Defining DAOs: Do we even know what they are yet?
One of the things I get asked the most is, “But Nick, what is a DAO?” Normally after I’ve spent far too long discussing the intricacies of DAO tooling token economics. My answer is often rather disappointing, “We don’t really know yet…” Not what people…
One of the things I get asked the most is, “But Nick, what is a DAO?” Normally after I’ve spent far too long discussing the intricacies of DAO tooling token economics.
My answer is often rather disappointing, “We don’t really know yet…”
Not what people want to hear generally. We like to have our concepts in neatly wrapped boxes. Simplicity is what we want. I’ve had people literally get angry at this response.
Here’s DeFi multi-sig warrior Chris Blec coming up with his definition:
— Chris Blec (@ChrisBlec) November 18, 2021
Actually, to be fair, simply shouting the terms in the DAO acronym is a definition in itself. Not a great one, but it’s a start. So let’s unpack these a bit.
In my opinion, decentralisation is what the cryptospace is all about. It’s a mode of operation, a network structure, an organisational paradigm; it is actually many things to many different people.
My personal definition is that “decentralisation is the process of diffusing power.” If you do it enough, no one ‘controls’ the system at all.
Bitcoin is probably the most decentralised system that has ever existed, maybe that will ever exist. It is peak decentralisation. Yes, it has centralised over time around the mining, and yes it’s technocratically managed at the code base; but the reality is, that the power to change, stop or alter the network in almost any aspect is something that no one person or group has.
This is the goal for DAOs. Their goal is to diffuse power among their participants as much as possible so that no one person or group can unilaterally change it. They may start centralised, just like Bitcoin did (it emerged from Satoshi’s mind after all), but their nature is to execute the process of decentralisation over time.
The important key word in that decentralisation definition is “process” and is therefore not something that can happen instantaneously. Even from the Satoshi immaculate conception moment, the Bitcoin network took many years to accrue its vast hashing power, a community of dedicated codebase maintainers and the army of laser-eyed acolytes necessary to give Bitcoin it’s genuinely unstoppable status.
In order to get to a decentralised state, you need governance and that is what autonomy is about; the ability to self govern. That is, no one extrinsic to the system can control the system itself. Even mighty nation states can’t shut you down or even make you change your practices.
No, it’s not about automation, a common misconception in the space. The original DAO–even though it blew up–would have done nothing without human input decision making. They don’t have to run on their own. They just have to be able to govern themselves without outside interference.
DAOs achieve this by using decentralised technologies. Blockchains are their precursor; they provide the substrate onto which censorship resistance and consequently autonomy can be realised.
We’ve come to think of organisations as objects of legal personhood, the limited company, the LLC, the non-profit, etc., but really the organisation is more elemental than that. An organisation is a group of people trying to achieve something together.
It is often argued that some kind of common purpose is required, but even many normie organisations would fall on that hurdle. An organisation is a collective of people, with the intent of organising together.
In DAOs, smart contracts and digital assets form the nucleus of the organisation, not a fiat ratified document. Every individual may have some divergent desire for being there, but they are bonded by their possession or control over some kind of shared digital asset.
The State of DAOs Now
An important thing to do when trying to define DAOs is to try and disentangle what DAOs will be in the future, from what they are now.
The reality is that DAOs are an emerging technology. This means that we won’t quite know what they’ll be until they gain mass-market traction, which they certainly don’t have at the moment. That will be when we know they work and have a more concrete idea of what they are.
What we do have are some important DAO moments or case studies that show what they can do and hint to where they might go. Let’s take a look at a few:
The DAO – The original ill-fated DAO. Pool money and decide how to spend it by using tokens to vote.
Moloch DAO – An elaboration on the original DAO design to be less rekt and with the ability to “rage quit” if you don’t like a decision. Moloch was originally set up as an ecosystem fund for the Ethereum ecosystem.
VentureDAOs – More pool money and spend them on DAOs, often with legal wrappers with the purpose of collaborative investment. “Metacartel Ventures” and “The LAO” are highly influential examples of this.
MakerDAO – The first meaningful DeFi DAO that manages the decentralised stable coin $DAI. An important example of a DAO managing DeFi monetary policy and achieving close to full decentralisation.
yearn.finance – A hydra like DAO structure that bosses DeFi yield aggregation and occasionally hentai. Yearn is a powerhouse in both DeFi and progressive DAO design.
Wonderland – A decentralised slush fund run by criminals. Let’s forget about this one.
pleasrDAO – The most important curation DAO. They buy NFTs together, occasionally Wu Tang Clan albums and define culture. pleasrDAO kicked off the whole “buy a thing” DAO idea (a la
constitutionDAO) and that will remain incredibly popular for the foreseeable future.
FactoryDAO – A metaDAO (A DAO with DAOs in) that builds DAOs. A decentralised home for Web3 infrastructure and DAO tools.
Yes, I’ve shamelessly included the DAO I am a leader in at the end. Though you can see from this trajectory that the nature of DAOs is evolving dramatically, from simple pool money and decide how to spend it entities, to key governance structures in DeFi, through to cultural curation hubs and complex infrastructural projects. The only limits now are human imagination.
A Sociotechnical Phenomenon
The important thing to note about DAOs is that they are more than just a technology. They don’t do much unless humans are there interacting with them, and that makes them “sociotechnical systems”. That is, organisations that comprise both people and technology. In fact, DAOs are a tight fusion of the two.
These two things can’t really be separated and in fact, taking one in isolation of the other will only lead to an incomplete picture. The best DAOs will be organic structures that will evolve through social consensus and the use of decentralised technologies to automate away bureaucracy, govern digital assets, achieve autonomy and get things done.
Consequently, the people who know what DAOs are best are the people who live DAOs on the day-to-day, and I recommend you follow people like trach (yearn.finance), rafathebuilder (Mirror DAO), Spencer Graham (DAOhaus), nintynick (EdenGov), Aaron Soskin (Govrn) and academics like Dr. Paul Dylan-Ennis (University College Dublin) to keep up with these emerging ideas.
“Just give me a definition Nick!”, I hear you say.
Well ok, I’ll give you mine, but with an important corollary. We aren’t done defining what DAOs are yet, and we have to make sure we don’t end up with a definition that limits their scope and importance.
My definition is:
“DAOs are sociotechnical systems that use decentralised technologies to achieve autonomy and social coordination around digital assets.”
Now forget it and make your own.
To qualify my warning, here’s the definition of DAOs recently generated by the EU: “[a DAO] is a rule-based organisational system that is not controlled by any central authority and whose rules are entirely routed in its algorithm.”
Rules are entirely routed in its algorithm ay… not much socio in that technical. So, let’s not let authoritarians eliminate our ability to define the future of human coordination. Let DAOs be DAOs. Don’t define us into a hole.
In any case, this is the future whether you like it or not.
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