How do DAOs work? Decentralized Workforces Behind the Scenes
StableNode Governance Series #3
An easy way to understand the decentralized workforce (DeWork) is to see each working group as a group of independent contractors that provide a service to the DAO. They can continue to provide a service indefinitely unless they want to leave or are removed by the DAO.
The concept of a decentralized workforce (DeWork) is currently in an experimental phase, with very few DAOs employing this practice. In this article, we will explore the decentralized workforce covering topics such as the key objectives, creation, and day-to-day management.
At StableNode, we are leading research on DAOs and decentralized governance, and you can learn more about our mission to create a formal standard for decentralized governance. Throughout our research, we encounter topics such as DeWork that require a more formal explanation, like the post below.
A Brief Introduction to DeWork
In this article, the term decentralized workforce is interchangeable with synonyms used throughout web3, such as working groups, subDAO, core units, and service providers.
Working groups act as the building blocks of a DAO. They will define the long-term focus areas and provide a comprehensive overview of the responsibilities of the DAO. This allows the governance of the protocol to oversee and manage the working groups of a DAO.
Each working group is expected to provide a proposal that outlines their roles and responsibilities when they apply to work for the DAO. This proposal will outline a variety of obligations such as:
- Primary goals of the working group
- Quarterly budgets
- Vesting scheme for compensation
One example of how this procedure works is the “core units” of MakerDAO. The lead of the core unit will complete a proposal following the Maker-Improvement Proposal (MIP) 39 that outlines the obligations mentioned above. The MakerDAO community can question the core unit and decide whether the core unit tackles issues in an ideal way for the DAO, thus showcasing their support or hesitancy about the core unit.
MakerDAO Core Unit Framework
Each DAO has its method of onboarding working groups, or like Balancer is currently developing its onboarding pathway. In their case, working groups are called “service providers” and have similar aims to core units of MakerDAO. Still, the process of creating a service provider and management of a service provider differs from MakerDAO.
Developing a decentralized workforce’s onboarding process and management is no easy task. With so many moving parts, it is expected that DAOs will continue to experiment and re-develop this process as DAOs develop a decentralized workforce that suits their needs.
Anatomy of a working group
Anatomically, a working group is comprised of a lead facilitator and contributors. Facilitators act as the primary lead for the DAO’s working group, ensuring that the group successfully achieves the goal. In contrast, the contributors will mainly focus on the task itself.
In layman’s terms, the facilitator acts as a manager in a centralized company, handling most of the administrative work alongside the main work. However, a facilitator is not referred to as a manager. In many decentralized web3 projects and protocols, common terms of hierarchy such as “managers” are avoided, opting for more collaborative language such as facilitator.
The facilitator takes on the responsibility of organizing and managing the working group. With this responsibility, the facilitator acts as the key link between the contributors and the governance of a protocol. They are typically required to provide weekly, monthly, or quarterly updates to the DAO and handle the working group’s budget and other responsibilities, depending on the working group.
Facilitators, in some cases, have increased governance powers as they are considered trusted individuals within the DAO. For example, within MakerDAO, the facilitators of core units can perform governance tasks such as proposing polls related to their core units.
In summary, contributors will solely be responsible for their own and their teams’ work on reaching the aim of their working group. In contrast, facilitators are responsible for the administrative and governance tasks and contributing to the working group’s key objectives.
Creation of DAO Working Groups
On-boarding of working groups
A lead facilitator would have taken the initiative to formulate a working group, hence the title, lead facilitator. They would have outlined their team members, budget, and primary goals before proposing it to a DAO.
One way to identify a need for a working group would be to have an open discussion on the forums of a protocol. These open discussions allow individuals to identify key issues of the DAO that a specific working group could solve. Naturally, individuals may gravitate towards this working group, and certain members will dedicate their time to this working group to support the DAO.
Another method to create a working group would be to approach the DAO as a professional service provider, such as StableNode. Specifically, StableNode focuses on supporting DAOs to develop their governance structure, including their governance proposal lifecycle, templates, and operations to simplify the workflow process. We could present ourselves to a DAO and if onboarded, we would use our team at StableNode to solve these objectives.
