Introduction to DAOs on NEAR.
Last month the Open Web Sandbox (OWS) hosted the HOT DAO Summer Party. The event was a roundtable with industry experts from the NEAR ecosystem (developers using the NEAR Protocol). In the spotlight of the party was the topic of DAOs: what they are, how they work, what their future is, and various other questions asked by the audience. Check out the YouTube video here.
In this article we will summarise the information covered in the presentation and offer some additional insights into the questions discussed. This will start with an introduction to DAOs and DAO Governance. Then, the article will explain the role of the NEAR Sputnik DAO and the future role of the NEAR Ecosystem Treasury DAO. To end, we shall break down the ‘DAO’ acronym and see what each letter actually means.
First thing’s first.
What are DAOs in comparison to Smart Contracts and DApps?
An effective way to explain DAOs is to compare them to smart contracts and DApps. Let’s do this briefly.
Smart contracts
A smart contract is code implemented and executed on a blockchain (this can be the NEAR blockchain or any other general purpose blockchain). Smart contracts have the feature of being autonomous like any conventional program, but have the added feature of being immutable once on a blockchain. Essentially, smart contracts are programs stored and executed on blockchains.
DApps
A DApp (Decentralised Application) is an application that uses smart contracts found on a blockchain as its foundational (back-end) layer. A DApp can use any number of smart contracts combined with a user-interface (front-end) to facilitate interaction by users.
DAOs
A DAO is a specific type of application that also uses smart contracts. The specific feature unique to DAOs is that some of their decision-making process is distributed to a cooperative of members. For DAOs on the NEAR blockchain, the members are said to be part of the DAO’s ‘council’. The size of the council, who is part of it, or the role of its members are flexible features decided by the DAO creators and members.
In brief, DAOs are a specific type of DApp that allows council members to make decisions through voting about the functioning of the smart contracts the DAO is composed of.
“This can be thought of like a social media post with a tokenised voting option.”
— Blaze, Cheddar Farm
What is DAO Governance?
Simply put, DAO Governance is the level and type of interaction the members of a DAO council have over the activities of the DAO.
Let’s break this down.
When a DAO is put in place a structure must be implemented to determine the interactions possible by the members involved. As we have mentioned, DAO structures are immutably set in smart contracts. Once these structures are set, there is still decision making and interaction left for humans to partake in: this is what is meant by DAO Governance.
If using the same ‘social media post’ analogy given by Blaze, the governance part is what the users can do to the post, while the DAO part is the trust we place on the social media platform to process the input of the users accordingly. Because DAOs are built on blockchains, they have the security of a blockchain, so we are certain the input will be processes accordingly.
So, a DAO is an organisation composed of members that make collective decisions through voting about proposals — within an autonomous and decentralised digital structure.
“People can express their ideas and reach a general consensus from the community in the general direction that they [the community] want to go”
— James, NEAR Team
To better understand what some of these ideas and decisions may be, let’s explore two DAOs from the NEAR Protocol: NEAR Sputnik DAOs and the NEAR Ecosystem Treasury DAO.
NEAR Sputnik DAO
The NEAR Sputnik DAO is a digital hub infrastructure on the NEAR blockchain for users to easily create DAOs. The purpose of creating a DAO on the Sputnik DAO infrastructure is for three main reasons:
- Allow users to create proposals
- Establish voting procedures and rules for handling proposals
- Make decisions: payouts, grants, bounties
“You can do anything [on a DAO] that is an action on the NEAR blockchain.”
— James, NEAR Team
Sputnik DAOs allow any function call possible on the NEAR blockchain to be proposed and decided upon, but on a group level — through voting.
Another way to look at it is to see these DAOs as smart contract secured funds which give out payouts, grants and bounties to guilds, projects, and contributors — only through council voting.
Another feature of the Sputnik DAO infrastructure is its multi-veridical funding strategy, which aims to allow multiple layers of DAOs which fund each other, rather than having only a single DAO giving out payouts, grants and bounties. These funding DAOs are categorised by purpose and scope, with some examples being Education programs and Growth initiatives — see more details on the multi-veridical funding strategy here.
What are the possible criteria used to appoint council members to DAOs?
As Blaze mentioned during the event, the level of activity or type of contribution a member has in some community can result in them being voted as part of the council. How large the council is and who can make proposals is arbitrary — it can be tailored to the aims of the DAO. When a proposal is made, the council members decide on the outcome of the proposal by voting on it.
The voting structure of a DAO is also arbitrary, but there are many DAO enabled voting structures developing. See more details on conviction voting here, quadratic voting here, and delegated voting here.
What do council members make decisions about, how do they do this, and how is this implemented?
Again, as Blaze explained at the event, the main role of a DAO’s council is to vote about proposals other members have made. Council members make voting decisions related to the specific aims of the DAO. To check out an example of a new DAO being proposed, click here, to see the employed DAO, click here, while if you want to see a proposal made within the DAO, see the image below.
How do you find the right DAO to fund a project or contribution?
There are hundreds of DAOs on the Sputnik DAO. This makes it difficult for a guild, project or contributor to find the right DAO to fund their proposals. There are two main ways to find the appropriate DAO.
- NEAR Community Fund: a decentralised community fund of NEAR tokens for the community to redistribute democratically through DAOs. The NEAR Governance Forum offers an overview of how the community fund is progressing, what it is giving funding to, and what funding is available.
- NEAR Grants: a centralised program by the NEAR Foundation necessary for efficient and directed development of more integral parts of the NEAR ecosystem. If you are a project or DApp and want long term support, then the NEAR Grants program might be the right choice.
