Popular Science | A Brief Analysis of DAO Ecosystem

What is a DAO?

A DAO is an entity that enables a group of decentralized participants to coordinate with each other to form an organization, achieve a goal, or achieve a broad or specific mission based on a set of rules enforced on the blockchain. This set of rules is (in most cases) encoded into smart contracts with the help of a "governance framework". We will discuss "governance frameworks" in more detail below.

“A decentralized organization is not a hierarchical structure of a group of people who interact and control property based on a legal system. In a decentralized organization, the parties interact according to a protocol described in code and executed on the blockchain.” —VB

Many of these organizations do not necessarily rely on automated processes, but rather rely heavily on the subjective collaboration of a group of human participants. The degree of autonomy depends on the type of project and the governance framework it uses, as the personal traits and decision-making styles of stakeholders vary greatly compared to the more clearly defined traditional corporate governance processes. In this article, I will use DAO and DO interchangeably. The Ethereum Foundation has given a detailed introduction to the basic concept of DAO.

DAO will slowly (or not so slowly) take on an important role in the development of cryptocurrency networks and product development, as more and more projects with tokens begin to use various methods to transform into community-driven, self-built, self-owned, and self-operated systems. - @OKDunc

Why are DAOs important?

As human activities and value move to the digital realm, collaboration between distributed communities and stakeholders becomes increasingly important. DAOs or DOs provide a mechanism that reduces external information, bargaining, and transaction execution costs, and allows participants from all over the world to participate in certain activities around the same mission, thereby bridging the gap between market and corporate dynamics. These activities may appear to be as simple as gathering funds or creating a website. However, the real significance behind this is that capital and talent from all over the world can be scaled and collaborated almost instantly.

These types of organizational structures are becoming more and more popular. The most obvious example is that cryptographic protocols achieve progressive decentralization through new token distribution mechanisms to distribute ownership and decision-making power. In return for user participation and contribution, the platform will link the success of users to the success of the platform in the form of equity rewards. These experiments in DAOs give governance (and sometimes management) rights to the community rather than a centralized player. The booming DeFi industry last summer has driven this trend, prompting it to move towards a "new ownership economy where users create, own and operate the network." - "The Ownership Economy"

In this new paradigm of DAO, protocols are just one type of organization. In addition, given the objectivity of adjusting protocol parameters, protocols are the most likely to automate decision making. However, smart communities have discovered that these flexible frameworks and enforceable rules allow anyone to collaborate and work towards any common goal.

This has spawned a large number of new DO types: from small membership organizations that curate NFT art exhibitions to investor entities that pool funds to invest in early-stage projects, its members can take advantage of economies of scale and attract talent and funds around the world to provide professional (and sometimes profitable) services. All of this is run in a fully distributed and digital way, and does not rely on centralized coordinators (that is, companies in the traditional sense), thereby expanding the supply and scale of services.

There are risks here of course. "It is important to note that these entities are tools, not solutions to human problems. Tokens can introduce profit-seeking into a group, crowding out non-profit behavior. Every community has the potential to evolve into a profit-first network, abandoning all 'community' values, and leaving only economic self-interest." - @dazucks on Twitter. Stakeholders also need to recognize the importance of building culture and ideology around these entities, as culture and ideology create social incentives rather than economic incentives, and turn these entities into extremely powerful tools for social and human collaboration.

The Current State of DAOs

We are in the early stages of change. While the idea of ​​DAOs and governance mechanisms has been around for a while, they have sprung up as mainstream DeFi protocols increase user engagement.

We will see large ecosystems break up into smaller niches, segments, and specialized DAOs or DOs that can provide valuable and convenient services to the cryptocurrency industry and beyond. DAOs have already begun to develop different use cases. Small entities (such as curation DAOs or association DAOs) cleverly leverage existing community tools and channels (such as Discord) for coordination, and choose simpler and more advanced frameworks (such as Moloch and Snapshot).

