Research Summary: What is a DAO? Conceptual Foundations

Governance and Coordination
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Gm, Charliecodes. Your summary didn’t follow your five DAO lenses, so it was a bit confusing. The TL:DR is usually a summary or abstract of what your content is about.

However, I loved how you structured your post. Because of the abundance of white space, It was inviting and easy to read. Reading a wall of text is not fun and a strain on the brain, lol.

I think your summary would make a good outline for a great article. In fact, I would love to learn more about the following:

  • Co-operatives and stakeholder capitalism - documented in 1769.
  • Gig-economy and plataformisation
  • Self-management and teal organizations
  • Digitalization and process automation
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@Ulysses, You have made some really valid points concerning my writing.

I am not claiming that Obidatti is a DAO; rather, I am pointing out how the entire operational model may be viewed as analogous to a DAO because it meets the definition of one.
In the case of Obidatti, I think people are motivated by a collective desire to help the country’s economy grow, which is more important than anyone’s personal financial motivation.

The donations made to the campaign need to be managed responsibly, and this is where governance and treasury come in. For all I know, the current state of affairs in the Obidatti scenario will only lead to greater centralization, which is counter to the goals of DAO.

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I really liked your summary,I thought you made some excellent points,my contribution is A DAO is a decentralized autonomous organization, a type of bottom-up entity structure with no central authority. Members of a DAO own tokens of the DAO, and members can vote on initiatives for the entity.DAO is formed by a group of people who decide to abide by certain rules to meet common goals.

However, what makes DAOs different from other systems is that these rules are written into codes of the organization. DAOs use smart contracts, which are algorithms that work on the basis of certain criteria that are met.

There is no formal contract that ties the members of a DAO to it. Instead, all the members share a common goal that keeps them tied to the consensus rules. Since the rules are written in an open-source software governing the organization, they are transparent

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@danielo I hope this finds you well, but after learning about the Dao, I began to consider some obstacles that might prevent one from seeing the Dao.

Here are a DAO’s four vision drawbacks:

1. Instruction

Instead of having a single CEO who is knowledgeable about the state of the business, token holders who manage a DAO may have access to resources, come from a variety of educational backgrounds, and have varying levels of understanding of initiatives. As a result, it is difficult to ensure that all token holders will cooperate and comprehend all DAO actions.

2. Speed

A single vote may be necessary to decide on a particular action or course of action for the company when there is only one CEO leading a public corporation. In a DAO, every user has the ability to cast a vote. This calls for a fairly drawn-out voting process, especially when taking into account time zones and priorities outside the DAO.

3. Inefficiency

The DAO business model can be ineffective because it takes time to inform voters, communicate objectives, explain administrative procedures, and onboard new members. DAOs also spend more time debating the reform than actually putting it into practice. Due to the need to oversee many more people, a DAO might become bogged down in menial administrative tasks.

4. Security

All online platforms that use blockchain resources are concerned about security. The DAO business model necessitates a high level of technical expertise; without it, votes may not be counted correctly or decisions may be invalid. A trust may be destroyed if users are unable to rely on the entity’s structure.

More study needs to be done on this amazing opportunity.

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A concept known as “progressive decentralization” (a process in which the founding teams gradually cede control in small steps) is one way to address speed and efficiency issues. Initially, a DAO employs a core team to make decisions, but quickly shifts to adopt as fully decentralized a governance structure as possible. Additionally, some DAOs have explored a governance structure where members cast their votes for qualified and experienced members to serve on the board.

This is feasible if trust can be ingrained in the decision-making process and the smaller teams responsible for it.

Although DAOs are still in the early stages of development, they have already demonstrated innovation, agility, and the capacity to move swiftly in the direction of their goal… As a realistic optimist I believe efforts to find more robust solutions to DAO-related issues and hazards will come to fruition.

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@Loni_Grace I hope this meets you well!

A DAO is a community-owned autonomous organization that is administered by the blockchain. It does not have a CEO or board of directors that set policy. The collective uses smart contracts to establish the fundamental principles and is made to allow members to vote in an equitable manner on additions or adjustments.

