, its now +$7B and hundreds of thousands involved. In the LAO ecosystem: about $200m in capital been contributed, expects this figure eclipse into the billions in the prox year - very notable. Thinks that long term trend is that this is the structure for the internet age - last time we were at a similar inflection point was in the late 70s, early 80s when the LLC seeped its way out of Wyoming and transformed Wall Street, Hollywood, and Silicon Valley and the way people work. We’re more focused on the investment end and tech tooling underneath it but thinks we’re going to see structures outperform GP/LP structures like VC funds and hedge funds. It’s gonna be flatter, more responsive, and eventually gobble up those important ecosystems. Thinks another area of tremendous amount of growth not so much DeFi DAOs (obv growth there), but DAOs take root with NFT ecosystems in more substantive ways over next 18 months (e.g. MonkeDAO, ThugDAO…), and that’s also something we are pretty laser-focused on. Thinks world is tilting towards NFTs - not anticipated but thinks that’s the direction where lots of folks are headed. Looks forward to the moment when we have DAOs of people writing stories together, creating content together, building communities together - very fascinating.
Julia - so much development happening now that thinks that in 6 month-2 year timeframe available tools will be so much robust. Excited about how these coordination legos start to click together and what comes out of that. Key KPI to track is diversification both money (new treasuries and expenditure of these) and participation (how new structures are being built and how new people are brought into these ecosystems)
Kevin - [looks to hottest take possible of DAO report] very interested in the intersection of digital identity and DAOs - we can start reinventing what the resume is and what workers’ reputation is by looking at what DAOs they’ve been, what tasks, PoDs or workstreams they worked in, …. Envisions a world in which many knowledge workers are working for DAOs instead of companies, build a resume and a reputation in the metaverse by working with and for different DAOs at once and build relationships in the network age. A lot of fun to think about and also to plan for a world where people get a lot of compensation on chain (coins from these DAOs). Big thought - the financial lives of 99% is careers, not investments and if we can build a workforce with DAOs, then crypto can go more mainstream because we can work those people who need to provide for their family, pay the mortgage… the ultimate legacy of DAOs?
Thank you @MessariCrypto for hosting this interview as prelude of Mainnet 2021
Find the conversation recorded here
→ More reads on DAOs:
“Blitzscaling DAOs: Rethinking spending for decentralized organizations” by Jack Purdy at Messary
We’ve established that DAOs need to grow quickly in order to capitalize on the network effects inherent in crypto and to avoid competition reaching scale first. So what are they doing to achieve this? Over the past year, the 3 largest DAOs have established grant programs to begin funding value add activities. This has provided ~$3 million to numerous different people and organizations that are helping to build better tools, integrate with more protocols, provide more data and research, host events, and more […] We’ve had initiatives directly bring in hundreds of users, treasury dashboards to provide better insight into project finances, and even Esports sponsorships increasing brand awareness!
Let’s look into Venture DAOs, which are groups of people or entities that pool their money and administer it. Everyone participates to sourcing, appraisal, and a rough consensus before execution since they have skin in the game.
“The DAO of DAOs” by Packy McCormick at Not Boring
This is the beginning of an exploration, a walk through my own process of figuring out what DAOs are, how they work, how they interact with the rest of Web3, what advantages they have, and where all of this might lead. We’ll start simple, and then we’ll build up: Enter the DAO, Ethereum and DAOs, Uniswap versus Coinbase, Forking SushiSwap, Progressive Decentralization, Why DAOs?, The 7 Powers of DAO, and DAOs Today and Tomorrow