DAO shares are Tokens & Tokens are DAO shares

These terms are becoming harder & harder to differentiate between — And that’s a good thing!

James Waugh


Image stolen from Vitalik’s Nakamoto article + Logos from DAOs & Tokens ❤

In general over the past 36 months

DAOs have been highly community driven ecosystems with little speculation.
Tokens have been highly speculative ecosystems with often little community.

However, this could have just as easily turned out the other way ⚖️

Ethereum gives us the tools to build programmable money, meaning we could have built a speculative DAO share market instead of a token market or used ERC-20 like structures for grant giving DAO shares. Whether we call it an ERC-20, MolochDAO, ERC-721 or Aragon DAO, all that matters is the outcome these things achieve.

DAOs & Tokens aren’t Apples & Oranges!

Seeing as a ERC-20 token is just a smart contract that issues a tradeable token to your Ethereum address, this contract can have whatever features/restrictions make sense for that asset. Similarly, like this token process, DAO shares can have whatever defined features or restrictions that make sense.

The point here is, it doesn’t matter what the intricacies of the smart contract are, only that the mechanisms create credible neutrality — A concept described by Vitalik as: Essentially, a mechanism is credibly neutral if just by looking at the mechanism’s design, it is easy to see that the mechanism does not discriminate for or against any specific people.

Now, neither tokens or DAO shares are intrinsically credibly neutral. Both of these systems can be designed with credible neutrality in mind, or designed to completely ignore these mechanics. Either way, the mechanism (DAO share or token) isn’t the piece that matters, only it’s design & implementation.

The reason this link between mechanisms matters is because over the foreseeable future we’re going to see many concepts we could have traditionally associated with DAOs start to enter the token design space. At the same time, many of the attributes of ERC-20 tokens will begin to be emulated by DAOs.

For tokens, we deemed the economic levers associated to be ‘tokenomics’ — The ability to build different incentives & mechanisms into a token or platform. For DAOs, we’ve yet to come up with the same term, but there are a number of different mechanisms inside of these DAOs that can be used to achieve identical outcomes as tokenomics. Building incentives into communities actually makes more sense than building incentives into tokens.

Lets look at a few examples:

As MetaCartel Ventures starts the first for-profit DAO (since The DAO) we’re opening up a new chapter in DAO shares experimentation. To date, DAOs (MolochDAOs specifically) have only been focused on issuing grants, not making profit.

‘We want to coordinate on capital, and we want to delegate some of the responsibility to contracts… That by itself is going to start a whole wave of edge cases & new features built on top. For us it’s about showing what’s possible.’ — Ameen Soleimani

Rocket is another example of a DAO project that over time, will begin to look more and more like a token — Where each DAO share represents ownership of the NFT bank & the potential revenue from each NFT loan.

These two DAOs mark the first in a growing trend of DAO mechanisms moving towards more open, fundraising or even dun dun dunn speculative structures. We of course need to be conscious of the learning’s from the crazy token space of 2017, but we don’t want to throw the baby out with the bathwater — The composability of both financial & community lego blocks will create a new phase of token economics.

From the other side, we’ve started to see a number of different token projects starting implementing DAO like mechanics, Kyber, Aave, Synthetix & DeversiFi have all started experimenting with these mechanisms to involve their communities more in the governance of the project, token & treasury.

As described in previous articles — It’s becoming increasingly obvious that the number of DAOs is only going to grow and the relationship between these tokens & DAOs is only going to solidify. More experimentation is always a win and getting these ideas out to the wider Ethereum ecosystem about this differentiation isn’t as confusing as it may look.

Most Moloch DAOs to date have been permissioned systems, meaning to join these DAOs & accumulate DAO shares, a user is known to some extent. Although this permissioned structure clearly sacrifices a large amount in decentralisation, there’s been a huge gain in the alignment of the given community.

If the requirements to ‘join a community’ are to purchase an ERC-20 token on uniswap (Every token community) vs the requirements to join a community are to apply to join a permissioned group, then once accepted ‘pledge’ ETH to receive DAO shares. There’s a significant barrier to entry for joining the second community rather than the first. However, when we look at outcomes, with no direct financial incentive (Like holding large amounts of a speculative token or being paid a salary), Moloch DAOs have been able to deliver consistently impressive outcomes.

This may not be sustainable as we scale to millions of people — However it’s still a solid data point worth learning from, holding tokens or being paid a salary have had lower impact than an outcome aligned DAO.

At the end of the day, DAO shares are just another form of a token, and both should have credible neutrality as the endgame goal. Regardless of a transferable DAO share or a non-transferable token — The mechanism design is the important part, less the comparison between DAO share & token.

Regardless of the mechanisms and the market positioning of that mechanism, we should be far more interested in the outcomes any given outcome achieves rather than the mechanism itself.

Axia Labs is one of the core contributors to MetaCartel DAO & many other DAOs in the space — Axia Labs has been working with innovators, enterprise & token projects since the company’s inception in 2017. We try to interact with every working DApp, DAO & token that adds value to the ecosystem as well as building incentive mechanisms & governance structures for many of the most loved projects in the space!

In the coming months, we’ll continue explore these new DAO models as we look to reinvigorate the spirit of coordinated innovation that we saw back in 2016.

Thanks to Peter ‘pet3rpan’ Cooper Turley & Callum Gladstone for their contribution to these ideas & this article.