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Especially agree with this sentence.

There is a clear distinction between just participating and being a member in an organization. The attitude, beliefs and output are the defining elements.

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@Austin_jul @Ulysses @Lisayanky @19charles54 @Amazingdez @Humphery @Jas_mine @Harvesto
How do you all feel about a DAO in someways, it is an iteration of the nonprofit-wrapped-in-newness? DAOs are set for profit and of a different type, the type the members have to earn in order to have “bragging rights” for lack of better term. Something that I would like to see is that DAOs should become the standard model for non-profits to aspire to becoming, as the current antiquated business model doesn’t really have has much impact, due to the fact that there is a lot of corruption and lack of more transparency and very little impact to any community much less to the global culture. :bomb: :bomb: :bomb:

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I suppose we can say there are non-profit elements in DAOs.

However, their predominant use case is for crypto and defi protocol governance. These protocols are known as for-profit entities. That said, you’re right when you say the type of profit DAO members get may differ from what one usually expects.

Like @jringo mentioned, the above-mentioned may be motivations/satisfaction members gain from their activities in the DAO.

For the DAO model to be a standard for non-profits - and for-profits alike - DAOs need a lasting impression on the governance landscape. We are getting there, but it seems like a long way out. In a few years, say 5 - 10, let’s see what improvements we have made in the space.

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From one theory, It is true that the existing model does not actually have much say due to lack of transparency in the financial areas and poor impact in the community. As a program, it has evolved significantly and fostered a global culture that aspires to be a model for both for-profits and non-profits alike.
It does look like a long way out, but as @Harvesto said we’ll see the improvements we’ve made in the space in a few years;say 5-10years​:grin::pray:…

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Research Summary: What is a DAO? Conceptual Foundations

Tags:
Consensus, Mechanism Design, and Game Theory.**

Points of Disagreement

  • @kingdamieth opened the discussion by citing Sourcecred as a DAO. He then asked whether DAOs could die. If yes, what could cause it? If not, what happened to SourceCred?

  • The questions stirred up discourse around SourceCred, splitting the conversation into two camps. Some argued that Sourcecred is still a DAO - based on its developer activities and the number of active users - while the second group pointed out how the organization lacks one or two of the DAO ethos, which disqualifies it.

  • In responding to the part of a discussion about the damage ego (of critical people) can do to DAOs, @jringo posits that there is no such thing as a “public good.” This is because anyone providing it expects something in return; it could be external - fame, recognition, validation, respect - or internal - feeling good for the work they did. Additionally, successful DAOs will remain skeptical at a cultural level with little trust for public goods provided by members or outsiders.

  • @drllau disagrees with the above statement by explaining the difference between a public good/service and the motivation behind contributing to public goods. He also counters by citing Mother Theresa, priests, and other good samaritans who might not have had any intentions of benefitting from their actions.

  • @jringo maintains that public good/service providers like priests profit from their actions in the form of peace of mind, warm fuzzies, their god’s favor, influence in their church, etc. It should be okay for them to admit this, and the community should be okay with them making that profit.

  • @Austin_jul asked whether any group working together to achieve a common goal - without smart contracts or a treasury - meets the criteria of a DAO based on the conceptual foundations listed. He supports his question/point by describing a political movement in Nigeria - ObiDatti - working together to ensure a particular candidate wins the upcoming elections.

  • In answer to the question, @Ulysses responds by saying the organization may be operating without rules (smart contracts). Additionally, he asked how the movement’s funds are managed and disbursed. Finally, he argued that the money decisions would depend on the campaign organization, which could promote centralization, thus affecting another of the core values of DAOs.

  • Moving on, @Austin_jul replies that he isn’t inferring the campaign is a DAO. Instead, his focus is on their operational model, which seems analogous to a DAO. That said, he ends his comment by suggesting the current state of affairs in the Obidatti scenario could lead to greater centralization - which is counter to the goals of DAO.

