DAOs - The Future Of Work

An Introduction To Decentralized Autonomous Organizations · 5 min read

Jan 12, 2022

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Hello!

This post is slightly different. It is not just the summary of 1 episode. It incorporates 2 videos and 3 articles all aimed at building a foundational understanding of Decentralized Autonomous Organizations (DAOs).

DAOs are considered the future of work. They are a new way for communities to organize to achieve goals. I personally think of them as a digital evolutionary upgrade to traditional companies, particularly public corporation.

The summarized videos are by the Superteam Podcast which has now formed the SuperteamDAO1. Guests include Jack Du Rose, the co-founder CEO of Colony, which builds toolkits for DAOs2. The articles that complement the episode are primers by Apollo Capital, The Token Dispatch and Ethereum.org3.

As always, plenty of the summary is plagiarized and paraphrased. Even quotes. Some lines are lifted directly from the articles.

All credit goes to the Superteam Podcast as well as Ethereum.org, TheTokenDispatch and Apollo Capital for putting out this content for free. Links to all source content and more information can be found at the end.

Read Time: 5 minutes
Time Saved By Reading: Over 2 hours
Prerequisites: Tokens, Ethereum, Smart Contracts (Need a refresher? Start with the basics here)

DAO — The Future Of Work

Index

Foundation
Why We Need DAOs
A Paradigm Shift In Organization
Types Of DAOs
Two Watershed Moments — ‘The DAO’ & ‘ConstitutionDAO’

Foundation: What Is A DAO

DAO = Decentralized Autonomous Organization

DAOs are a disruptive way for humans to organize. A digital infrastructure for building companies. A new kind of business structure enabled by blockchain and cryptocurrency.

They can be thought of as internet communities with a shared cap table and bank account.4

In practice, a DAO is created by a group of crypto wallets coming together and executing all their actions through code or voting. Through blockchain it is possible to manage these assets and votes safely, without the need for traditional legal or banking infrastructure.

Let’s break down each element of a DAO.

D = Decentralized

Like a “reddit group with a bank account”.

The structure is flat, not hierarchical
There is no typical management or board of directors
All coordination is online. Imagine a slack workspace or discord server or any other group chat functioning as a company
Anyone can participate irrespective of geography
Investing in the DAO grants tokens, which come with voting rights and major influence on decision making. Like voting stock in a public company
Everything meaningful is voted on, usually democratically

A = Autonomous

A DAO = People + Smart Contracts

DAOs are created under a predefined set of rules. These rules are encoded as smart contracts. As a reminder, smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met.

Its like a company “constitution” on the blockchain.

What’s the goal of the DAO? Who can fund it? Who may join? How will participants be rewarded? How will decisions be made? What are the rules around spending? Everything is baked into the smart contracts. And public.

Any changes to the DAO’s operational workflows, governance system, and incentive structures rely on a voting system.

This makes the DAO autonomous i.e. able to self-govern. Thanks to smart contracts, it doesn’t require resorting to external arbiters, like the legal system. Its rule set guided. Code is law.

O = Organization

Code = Trust

DAOs are like tech-enabled worker cooperatives, adapted for the 21st century.

A worker cooperative is a an old model — an enterprise owned and self-managed by its workers. The problem with co-ops is that scaling requires trust between unknown workers. It’s even harder to trust someone if you’ve only ever interacted on the internet.

DAOs solve this.

With DAOs you don’t need to trust anyone else in the group, just the DAO’s code, which is 100% transparent and verifiable by anyone.

Changing these rules is possible, it just requires votes from everyone. In this way, DAOs allow the coordination mechanism itself to be iterative.

People can collectively manage funds, work together and make decisions without even ever needing to share their real name.

Furthermore, DAO transactions and interactions with other protocols or individuals are all recorded on the blockchain. They preserve a complete history.

This opens up so many new opportunities for global collaboration and coordination.

Why We Need DAOs

The old ways of organization don’t work in 4 ways -

1 - Misaligned labor incentives

Employees want to make more, the company want to pay less
Employees are the company’s margin

2 - Barriers to access

Hard to get in, hard to get out
- Recruiting takes a while, has constraints like proximity
- Onboarding takes a while
- Even leaving is often drawn out

3 - Bureaucracy

Hierarchical structure, lots of middle managers
Slow decision making at the top and low morale at the bottom

4 - No ownership

Wages don’t make wealth
Shouldn’t contributors truly capture upside? Create value, get a chunk of it

In the past 20 years, tech companies did attempt to solve some of these problems by granting equity and ESOPS.

While that model has been successful, it hasn’t been accessible to all, constrained by geography and legacy financial infrastructure among other factors.

