Thinking about Governance: Tokens and DAOs
By Typto
Decentralized Autonomous Organizations (DAOs) are what Web3 communities should really look like. In this article we’ll take a look at DAOs as a community.
A community is a gathering of people sharing the same values and visions, respecting and supporting each other, and working towards common goals, all while benefiting members (both mentally and materially).
A community delivers and builds our culture. No one can really love the community if it is only about transactions, work tasks, and money.
I desire to build a real and intentioned community. I continually strive to constantly iterate and build out true, meaningful, and effective communities as my life’s work. But it’s important to clarify what a community should really look like. How can ideal communities be achieved? This is a relatively ambitious subject. Today I want to talk about governance. I have been thinking about questions around what perfect governance looks like, what we use to represent our governance rights, and how we are able to quantify, obtain, and use it.
If we only use Tokens as our governance rights in a community, we will never be able to build a sustainable and healthy community — let alone build a cohesive and vibrant community. Token fixated communities devolve into chat groups talking about token prices only.
Chat groups themselves are not communities.
Governance Today
Currently, there are two ways that represent our governance rights in projects or communities: Tokens and Shares. Aragon and DAOhaus provide typical frameworks for these two types respectively.
In a token-based model, as long as you hold tokens you become a member of the community and have proportional governance rights automatically (Aragon will automatically add you to the Aragon DAO list). With shares, governance rights are allocated through collective consensus.
The beauty of Tokens is that it is backed by relatively open marketplaces that give everyone the opportunity to participate in governance. However, it is precisely these open marketplaces that lead to Token concentration among traders (or even speculators) — while true community co-builders/promoters/contributors hold relatively smaller amounts. This turns community governance into a money-driven game. Although it brings early adopters with vested interests, the participation cost for later adopters is much higher. I am not against Token’s trading dynamics, but how speculative trading and governance is balanced at a healthy level is an important question we all need to think about.
In a share-based model, the token-based model’s problems of speculative and transactional properties are addressed through vested interests by providing fairer and healthier proxies for governance. However it is not without its own problems. Share acquisition is the process of an “organization’s” granting of governance rights. This is a relatively closed model. It works well in some scenarios such as VentureDAO around funds management. But if we want to build a community that is subjective and relatively open and fair to do more complex things, the share-based model still has obstacles. Because subjectivity is always one-sided, if rights are determined by a subjective consciousness of a small group of people, there is confusion about the fairness of opportunities (outcome-based fairness is not fairness, but opportunity-based fairness is). At the same time, acceptance and contribution to a community does not require permission from existing members. In the Web3 era, contributions should be as permissionless as trustlessness.
Even though existing solutions have made significant contributions to advancing this era, it is clear that neither of these is the ultimate solution. We are still living in the very early stages of this era and we must keep iterating and exploring more optimal solutions.
My Thoughts & DAOSquare’s Practice
Since I started working on DAOs in late 2018, governance has been the concept I have spent the most time thinking about. In my opinion, community governance is not about management, but about building mechanisms for people to link and interact with each other so that participants are more willing to move forward together. Over the past two years, other members and I have tried countless ways, met countless failures, and eventually coincided on some mutual understandings. I feel that the following two core principles are of much significance:
- Community governance cannot be represented by Tokens only, but rather should be multifaceted.
- Acceptance and contribution should be permissionless. It is imperfect to determine who can have community governance rights through the subjective judgment of a small group of people, but should be autonomously available through an open and quantifiable mechanism.
The first point defines what governance rights should be represented by and defines who the people are that actually move forward with you. The second point defines how we receive governance rights and defines how these peers can join you to move forward without any barriers.
What governance rights should be represented by
Each community’s goals are different. Governance rights are represented differently and everything must be focused around the community’s goals. For example, if a community is a decentralized trading protocol (e.g. Uniswap), your goal should be to provide a better trading experience for the decentralized world. It is then necessary to consider LP contributions, product contributions (e.g. code contributions), and protocol Tokens as a proxy for governance rights. If we take Uniswap as an example, its governance rights may consist of the following:
- Tokens (UNI)
- LP Token
- Product contributions
How to Package These Factors into Governance Rights
How can we convert these factors into final governance rights? From a product development perspective, we need tooling that includes quantifiable criteria and redemption channels to make it happen. DAOSquare is currently building a point system to accomplish the conversion of governance factors to governance rights. Allow me to explain the process using DAOSquare as an example.
We are building a module for the DAOSquare Incubator called “DAO Kontribution Pool’’, or DKP for short . Anyone can transform their contributions to DAOSquare into their rights here. This is an open, permissionless contribution and swap area.