NEAR Ecosystem Treasury DAO
As the NEAR ecosystem increases in scale and decentralisation, so should its NEAR Grants management infrastructure. The NEAR Ecosystem Treasury DAO is the response to these foreseen changes.
What is your vision for the NEAR Ecosystem Treasury DAO, how should it be established?
The NEAR Foundation is developing the NEAR Treasury DAO with the aim of reducing and eventually eliminating the NEAR Foundation’s role as the central funding authority for NEAR Grants. The purpose of the NEAR Treasury DAO will be to make funding decisions about the NEAR Grants fund through a decentralised community of voting council members.
“It is the mechanism NEAR sees to eliminate itself as the central decision maker, transitioning power back to the community.”
— James, NEAR Team
The council members will be representatives from different communities part of the NEAR ecosystem. This will ensure that the interest and voting power of every community in the NEAR ecosystem is represented accordingly.
Breaking down the (DAO) acronym
So, DAOs are digital infrastructures that function on a blockchain and allow its members to vote on proposals, whatever those proposals may be.
“[DAOs] allow individual decision making power at a group level, it enables a group of members to make decisions together…it is about collaborative coordination.”
— James, NEAR Team
Collaboration is about working together toward a common purpose, while coordination is about governance toward that purpose. To really understand how DAOs allow this, we should understand what each letter of the acronym actually means: ‘D’ for decentralised, ‘A’ for autonomous, and ‘O’ for organisation. To make this deconstruction a bit more intuitive, let’s work our way backwards: from O to D.
‘Organisation’
This one will be short, as we are all fairly familiar with the concept of an organisation. There are no new ideas here, an organisation is a collection of agents (most often humans) that collaborate to achieve a common goal or function. Generally speaking, organisations don’t have to be restricted to a physical location and are often nothing more than a semantic entity i.e., they exist conceptually, not necessarily physically. However, they do need some organisational structure to coordinate their actions effectively.
‘Autonomous’
The second letter of the acronym stands for ‘autonomous’. An agent or entity is autonomous if it acts without the influence of external agents. When considering autonomy in relation to organisations, it comes down to two things: how autonomous the procedures of the organisation are from human input, and whether humans can override this autonomy. While Web 2.0 organisations might have some autonomous procedures void of human input, their digital structures can still be overridden by humans. On the other hand, autonomous organisations have no way for humans to override how the digital infrastructure functions — after all, it is composed of smart contracts. So, ‘autonomous organisations’ is a sneaky way of saying that the organisation’s code is secure and immutable. This enables computing consistency and security for cooperation. But who decides the autonomous structure for these organisations in the first place, and what if human input is needed? This leads us to the first letter of the acronym, D.
‘Decentralised’
Decentralisation is a common term in the blockchain space. Let’s dive deeper into how DAOs are decentralised. To do this it is helpful to split decentralisation into three types (as appropriated from Vitalik’s article on the meaning of decentralisation): architectural, political and logical.
- Architectural decentralisation
Architectural decentralisation is the degree to which the physical infrastructure (or hardware) a DAO is dependent upon is more or less centrally located. The more distributed the hardware that gives a DAO its computing power is, the more decentralised. If DAOs are fundamentally smart contracts, and smart contracts are stored on blockchains, then DAOs are as decentralised as the blockchain they function on. This type of decentralisation is pretty straight forward. DAOs on blockchains like NEAR function on distributed hardware, so we can say that Sputnik DAOs (DAOs on the NEAR blockchain) are architecturally decentralised. Great! - Political decentralisation
Political decentralisation on the other hand is composed of two phases. The first phase is how decentralised the decision making process is when a DAO is being developed. All DAOs start off as centralised when being developed, otherwise progress would become too slow. As DAO development grows, the decision making process for the continual development of a DAO can become increasingly decentralised by including more agents in the process and distributing decision making power. An example of this political decentralisation is what the NEAR Foundation is aiming to do with the development of the NEAR Ecosystem Treasury DAO. The second phase is how decentralised the structure of a DAO is once it is up and running. Once the DAO runs autonomously (once its smart contracts have been deployed), how decentralised is voting power? The main feature of Sputnik DAOs is having an immutable and arbitrarily complex voting structure that decentralises cooperation through council member voting. So, Sputnik DAOs are also politically decentralised! - Logical centralisation
Here we will actually be interested in logical centralisation rather than decentralisation. A system is logically centralised if the informational state of the system is the same on all of its architecturally decentralised hardware components. For Sputnik DAOs, the informational state of each DAO is the same for all members, because the informational state of each DAO is distributed across every node part of the NEAR blockchain. This allows the DAO to maintain information congruence between all members, allowing an effective structure for collaboration. This feature reduces information asymmetry we see so often off-chain. So, because the NEAR blockchain ensures information congruence, then Sputnik DAOs are logically centralised. Identical data volume, fair procedure, and better decision-making as a result!
We have now understood the meaning of D, A and O. Hopefully, this will help understand the future developments of Sputnik DAOs on the NEAR ecosystem, and their role in Web3.
The Hot DAO Summer Party held by the Open Web Sandbox on behalf of the NEAR Team aimed to give an overview of DAOs and their role on the NEAR blockchain. This article outlined the event and discussed some of the questions asked by the audience. The sandbox team hopes the event answered your questions and is looking forward to more engagement within the NEAR community.
Stay updated for future events by following us on Twitter and don’t hesitate to post questions on our Discord — these will be answered in our (weekly) Wednesdays AMAs. If you miss any of our events, watch them anytime on our YouTube channel.
Our next OWS party: DeFi Debunked. See you there!