Enter DAOs — A New Paradigm

DAOs aim to fix the above issues

Aligned incentives
- DAO exists to serve members, not necessarily customers
Flexibility
- Easy to join, easy to leave. Work like a lion. Rest when you want
Autonomy
- Fewer middlemen. Flat structure.
- Your role is determined by your expertise and contributions.
Ownership
- Get rewarded for the upside of your own work
- Participants are often also stakeholders

Types of DAOs

DAOs have evolved well beyond just a pot of funds with pseudonymous people voting on what to do with them.

DAOs vary based on the goal. They can be of various types including for-profit, non-profits, investor groups, trader groups, developer teams, NFT or art collector groups, social groups and many more.

Some types of DAOs include (not a comprehensive list):

Service DAOs
- Eg. RaidGuild, a Web3 product development and design agency5
- Through tokens, service freelancers can become stakeholders
Social DAOs
- Eg. Friends With Benefits, a social club that raised $10M in funding from a16z6. Membership requires investing in the $FWB token which changes in value in the free market
Venture DAOs
- Eg. Metacartel7, making investments into early-stage decentralized applications

Other types include Media DAOs, Collector DAOs, Protocol DAOs. We will cover more in future posts.

Watershed Moments

The DAO

The first DAO was created in 2016 and was simply called ‘The DAO’. It ended in disaster.

German blockchain startup Slock.it aimed to build a humanless venture capital firm with no leaders. All decisions would be made through smart contracts. They called this organization ‘The DAO’.

It raised 12.7 million ether (ETH) through a token sale in just three weeks from 11,000 investors. This was worth over $150 million, making it the largest crowdfunding campaign ever at the time. Based on prices of ETH at the end of 2021, the tokens alone would be worth over $40 billion!

Unfortunately, The DAO was hacked due to vulnerabilities in its code base, resulting in the loss of 30% of its tokens i.e. over $50 million worth of ETH.

The Ethereum blockchain was controversially "forked" i.e. reset, to restore the stolen funds.

While this was done with consensus, not all parties agreed with the decision. After all, blockchains are supposed to be immutable.

This resulted in the Ethereum network splitting into two distinct blockchains: Ethereum (ETH) and Ethereum Classic (ETC).

ConstitutionDAO

ConstitutionDAO was formed in November 2021 to purchase one of the 13 original copies of the United States Constitution at an auction from the high-end auction house, Sotheby’s.

Donors to the DAO would get the governance token, $PEOPLE. This would give them voting rights, including the right to vote on what to do with this copy of the Constitution and what the organization should do in the future.

The group raised $47 million from 4000+ members, but lost the auction to Ken Griffin, the billionaire founder of hedge fund Citadel. The core team decided to wind down.

Closing Thoughts

Despite failing to achieve its goal, ConstitutionDAO got a lot of media attention which helped raise awareness about the varied potential of DAOs.

Overall, DAOs are still a new phenomenon and lots is being figured out. We are still in the early days of DAO infrastructure and DAO tools, which are being built and iterated on at breakneck speed. The amount of assets being managed by these entities is also growing rapidly.

As we will cover in a follow-up post, DAOs impact how we think of careers, hierarchy, leadership and more. They represent a paradigm shift in organization architecture that allows for greater transparency, immutability and alignment of stakeholder interests.

Thanks for reading. If you learnt something new, don’t forget to subscribe and also check out the Appendix below, which includes sources and readings + my two cents on the topic.

Let’s keep up the journey down the Web 3.0 rabbit hole.

Also, in case you missed it, read about Bitcoin from the perspective of its most high profile early evangelists - the Winklevoss twins. Through the summary of their interview with global macro investor, Raoul Paul.

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Appendix

My Two Cents

//Personally, the emergence of DAOs feels we finally decided to abandon the status quo bias towards corporations. After 3 decades of the internet and a decade of crypto innovations we have a starting point to iterate from - DAOs.

//Having used Discord or Slack is a huge leg up in understanding how a DAO could function. Multiple channels for different purposes buzzing with messages and media from participants.

//Another way of thinking about DAOs is as a social technology, not just organization technology.

Sources

Text within this block will maintain its original spacing when published

Superteam Podcast 1 - What Is A DAO
Superteam Podcast 2 - How DAOs Are Changing The Way We Work!
Apollo Capital Article - The Era Of The Dao by Matthew Harcourt
The Token Dispatch - A Definitive Guide To DAOs
Ethereum.org - Decentralized Autonomous Organizations (DAOs)

Interviewers - Tanmay Bhatt, Akshay BD
Guests - 
1. Jack Du Rose, co-founder and CEO of Colony
2. Kash Dhanda, founding member of Superteam, runs Discover DAOs

Additional Sources and Readings