Unresolved Questions

  • @Freakytainment asks “Is bureaucracy antithetical to DAOs?”

  • @kingdamieth asks "What are the difficulties that should be tackled assuming trustless associations(like DAOs) are to succeed? And while the DAO’s administration may have fizzled, will “Centralized Autonomous Organizations - same as DAOs but more centralized (CAOs)” emerge?

Points of Consensus

  • @Austin_jul and @Sword.of.Owmens agree, “DAOs aim to make management more democratic and to provide authority to the people.”
  • @danielo and @Elbeth concur that the goal is not to be more DAO but for better human coordination.

Offered Solutions

  1. A solution to legalizing DAOs
  • Legal wrappers are a necessary evil for navigating the legal uncertainties of the industry. While using legal wrappers, members should integrate/apply some DAO ideals to uphold DAO ethos.
  1. A solution to potential minority discrimination in the DAO
  • Minority protection is hard because DAOs exist in a legal gray zone. Additionally, legal documents do not apply to most DAO affairs because code is law. Instead, smart contracts and mechanisms execute the clauses and conditions. @Hermes_Corp highlights an example of a mechanism built for minority protection in Moloch - ragequit. Ragequit allows any member to withdraw their stake from the community when they are uncomfortable with the outcome of a proposal. The mechanism has been replicated by other organizations like Gnosis (Exit Module) and 1 Hive’s Dandelion Framework.

Identification of Consequences of Some Claims

  • Not many organizations meet the author’s conceptual foundations for DAOs. There are many areas to navigate - areas that were unchartered territory before. Some regulators are making stricter rules and regulations. This situation makes me apprehensive about how DAOs will turn out when society and technology advance more. Additionally, there are no set governance rules or frameworks for reaching a consensus. Creating a mechanism that helps existing organizations embody the DAO ethos would be best for these organizations long term.
    • @Sword.of.Owmens addresses this consequence in his comment, where he talks about the idea of a DAO - for more democratic management and giving power back to the people - and the many challenges DAOs still have to face to achieve this goal.
      • @Drllau also addressed this consequence while answering a participant’s question about whether a DAO is an organization or a concept for governance.

Unexplored Territory in Discussion

Unexplored questions

  • @Elbeth asks if there is a repo or major article on the various DAO governance mechanisms.
    • @Elbeth also asks if the network structure of communication between members refers to decision-making models.

Key Resources Used

For more context about the discussion, please refer to any of the above resources.

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@Freakytainment.
DAO is the bureaucrat who works from contracts to produce services for constituents on an ongoing basis. It changes how those constituents coordinate with each other and with external parties and stops some events from happening. I hope have been able to answer your question.However, DAOs operate on a set of programmed rules that are established through decentralized consensus and governed by community participation without a centralized point of authority.With no bureaucracy, DAOs are an efficient and effective way of running an organisation. If correctly set up, a DAO can, in principle, run with limited human intervention.

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@kingdamieth While DAOs look promising, they are still a young invention with several uncertainties that need to be addressed.The major difficulties are:

Poor Infrastructures

Legal Battles

Navigating Smart Contracts - Risks and Un-immutability

Effective Coordination or Complete Decentralisation

People (Community) Over Profit or Just a bunch of rich folks combining to increase their earnings

‍

Poor Infrastructures

Since DAOs are purely digital and decentralized, they often lack a well-developed and efficient infrastructure their traditional counterparts enjoy. Many DAOs have to design the right tooling and infrastructures by themselves before launch, and a bulk of these tools are quite ‘quirky’.
DAOs suffer from having the right infrastructures for reporting, treasury management, governance, payroll, communication, identity management, etc. Without the right infrastructure to handle these duties, many DAOs may lose members and eventually fail to gain traction.
However, the increased rate of innovations and collaborations in the Web3 space is gradually helping to solve some of these problems.