It is important to emphasize that we have recently discovered that a network of relationships has been formed within DAOs, most notably that small communities are interacting with and providing services to large, high-quality DeFi projects and communities. In order to understand these relationships across multiple governance frameworks and ecosystems, transparency and standardization of information, as well as how we communicate with these entities, are becoming increasingly important. To this end, let’s first look at several major categories of DAOs and specific examples:

protocol

The protocol gives new and old users voting rights on network decisions by distributing governance tokens to them. These decisions include protocol parameter adjustments and smart contract upgrades. Due to the high complexity and technicality of such decisions, a small number of knowledgeable representatives have emerged in the governance community of some protocols to lead other members in thought and action.

project

Project DAOs are the closest to traditional corporate structures in terms of organizational form. They are created around developing and launching products and services, sometimes with the help of token economic models and incentives. The revenue generated goes into a treasury governed by token holders. Project DAOs sometimes hold governance tokens of other protocols and become powerful meta-governance decision-makers in external governance processes.

investor

Stakeholders invest money into a DO and receive one (sometimes less than one) vote, which determines the DO's investment decisions. Token holders work together to create a portfolio that aligns with their mission and investment goals. It is very likely that there will be activist investor DOs in the future that can quickly coordinate to drive markets and agendas. Click here to learn about DAOs in 2016.

Creator

Creators can split the NFT of their high-value works into several parts and distribute them to fans and supporters, allowing them to share ownership of the NFT. The new owners can co-create, promote, sell, and distribute the work, thereby achieving collective ownership, identity, and experience. Mirror and RAC have conducted some interesting experiments in this regard.

Curator

The Curator DAO is similar in structure to the Investor DAO, but is currently more focused on assets and NFT art exhibitions. In the future, its members may contribute expertise, brand, and funds to curate everything (including people and projects), and share the appreciation brought by the curation portfolio, and even the fee income from the curation service.

Community

Tokenized communities can be organized around a person or a common interest, and issue DO tokens to represent access to a social space (such as a Discord server or Telegram group). Members can enjoy the benefits of closed networks and privileges, and work together to advance initiatives and projects.

association

Such entities aim to provide high-quality contract services to customers through talent coordination. Freelancers and individual contributors can enjoy the publicity channels of the association DAO and get in touch with top talents from top projects to make a difference in the entire ecosystem. Members can provide contributions in many forms, such as code, products, collaborations, education, contracts, or content. For more information, read this article. For example, the early development of Boardroom was completed with the help of dOrg.

DAO Infrastructure Stack

To enable these organizations to thrive, a vibrant ecosystem of tools has emerged. These tools establish new governance and management mechanisms and reduce the friction in interacting with the governance process. Due to the open nature of most frameworks, projects have gone through countless iterations and adjustments to meet the needs of their communities. The following table lists some of the most commonly used tools for DAOs:

frame

Governance frameworks are smart contracts that enable decentralized governance process rules to be executed on the blockchain. Their code specifies parameters for power distribution, process execution, and voting. Compound’s Governor Bravo contract is a good example.

Controller

Some of these frameworks have controllers that allow users to interact directly with the governance contract through a user interface. Controllers are usually created by the team building the framework. They provide data and interfaces to help developers pull and index information, as well as more comprehensive functions to help integrators better develop their DOs.

Treasury

Treasury and allocation of funds need to be decided by the DO members. Funds can be kept in multi-signature wallets (each transaction must be approved by at least a certain threshold of signatories) or other types of smart contracts (the size of these treasuries is growing significantly). Many teams are building contracts and tools for signers and members to seamlessly interact with locked funds or portfolio assets allocated and managed through governance mechanisms.

Work

Talent and contribution are at the core of the value that DOs create both internally and externally. Tools are being built to measure the labor and output from contributors and members because in a multidisciplinary environment, products, knowledge, and services are ultimately delivered in many forms and can be highly subjective. There are also complex issues of identity, contributor reputation, and trust that need to be addressed.

Aggregator

Aggregators can act as glue between different tools and frameworks. They aim to abstract away the nuances and complexities of infrastructure and middleware, reducing friction for users when interacting with DOs. They are also well-positioned to index and provide global statistics, and to explore more “meta” relationships arising from cross-DAO interactions.

These project categories are unlikely to stand the test of time. DAO tools will also undergo tremendous changes in the coming years. Nevertheless, at Boardroom, we are excited about the rapid development of DAOs and the experiments of global contributors and stakeholders. Although the above classification may not be very accurate, it can help newcomers who are not yet familiar with this new entity structure to better understand the relevant application scenarios.

You can join our channel on Discord to join the discussion. Many thanks to @OKDunc, @albiverse, @Julia_R0senberg, and @JohnSterlacci for their additions and feedback to this post.