A DAO is an internet-native entity with no central management which is regulated by a set of automatically enforceable rules on a public blockchain, and whose goal is to take a life of its own and incentivize people to achieve a shared common mission. DAOs offer the tools to build infrastructure by attracting funding, rewarding good work, and making decisions together. A community bank where you can share ideas, and where you aim to turn ideas into reality by actually doing stuff you love the most. That community will have a shared currency representing ownership of that bank. And you get to vote how the currency is spent! Rather than a platform’s inner circle of founders and investors taking home the value, users are able to earn the majority of value generated from their collective contributions.
The breakthrough of early crypto networks is a new model for market-driven networks, where users build, operate, and own a piece of the products and services that they use. The principal innovation of crypto networks is their ability to grow network effects by enabling users to share in the value they create.
DAOs allow individuals to invest in projects (via effort/resources/funds) at their earliest stages, way before VCs are able to invest. Individuals are able to go where traditional VCs can't. They can get early exposure to projects when there isn't even a company/legal entity. When there's only a GitHub and a chat room perhaps. Pre-core team, pre-deck, early-stage meme investing. We'll see thriving communities form around DAO-first token projects before there will be a pitch deck.
DAO Shares can be allocated from day one in a meritocratic manner with no founder pre-mined tokens. Everyone in the project can request DAO shares for providing work or capital. Everyone can invoice for their time, energy, effort as well as funds provided. Contributors are able to leave DAOs permissionless with their rightful economic stake in the DAO.
RageQuit is the secret sauce.
The Moloch-style "RageQuit" functionality is fundamental to protect contributors. By guaranteeing that participants can exit if they disagree with the decisions other members are making, DAO's are more easily able to attract capital investment.
Grow community + incentivize the contributors via DAO -> form core team, create a game plan -> setup legal entity -> take outside capital
"DAOs collapse the cost of creating and managing organizations by replacing slow and expensive paper contracts with fast and cheap smart contracts. With lower costs and higher speeds, we unlock new levels of organizational scale. We can have a larger number of small organizations where setting up a legal entity is far too expensive to be worth it (think larger than a Facebook group, but smaller than a company)" Joel Monegro - Placeholder VC
In most cases, a strong case could be made for DAO Tokens not being securities at all, since the token would have immediate utility both in terms of curation, as well as in governance of the project itself. Since token holders would be governing the project and be responsible for its success or failure directly, it should be in pretty defensible territory. I'm not a lawyer but have been following the regulation around tokens pretty closely but obviously, this is #notlegaladvice
If projects depend upon human decision-making, how will they repeat the successes of Bitcoin and Ethereum and scale beyond early adopters? One answer is through delegating governance while aligning decision-makers through ownership, as is done in cooperative enterprises.
Historically, the most successful cooperative organizations have, over time, converged on modes of decision making featuring a hierarchy similar to that of corporations: Stakeholders appoint a management team (a squad or a guild) to make day-to-day decisions that represent their own interests. This scales much better than each member voting on every decision.
Next, teams need to plan how remaining tokens will be distributed to participants, both fairly for past contributions, and effectively as a future incentive for ongoing participation. Getting this right is hard, and will always be specific to the application in question, but some common questions to think through are:
- How will you reward different types of contributors in the future?
- How will leadership be rewarded going forward?
Answering these requires analysis of community behavior, modeling of rational outcomes, and workshopping proposals with community members.
To start, teams might test a distribution with a managed and permissioned group of community members. A number of teams have elected to do this by allocating a slice of future tokens to early “power” contributors.
Collab.Land has built a Discord bot to tokenize access with any ERC-20 or ERC-721. token. While this doesn't seem like anything revolutionary, it changed the way groups and communities can coordinate. There came an "alignment of incentives" between individuals and the community they were a part of. These groups evolved into a new type of community, a grassroots community that took on a life of its own with aligned financial incentives. Informed groups are wiser than individuals. When you join, you get access to an exclusive community focused completely on a specific mission.
Experimentation in DAOs is really starting to heat up. A spectrum of new governance + coordination ideas are now being put to the test, each with the goal of reinventing the firm, and the future of work. Ownership may manifest in the form of novel economic rewards, platform governance, or new forms of social capital, and be a new keystone of user experiences, with plenty of design space to explore. DAO's are shifting work and value distribution to be accessible online, resulting in a new generation of platforms that thrive on contributions from a permissionless and global talent pool. Ownership is a powerful motivator for users to contribute to products in deeper ways, be it with ideas, code, or community building.