In the DKP, the product logic is very simple:
Contribution -> Earn -> Governance Right
Contribution is where the governance rights factor is collected. For DAOSquare, donating to OVO Grants is a contribution, and Staking $RICE is a contribution. There are also many more community contribution factors like completing the DAOSquare Incubator 101 course, attending community meetings, and active participation. In the “Contribution” section, we need to first qualify each contribution category. For example, in OVO Grants, we set up a 1:1 ratio, meaning that if you donate 1 WXDAI to OVO Grants, you will receive 1 OVO Grants point. Note that different contribution categories require different types of points — you can get a better understanding and mix in the “earn” and “governance rights” sections.
“Earn” is where contributions are turned into benefits, including:
- Investment opportunities to participate in private or public offerings of a project, such as CCO (Community Contribution Opportunity. One of the public offering modules in the DAOSquare incubator product.)
- Limited edition NFTs
- Branding (e.g. OverLord T-shirt)
When you obtain enough points in the “Contribution” area, you can head into the “Earn” area to redeem some of your rights. For example, you can use 100 OVO Grants points plus 300 Stake $RICE points to wrap for $1000 CCO allocations of a certain project.
Collectively, whether you participate in the “Contributions’’ portion of OVO Grants or redeem some allocations of CCO in “Earn”, you are helping advance DAOSquare’s growth. Accordingly, governance rights will collect all the behaviors of “Contributions” and “Earn”, and wrap these factors into governance rights NFTs that represent different governance weights. But there is also a special factor to be considered, the total number of your contribution record. For example, if you donated 100 WXDAI to OVO Grants, received 100 OVO Grants points, redeemed it for a CCO allocation of a project in the “Earn” section, and had the points consumed, the fact that you had contributed to DAOSquare will not be erased just because your points have been consumed.
Another concept. How do you wrap contribution factors to get governance right NFTs? Let’s say a governance NFT representing 1000 votes would require 1000 $RICE stake points plus 500 CCO participation history points plus 500 OVO Grants points plus 100 community meeting points and plus more….. (how many more will depend on how many factors your community needs)
When I shared these thoughts with Dekan from DAOhaus some time ago, he shared with me the example of Chuck E. Cheese (a popular American child game world) that James Young had mentioned in an article called “Curation Economies” in Chuck E. Cheese.
- You purchase tokens with cash
- You use tokens to play games
- You earn tickets when playing games
- You purchase prizes with tickets
Perfect! Community governance should be THE BEST FUN YOU CAN HAVE!
The Present and the Future
I have to admit that the mechanisms we are building at present are still far from perfect but we are continually moving forward. During the wave of DAOs in 2020, many people around me started to join the world of DAO. Either someone launched a DAOs or someone else got involved in different DAOs actively. However, I realized a very obvious phenomenon that most people had left with varying degrees of dissatisfaction. Two of the most common complaints were:
- I have no idea what DAOs do
- DAO tools are so hard to use
For the first situation, I think the problem is twofold. First, a DAO may have been started before they knew what it actually was which might easily cause confusion. Second, a DAO may have been launched blindly. There is no doubt that everything needs to be done with clear objectives — it is no different with a DAO. It is critical to know exactly what you want to do instead of jumping in with excitement to create DAOs through DAOhaus and have no idea what to do with it. If you think of DAO just as a tool — it won’t be able to show you the directions forward. Tools can only help you reach your destination more efficiently and effectively. You must think clearly before acting, including what DAO is.
As for the second situation, I have to admit that many DAO tooling and infrastructure is not yet mature. It is especially unfriendly to those who are not technically skilled. This is a future direction I want to work towards. Making it easier and more fun to participate in DAOs.
I hope that DAOSquare will not only help innovators, but also contribute to the development of this era. I am always excited whenever I envision the future of this era, especially the “community” that is rising in this era.
We are embracing the golden age of individual value. More and more people are leaving mechanical labor and joining vibrant communities to realize their personal value. In the near future, collaboration among individuals with communities as the main scenario will become more and more popular. At the same time, more great innovations will be created by individuals and communities. This is the evolution of social structure. As the friendly moniker at the dawn of the Web2 wave goes:
Youths explore Databases and find friends in forums.
which has been updated by this generation as:
Youths explore Ethereum and find friends in DAOs.
However, the slogan remains the same:
TO BE YOUNG AND ONLINE.
Always stay young, always explore ahead of people, and you will get your rewards from the future!
Thanks
❤️❤️❤️
Thanks to Daniel for checking the content and fixing a lot of grammar bugs. Thanks to Linda for taking the time to review and make suggestions. Thanks to Dekan for discussing DAO governance with me while coding. Thanks to James for his great article.
About DAOSquare
Born in the well-known West Ethereum community MetaCartel, DAOSquare is dedicated to building a Web3 incubator which aims to be the Y·Combinator in the Web3 era.
Website: https://daosquare.io
Incubator: https://incubator.daosquare.io
Twitter: https://twitter.com/DAOSquare
Discord: https://discord.gg/34GVwKPPHJ
Telegram:https://t.me/DAOSquareOfficial
Forum: https://forum.daosquare.io
Media: https://dao2.io
