Why Most DAOs Are Doomed To Failure
Want to join a DAO? Better read this article, first.
March 2022 — The cryptorocket is bursting to the moon, sending s#!tcoins scattering across the charts in its wake. Its riders celebrate their gains in blissful ignorance of the brutal cryptowinter to come.
One token, however, is faring remarkably poorly. It had been doing so even before the Do Kwon Terra/Luna debacle. This token was worth $49.35 in March of 2021. Just one year later, its price had degraded to a measly $5.72.
It is the token of a DAO where its core team decided to overlook the will of its members’ votes and act in accordance to its own leader’s interest.
Let’s call it DAOwashing. Like greenwashing, DAOwashing is when a centralized business decides to call itself a DAO without providing any of the transparency, autonomy and community engagement that’s native to what a DAO is.
A centralized authority calling the shots eliminates the principles of decentralization and autonomy that define what a DAO is.
What To Look For When Joining A DAO
If you want to join a DAO, there are several things that you should look out for when making your decision. Some of these include:
- The Mission: A good DAO needs a clear and well-defined mission that is broken down succinctly in its smart contract and other founding documents. The mission needs to have measurable goals and be understandable to those who are choosing whether or not to participate in it.
- Team history, reputation and track record: Do your own research (DYOR). Learn as much as you can about the team and its history. How has its team handled business before? Does it follow up on its promises, or are they word salad champions who bullsh*t everyone? A good DAO should have a track record of success and show clear evidence of achievements and progress towards its goals. This can include collaborations, projects, events and other initiatives that demonstrate the DAO’s viability and presence.
- How the DAO is run: Is it run by an actual smart contract or are actions initiated and decided upon by the votes of its members? What are the rules and logic that determine how it operates? A good DAO needs a governance structure that is truly decentralized and transparent. This optimally includes the use of blockchain technology to facilitate secure and transparent voting. What within the DAO setup ensures accountability to its members and that its collective will is acted on?
- Authentic decentralization and transparency: If it’s not decentralized, it’s not really a DAO. Greater transparency and fairness in decision-making is what draws people to invest their time, money and effort into a DAO. Look for signs that a DAO is truly decentralized and actually acts upon its members’ votes even without a smart contract implemented.
- Community engagement: A strong and active community is crucial for the success of a DAO. Look for signs that its community is engaged and committed to the organization’s goals and vice versa. It is easy to pinpoint when the previously mentioned DAO cemented its doom: when it cut off its community engagement programs to become a shill show for its figurehead’s NFT vault, insider-traded artists and NFT platform partners.
- A focus on risk management and compliance: Soon after the peak of its token price, there was a huge hack which the aforementioned DAO bounced back from because of its community. But when the community aspect was removed from the DAO, there was no community goodwill on which to base its value anymore. A good DAO needs to have risk management and compliance in place for when things go sour and to make sure its token remains viable. It also has to remember that once it brushes off its community in favor of its own core team self-aggrandizement, its community will no longer be there for them.
In The Beginning
People get excited and join DAOs when they are still DAOs in name only. They end up putting a lot of work into these hopeful DAOs with belief that they will receive future recompense. But there is no structure. There is no token. There are no guarantees of anything. Nothing is paid. Nothing is signed. Nothing is even put into words. If you’re going to put your energies into a DAO at its start, you must understand exactly what its leadership’s intentions are and get them in writing. This is especially important if you are not going to receive any fiscal compensation for your efforts at first.
Clarity and Conflict Resolution
So many DAOs or creative initiatives that were supposed to turn into DAOs have failed spectacularly because there was no specified statement of purpose pre-launch or process for conflict resolution.
A statement of purpose can help resolve conflicts within a DAO by reminding everyone of their common goals. If this isn’t defined, even before all the technical aspects of the DAO are put into place, it is a recipe for disaster. So many projects have fallen victim to this when even just one document defining expectations could have saved everything.
When intents and direction are clear from the get-go, it prevents conflicts from arising in the first place.
For example, one initiative called itself a DAO before any technical processes were initialized. So after many months passed, participants who’d put in a lot of time and effort began demanding the decision-making rights of DAO members. The leaders of this as-yet unbuilt DAO reacted in the way they thought was best. But what they thought was best was expelling these people who had worked for the initiative for months without pay. Those people then went on to badmouth the entire (not a) DAO (yet). This didn’t have to happen. But there was no viable process for conflict resolution codified. Expectations of these individuals went against the expectations of the future DAO leadership. So, they had nothing to show for all their time and effort when they were booted for what those leaders took as intransigence. And those leaders and their initiative then suffered bad PR because of it. There are countless stories like this.
TLDR: Don’t be part of anything if you don’t know what you’re getting into. Hold the leadership of a hopeful DAO to account before you even put a stitch of time into a project that does not belong to you.
With Legendao, you know what you’re getting into.
Legendao’s mission has remained the same since its inception: to build the Legendao Universe for Secret Labs clientele with an appeal to the wider crypto audience.
Due to the harsh cryptowinter, we have added another layer called Lore Legends to onboard artists and create authentic community engagement. Read all the details.
Soon, we’ll publish more information about:
- our statement of purpose defining standard operating procedure of Legendao before the DAO, $LGND token and Legendao Universe platform are launched
- how Legendao’s transparency, authenticity and collaborative principles are reflective of what a DAO is actually supposed to be
- details on the Legendao Universe gameplay and earning mechanisms
For those of you not familiar with Secret Network, the blockchain Legendao is built on, here is a short video describing what it is and why it was built:
Legendao is an independent project under SCRT Labs auspices.