The way of the DAO could be the future of work

Note: First published at Business Times on April 11th 2022

There is a general view that 2020 is the year of DeFi (decentralised finance), 2021 is the year of NFT, and 2022 will be the year of DAO (decentralised autonomous organisation). As the word “decentralised” suggests, DAO is expected to be the native corporate structure of the crypto economies.

What exactly is a DAO? It’s been called a “crypto co-op” and is often associated with crowdfunding. In fact, any loose form of organisation that is decentralised and autonomous can be called a DAO. In the simplest format, a multi-signature wallet that manages community treasuries can be a DAO; a chat group that manages community communications can be a DAO. Thus Bitcoin and Ethereum are DAO of protocols, as are many of the recent DeFi protocols, NFT projects or Web3 projects.

For this article we will focus on exploring if such a decentralised structure has the potential to gain adoption as a format of organisation to attract a large number of followers, to efficiently organise resources, and incentivise talent, thus evolving into a future format of work.

My experience with DAOs began a few years back, when I participated — with one ETH — in the fundraising round of the infamous “The DAO”, to experience what it would be like in the midst of the frenzy. The DAO was formed in 2016 to operate as a “virtual” venture capital fund with no ‘managing’ to lead it. Its decentralised nature would in theory award control and access to all investors..Unfortunately The DAO met with an ignonimous end after a hacker exploited a bug and drained The DAO of around US$70 million worth of ETH then. The United States Securities Exchange Commission also ruled after the incident that: “Tokens offered and sold by a “virtual” organization known as “The DAO” were securities and therefore subject to the federal securities laws”, implying that such laws had been violated by The Dao and its investors as the offers had not been registered with the SEC.

But at the very least, it served as a playbook for new DAO creators.

I recently participated in another high profile project — ConstitutionDAO — with another (one) ETH just to relive the experience again. ConstitutionDAO formed in November 2021 with a community of thousands who raised more than US$45 million in a week to bid on a rare copy of the US Constitution that was being auctioned by Sotheby’s. They didn’t win the auction. The group dissolved, and “was mired in controversy as it sought to return money to investors”, the New York Times reports. So ConstitutionDAO kind of failed, but to me, it was successful in a way as it has shown how efficient a DAO could be in coordinating a large community and driving them towards a common goal.

Since the invention of “The DAO” in 2016, the ecosystem has come a long way and seems to gain real traction in recent years. At the time of this article, DAO analytics site, DeepDAO.io, shows that there are 4,800+ DAOs managing over US$12.6 billion treasuries, with over 1.8 million governance token holders growing nearly 10 per cent month-on-month growth.

Initially, drawing from my experience as a venture Capitalist, I had many doubts on the ability of DAOs to support a community-led future of work, especially when I tested out “The DAO” in 2016.

I felt that the three main hurdles to mass adoption of DAOs centred around acceptance of community culture, the efficiency of the decentralised decision making process, and ease of coordination and incentivisation of a large pool of talent.

But many things have changed since. Today, we can observe the following positive trends: significant adoption of online community culture, rapid development of technology and models that enable both decentralised yet efficient decision making process, efficient management tools to manage contribution and compensation of a large pool of talent. These trends have boosted my confidence in DAOs.

• Rise of the online community culture and the WallStreetBets Generation

Generally, VCs endeavour to invest in strong founder(s) with a strong vision, which is useful in attracting talent and assembling an “institution”. It is important to build an efficient institution to compete with other similar institutions (competitor companies), and also to attract talent. That is why, at first, I was not sure how a decentralised online community can ever be efficient enough to attract talent and organise itself to function effectively.

However, times are changing. The younger generations seem to favour community over institution and many now adopt a mission-driven mindset. They are more open about online collaboration than the older generations and are comfortable building trust with others whom they have never met before. Being technology-savvy, they know how to leverage tools to collaborate efficiently to compensate for the disadvantages of remote, informal communities.