Legal Battles

DAOs share similarities with many organisations of today like corporations, non-profits, partnerships (both general and limited liability), and cooperatives. But these organisations are all regulated and governed by the rules of the different terrains they are rooted in.
DAOs, on the other hand, are purely decentralized without a particular location, and the rules governing them are not specific to that of any existing legal framework.

‍Navigating Blockchains and Contracts - Risks & Un-immutability

Blockchains may almost be impossible to hack but the smart contracts that run on them do not completely share the same level of security.

Many smart contract networks have faced a series of attacks with some protocols drained of millions of dollars sometimes. For example, the first DAO known as “The DAO” is a typical example of the impact of such vulnerabilities.

Effective Coordination or Complete Decentralisation

The governance structures in most DAOs are the typical democratic system of one man, one vote. While this structure has many advantages, it’s not the best way to actively manage corporations especially when decisions that need to be taken require expertise.

People with experience are needed to make hard and technical decisions. However, many DAOs didn’t anticipate the challenge.

People (Community) Over Profit or Just a bunch of rich folks combining to increase their earnings

Even with the possibilities DAOs are bringing to the web3 space, some critics argue that many DAOs are just a bunch of average rich folks combining wealth to increase their earnings without any regard for the fundamentals of decentralisation and community.

These challenges show that DAOs are not all rosy as they seem to be on the surface. While the governance tokens of some DAOs have given investors good ROI, you should know that DAOs are not typically investment properties. Rather, they are means of effective coordination in a decentralized environment without the need for much trust.

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Thank you for this summary and the contributions so far, it’s really interesting to read. Because traditional joint-stock companies are not the best-fit solutions for legally structuring DAOs, the Web3 industry started to look at using trust structures for DAO registration. These trust structures do not involve centralized company shareholders and managers. Instead, they are often used as a “legal wrapper” for a community of people in whose interests the “legal wrapper” carries out certain functions. These DAO legal wrappers take care of the decentralized management and the DAO Treasury. Furthermore, most legal wrappers for DAOs are usually structured in the form of foundations, associations, and non-profit LLCs. Their role in the DAO structure is usually very limited, and focuses on three core goals:

  • A liability wrapper for DAO members
  • A governance wrapper for decentralized voting and DAO management;
  • A guarantor of compliant disposal of the DAO Resources.

A liability wrapper for DAO members

In the Web3 industry, some DAO founders might think that if the DAO Resources is on-chain and its management is carried out by on-chain voting, the DAO won’t need any legal structure. However, in an unregistered DAO, the community of members can sometimes be recognized by regulators or judicial bodies as an unregistered general partnership. The recognition of a DAO as an unregistered general partnership in turn implies unlimited legal liability for each member (partner). Thus, if regulators, tax authorities, or financial supervision authorities have doubts about the legality of certain activities committed by the DAO and establish liability of at least one member of the DAO, liability can extend to all their property and other assets and the DAO member may be recognized as responsible for all actions of the DAO as a whole. To protect the DAO members from unlimited liability, Web3 founders often consider the registration of the foundation as a “legal shield” for DAO members. In cases of regulatory investigations, it will act as a “legal representative” for the community of the DAO members and protect them from the risks of unlimited liability.

A governance wrapper for the DAO

Thereafter the Web3 founders have decided to launch a DAO, the first step is to identify the “founding fathers” of the organization and prepare the DAO Constitution, which will be approved at the first meeting of the DAO. The DAO Constitution usually provides the criteria for membership in the DAO, the structure of the DAO’s governing bodies, as well as the process of publishing proposals and on-chain voting for decision-making. Most of the DAO governance conditions prescribed in the DAO Constitution are “automated” with the help of smart contracts, and are performed “on-chain”. However, this process of “automating” governance is often gradual, as many concepts of decentralized governance may require testing and modification when they begin to be implemented. Therefore, the key provisions of the DAO Constitution are often reflected in the statutory documents of the foundation, which is registered for the DAO. Reflecting the terms of the DAO Constitution in documents such as Articles of Association and other Bylaws, for example, gives the terms of the DAO Constitution a legally binding status, and, as a result, gives Web3 founders more flexibility while they test the decentralized governance model before fully transferring it to a blockchain. This, in turn, allows us to call the foundation a governance wrapper for a DAO.

