A Beginner’s Guide to DAOs
Decentralized Autonomous Organizations (DAOs) are the Web3 evolution of traditional company structures. In DAOs, groups of people from around the world are converging to build communities, work on projects, and get funded.
What Is a DAO?
DAOs are similar to collectives—members of the group come together to achieve a common goal while sharing ownership of the community and its wealth. Within these organizations, there are no CEOs or board meetings. There are no central authorities with unilateral power. The DAO leadership arises organically and where it’s needed.
Decision-making is managed via community governance, with tools such as voting or proposal systems. For example, actions involving a DAO’s treasury often must be approved by a community vote.
Most of the important actions of a DAO are publicly visible. DAOs use blockchain technology to create a trustless network of peer-to-peer smart contracts that exist on a blockchain. This helps DAOs automate business logic and keep their operations transparent.
DAO’s smart contracts, which often help determine how the group’s treasury and governance systems are managed, are deployed with the voted approval of the DAO. The rules of a DAO are therefore ingrained in the code on which it runs.
The Anatomy of a DAO: Tokens, Membership, and Communities
DAOs typically distribute an internally created token to community members based on participation, investments, and contributions. The members of a DAO who hold these tokens are able to vote on proposals submitted by other members of the community. Often, having more tokens gives you more weight in a vote.
In most DAOs, anyone can own the tokens. In some ways, owning DAO tokens equates to shares in a company; however, DAOs are usually much more accessible. The fact that a community has ownership in a DAO makes community members generally more invested in its success. Plus, as with anything on blockchain, your tokens are safe because you can always prove ownership and governance rights.
DAO tokenomics describes the manner in which its token is defined and distributed, and how it plays into the mechanics of its governance and its actions. If you have an interest in economics, you’ll have a lot of fun learning about the technology behind tokens.
Membership
So, how can you get involved in these new online communities? For many DAOs, you can get started in the community simply by joining their Discord server. DAOs like Index Coop allow anyone to join, though those who put more work towards the project will typically be rewarded with more governance tokens.
Other DAOs, such as Friends With Benefits, use what is called a token-gated (or share-based) membership structure. They require you to either buy their tokens or submit a work proposal in order to access their Discord and other membership benefits.
Building communities
Unifying an international group of people motivated to work towards a common goal requires a massive amount of community building and coordination. As the DAO universe grows, the need for creative community management has increased significantly.
There are still no real rules for how a DAO should be run. At this point, there are many DAOs that have failed and many DAOs that have found great success. New ways of building, managing, and growing DAOs are emerging every day.
How Does a DAO Work?
DAOs are largely centered around the concept of avoiding any requirement to blindly trust a stranger online. With smart contracts, you can be reasonably assured that a new collaborator won’t take advantage of your trust. Despite this effort to subvert unexpected actions with “code-as-law”, one of the most crucial aspects of DAOs is their human element. These communities are built on the personal motivations and the engagement of their members.
In a traditional company, there is a very clear distinction between members of a company (e.g. employees) and non-members (e.g. customers). In DAOs, the distinction is a bit fuzzier. The organizations might have full-time paid employees, but they might also have members that range from casual contributors or those compensated for specific tasks (or “bounties”), to individuals who only participate in governance voting using their tokens.
DAO members join the group of their own volition and offer to work on projects that they find interesting. To align incentives and make progress towards fulfilling their mission, most DAOs require some kind of worker-led organization. The result is often a relatively flat organization with minimal hierarchy.
An initial lack of a clear chain of command in many DAOs adds an interesting layer of complexity to the internal structure. As a result, DAOs have developed many methods of creative self-organization enabled by incentive and ownership mechanisms inherent to Web3.
DAO examples
There are thousands of DAOs in existence, and more are being created every day. No matter what your work experience looks like, there is somewhere you could contribute your talents and be rewarded. Here are a few examples of DAOs that currently exist.
Investment DAOs: A DAO can pool investment capital for profit (e.g. Metacartel or for public benefit (e.g. VitaDAO).
DeFi protocol DAOs: DAOs that exist to build and manage a decentralized finance protocol (e.g. Uniswap and Compound).
Freelancer DAOs: These DAOs bring together a pool of talent to work on projects and services. Some major examples are Raid Guild and dOrg.
Social DAOs: DAOs built around membership in a community, such as Friends with Benefits.
Collector DAOs: Similar to social DOAs, but with an NTF focus, DAOs like PleasrDAO and Bored Ape Yacht Club are centered around collectible NFTs.
The Other Side of the Token: Growing Pains in DAOs
It’s hard to define DAOs using absolute vocabulary, as the definition of what technically qualifies as a DAO is constantly evolving. As they grow and transform, these organizations are now encountering questions about legality, safety, and diversity.
Legal questions
It’s important to note that the legal intricacies of these types of businesses are still murky, although there are currently many groups working on defining DAOs within legal parameters. Most jurisdictions don’t yet have any laws addressing DAOs.
Even though a DAO is decentralized, it does sometimes require the help of a legal entity to interact with non-Web3 organizations. The question of where this legal entity should be based is currently being explored by groups such as LexDAO, a legal DAO.
Are DAOs safe?
In theory, DAOs should be organizations that are decentralized (have no central authority) and autonomous (operate completely on code and without the help of any governments or private sector businesses).
In practice, decentralization remains a moving target for many DAOs. What’s more, no organization can be fully automated - many DAOs have some sort of leadership. Many also get funding from venture capital (VC) firms or other investors.
Operating as an autonomous organization, a well-built DAO should stop any bad actor from gaming the system. Like anything in the digital world, the systems DAOs are built with can have vulnerabilities and there are still occasional hacks.
Diversity
The open nature and optional anonymity of most DAOs mean that, in theory, the organizations should be filled with a diverse group of people working across timezones and languages.
In reality, like most of the Web3 space, there is still a lack of minority representation in most DAOs. Despite the current imbalances, groups like Surge have started to bring people together in order to secure a space for women and non-binary people in Web3.
In Conclusion
DAOs harness blockchain technology to create global organizations that could not exist without the power of Web3. A growing number of women and non-binary people are collaborating on projects that range from mutual aid work and climate action to creating feminist economic alternatives to DAOs.
Excited to get involved in some of these communities? Trying to figure out how to market your skills in the world of Web3? Join Surge on Discord and Twitter to chat, ask questions about all things DAO and meet a supportive Web3 community.