In the future, we expect to see more working groups work similarly to StableNode. Whether that is professional organizations focusing on various services such as treasury management or marketing.
In formalizing a working group, the lead facilitator and contributors will present themselves to DAO using the template provided. After feedback and recommendations are provided, it is natural to review and update the proposal in various ways, such as budget, compensation, or adjustment of objectives. After this review, the proposal to form a working group will be voted on by the DAO, if successful, the working group is now formed. However, if the working group is not deemed a correct fit for the DAO by community members, then the working group will not be created.
Off-boarding of working groups
It is scarce to see the off-boarding of a working group. Off-boarding will generally occur if a working group is not reaching its set objectives or goals outlined in the initial proposal.
Two core units were off-boarded from MakerDAO, namely “Content Production” and “Maker Shop”. The documentation outlines the date they were offboarded with the discussion and justifications for their off-boarding. Off-boarding is still a new process that needs to be refined, as we can only look to MakerDAO to see an example of it.
A somewhat similar example is the Brantly Millegan situation, where people voted to have him removed from the ENS foundation. Even though the vote failed to pass, it would have been interesting to see individuals stripped of their voting power. This would have been the off-boarding of a specific individual rather than a team, and this can be replicated in a scenario where a team or the community wants to offboard or replace their lead facilitator. One example includes an offboarding of the facilitator from the “Real World Finance” core unit of MakerDAO.
DAO Compensation and Benefits
Contributors of a working group are generally paid in various ways; stablecoin, native tokens, or a mixture of both. This depends on the rules of the protocol. Still, it is becoming more common to pay a majority of the salary in stablecoins to avoid the volatility of the market, which can dramatically reduce a contributor’s salary. On top of the salary, contributors can be paid a bonus of native tokens that are vested over x amount of time, along with a cliff.
Compensation is generally handled by the working group facilitator, who maintains the multi-sig wallet. A variety of tooling like Parcel simplifies the manual work and can automatically pay contributors monthly. It is up to protocols to use tools like this, and Orca Protocol has included Parcel within their pods.
Benefits from working groups vary from one group to another. Currently, most working groups are considered separate entities, but working groups like those in MakerDAO provide healthcare and travel support benefits. Unlikely to be the case for all working groups, some might expect individuals to sort out their benefits themselves using tools such as Opolis.
Budget
As explained previously, working groups would have outlined their budget breakdown, including costs such as; compensation, software expenses, healthcare, contingency buffer, etc. This estimate helps form the forecasted expenditure of the working group and DAO.
With this budget, the working group is expected to provide monthly updates on their budget and expenditure, becoming publicly available for the protocol’s governance to review. This update can include a variety of information such as:
- Previous Month Expenditure: Expenses of the month, and boolean score whether it was a surplus or deficit.
- Budget Forecast, based on the previous month, is required to maintain a 3-month runway for the team.
- Vesting Schedule: Protocols will provide payment in a mixture of stablecoin and native tokens. The native token can be expected to be vested to minimize large payouts.
- Total: Total received and spent to date.
Over time, the working group will identify the necessary changes required to maintain the working group and should update their budget accordingly for the following budget proposal.
This budget breakdown will make it easier for the protocol’s governance to determine the opportunity cost of this working group compared to alternatives or no team, making it easier to decide whether the working group should continue to exist or be off-boarded.
Closing thoughts on DeWork
The decentralized workforce is a new concept that needs to go through many changes, but it has shown signs of success within MakerDAO. Regardless of their success, we should expect protocols to experiment with a decentralized workforce to identify beneficial practices for their specific needs. Only over time can we expect to formalize a standard for DAOs across various stages of maturity.
Not only that, but many moving parts go into the management of a decentralized workforce, and the lack of tooling makes it more difficult. Over time, we expect to see more DAO tooling to repair this fragmented process of managing the decentralized workforce to make it easier for DAOs to adopt a decentralized workforce without sacrificing safety and sustainability to a protocol.
Learn more — StableNode Governance Series
- #1 — The Road to Decentralized Governance in web3
- #2 — A Lack of Standardization in Decentralized Governance
- #4 — Delegates and Streamlined Governance
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About StableNode
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