A compliance supervisor for the disposal of the DAO Resources

Each DAO has its own Resources, which is the DAO fund, filled with tokens or virtual assets depending on the DAO’s business model and spent in line with the decisions of the DAO members. However, the DAO Resources is managed in a decentralized manner. because all the receipts and expenses from the DAO Resources take place completely on-chain, at a certain stage, it becomes difficult for the DAO members to control the process in terms of AML (Anti-money Laundering) compliance. For example, it becomes difficult to control and prevent any virtual assets with a dubious source of origin from “polluting” the DAO Resources.
These explain the reason why at some stage of the DAO’s development, important decisions put to vote will include:

  • The implementation of an on-chain analytical system for the analysis and tracking of incoming transactions that have a dubious source of origin (such systems include Chainanalysis, Elliptic, Crystal); and
  • the appointment of the foundation’s compliance officer, who will conduct KYC (Know Your Customer) procedures for the DAO counterparties receiving grants/service fees from the DAO Treasury.
    following these compliance procedures will help the DAO to avoid the risks of being associated with money laundering and other financial crimes. The foundation, in turn, acquires the “guarantor” function for the decentralized Treasury management by the regulators’ AML recommendations.
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Smart contracts play a big part in DAOs. Decision-making is mandated by these logically coded agreements based on underlying blockchain activity. For instance, depending on the result of a decision, specific code may be written to raise the amount of tokens in circulation, burn a predetermined number of reserve tokens, or give predetermined rewards to token holders already in existence.

While DAOs unite a broad group of individuals, one of their fundamental challenges is that this diverse group of individuals must learn how to develop, strategize, and communicate as a single entity.

A DAO may have a variety of educational backgrounds, awareness of activities, incentives, or resource accessibility,
Implementing a DAO needs extensive technical know-how; otherwise, decisions or votes may not be validly cast. Belief may

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Are all smart contracts DAO’s ?

Smart contracts have many positive qualities. Three of these include their capacity to represent value, transparency, and immutability. However, these qualities also make them a security concern and a highly sought-after target for cybercriminals. Is there a way to counteract it as these qualities are unavoidably significant and cannot be stopped?

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As you may already know a DAO can only exist in Blockchain, and also they’re based on its own set of rules, but there are no hierarchical structure, instead it is managed by a group of networks. This group becomes larger as more members join the DAO. No one has authority over another but may possess more influential voting power.

Anyone can join a DAO and become a full-fledged member by contributing or purchasing its native currency, usually happens during the funding phase of the project. When creating a DAO, this step is most crucial, invest all of your attention to detail, extreme planning and research.

DAOs are often developed on a single set of core values, vision and mission. It could be anything from managing a multi-layered corporation to a social initiative.

Hope this helps!

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This is a great summary, @danielo. I’m very interested in how this can be applied to DAO Community Health. As someone focused on governance at a DAO, I need to track community sentiment, engagement, and general ‘political’ standing. Is this something you’re including in ‘Community Health’? Can you explain further any work you’re doing there?

Just a note on this point: I find this quote so interesting because there’s a cultural consensus that ‘big corporations’ are non-humane, and instead, I viewed the DAO as a way to bring more humanity to the structure of business formation, legal, and operational requirements. The real world can be degrading, and the hope from an owner-operated DAO gave us a new organizational experiment to be excited about.

Lastly, can you say anything about the method Pol.is and how that went? What worked well, what didn’t, and what should other researchers know if they’re using Pol.is on large, disparate, or decentralized groups of people?

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Great summary. Thank you for the simple but highly potent post. The discussions/commentary on this post is quite enlightening. For example, I was reading through the MetaCred link and observed that it mentions that the MetaCred team would be kept lean with only about 12 people. Since the communities function like partnerships, would legally-wrapped DAOs with leaner communities have less conflict?

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