One of the best known cases is the story of WallStreetBets — the subreddit community that banded together to go up against Wall Street institutions. Many of the DAOs today are even bigger and more well-coordinated than WallStreetBets.

I would say that the adoption of the online community culture has reached a tipping point. What we observe is an ever growing group of digital nomads and how this could fuel the mass adoption of DAOs. Around the world, we see the younger generation being more open to the idea of working in startups as compared to their parents. This mindset naturally gives rise to the inclination to work in even more disruptive organisations such as DAOs. The key is to build a community with a strong mission statement, and it will naturally “organise” itself. The mission and community culture bind the members together and motivate them to add value without the need of a strong centralised leadership.

• Decentralised yet efficient decision making process has now become a reality

I always advise startups to be clear with their decision structure, emphasising the importance of having a key decision maker who calls the shots in tough situations. Startups need to move fast and we want to avoid situations where participants shun responsibility, or worse, push the decision-making responsibility to others and waste precious time in the process.

Thus, my initial concerns relate to the speed and quality of the decentralised decision-making process. Having observed the decision-making process in DAOs for a few years now, I’m somehow convinced that a decentralised process could be highly efficient too, contrary to conventional belief, thanks to technology.

Governance tools such as Snapshot make community voting effortless, and community management tools such as Discord enables a transparent and efficient process of empowering the community members with relevant information.

One would argue that “too many cooks spoil the broth”. But in this case of DAOs, providing members of the community with access to key information and enabling them to present proposals, challenge each others’ assumptions and perspectives in a democratic way actually give rise to a self-checking and governing mechanism of sorts.

The DAO decision process is still evolving rapidly as part of larger decentralised governance frameworks. There are various innovations being explored, such as governance delegation from minority to community influencers to address lower participation rate from minority token holders, or the creation of sub-groups based on projects or functions so that decision-making is carried out at the proper level or by proper domain experts, or some combination of online and offline governance to leverage the best of both worlds. We can expect the concept of the DAO to continue to evolve the decentralised decision-making process and improve on its efficiency.

• Strong emergence of tools that assists with Contribution Management and Incentive Alignment in DAOs

Charlie Munger, vice chairman of Berkshire Hathaway, once said: “Show me the incentive, I’ll show you the outcome.”

Crypto projects are famous for having interest aligned among the community through token ownership. However, DAOs generally begin with a small group of core contributors and a large community of followers. I used to wonder how the talent pool could be scaled up without having to offer full-time employment, which then gives rise to a more centralised organisation). There are usually sufficient people willing to contribute, but the challenge lies in getting them to contribute in a decentralised way, receive fair compensation, and be held accountable. DAOs resemble hiring and managing community-inspired freelancers on a large scale, which is very different from traditional startups hiring full time employees who report to a manager.

The DAO has evolved quickly in building tools to make managing a large talent force in a way that is compatible with a decentralised society. . For example, “Bounties” are bite-sized tasks that members can take on to move up in the DAO and can be managed by Gitcoin (a platform where users get paid to work on open-source projects). MolochDAO also shows how grants can be systematically awarded to bring about benefits for the larger ecosystem. SourceCred provides a way of paying contributors based on the value they add to a community and Govrn takes this a step further by pioneering a “Movement Model” to assign weight to different types of contributions depending on its priorities.

Overall, as contributions to DAOs can come from anywhere in the world, tools that qualify and quantify different types of contributions can be used to manage how talent can contribute and expect to be compensated. In addition, DAOs also have reputation-building tools to motivate community members to take ownership and contribute more and more to the ecosystem.

Still, the DAO is just a tool. Ultimately, whether such an organisational structure could eventually become the future of work depends on whether the desire to collaborate and make decisions in a decentralised way can be a mainstay. The evolution of the DAO designs merely facilitates the adoption of DAOs, which could well become a formidable force to compete with the conventional enterprises for talent.