With blockchain becoming popular globally, DAOs (decentralised autonomous organisations) are gaining momentum. According to Investopedia, DAO is an emerging legal structure and used to make decisions in a bottoms-up management approach.
As the concept is still evolving, many are still in the dark and have no idea how it works or what are its uses and benefits in real life.
In this interview, DAO expert Siddharth Krishnan speaks with e27 about the emerging technology, its use cases and benefits.
Below are the edited excerpts:
What is a DAO? How does a DAO work? One needs like-minded people on board for a DAO to work. How can one find and get individuals with a common goal on board?
I would describe a DAO as a tool.
I would touch on certain philosophical aspects of DAO. Let’s look at how coordination has been achieved over the years. We have had massive coordination failures to address critical topics, ranging from climate change to inequality. The reason is that getting people across geographies to coordinate on a goal is very hard.
What DAO does is that it introduces a fabric or a layer for these people to engage and work with each other to achieve a common goal. It distributes power and comes up with different ways in which you can govern these decentralised communities.
It is not different from other community-building efforts we are familiar with in Web2. If anything, what a DAO does is that it breaks down certain components, which lie solely on trust.
For example, if you want to pay someone working on building a community, you need to trust him and what he does, and there’s an exchange between the work and funds.
In the case of a DAO, there are many different ways to reward contributions. For example, you can trust the tool to know that if I do some work, I could then ask to be compensated for the work retroactively.
So after I’ve done the work, I could get paid for it. DAO is essentially a trusted proposal system where people can vote to siphon funds from a treasury into a person’s account like in a shared wallet. It’s a shared wallet with permissions.
While onboarding members, the traditional marketing aspects also apply to a DAOs. We are moving towards a more organic approach. The more communities that you (as a DAO creator/member) are plugged into, the more each community you plug into to form your own circle/network within that community.
It’s through true organic means that you will find the most successful DAOs prospering. This is because they’re attracting people who share the same link. After all, being part of a community, you share the same values and likes, and then you find out about things organically.
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That is essential to onboard people because it’s not just about having members in your DAO. The core thing is about getting people to contribute. And if you want someone to contribute, one needs to go above and beyond just sitting in your Discord. You need them to write things for you. More than any marketing, organic connections are the best way to grow your DAO.
There are different types of DAOs. What is a developer DAO that you are more familiar with?
A developer DAO is a DAO focused on growing the software developer community for Web3. It means giving developers a place where they can come, learn and build, and have a community to fall back on every time they need help.
Even if they want to progress out the We3 ladder, you have this kind of DAO to do these things.
They run various activities — from hackathons, education material, and partnerships to community guilds. It’s a decentralised community with members from all over the world.
Siddharth Krishnan
Can anyone start a DAO?
Anyone can start a DAO; all you need is a group of people with a shared bank account. You’re going to a restaurant, and splitting the bill is a miniaturised version of a DAO.
So as long as you have a clear mission as to why you’re doing this and what value you’ll bring to your DAO members, it is easy to create a DAO. The tools are available in most ecosystems.
Once the DAO achieves its mission, can it be disbanded?
As we know, a DAO is all about proposals. So if you structure your governance procedure in such a way that you should have in your process, you can have a proposal saying, ‘okay, we have achieved our mission. I am voting to disband the DAO and channel all the funds from the treasury to every member’s wallets’. If the proposal passes, the treasury will be drained, and the DAO will be disbanded.
Are DAOs relevant for Web2 as well?
I wouldn’t view Web2 and Web3 as different things. Web3 is an evolution or sequel of Web2. Often, the sequels tend to be worse. So whatever we’re building here applies to Web2 as well. I almost view Web3 as a state of mind you develop or have while building new software.
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It often means you prioritise value creation and ensure that you’re extracting as little as possible because, in Web2, it’s a zero-sum game. When you want to attract customers, you make things valuable and attractive for them, but at some point, you run out of customers to attract.
To continue growing, you must extract from your existing customer base. You then realise that now if you have to extract from your customers, you also need to from your partners and stakeholders.
When you prioritise value creation, you always ensure you extract as little as possible. And that way, you always ensure that the best product wins. So the best software always wins because as long as it’s creating value, it will always grow.
And when it stops creating value, whoever else creates value should win. Because at the end of the day, the best products should have users. So that way, you’re always attracting, and you’re never extracting. It’s the idealistic model.
But I think we strive towards and can somehow come somewhere in the middle. All will be a better version of the internet than we have today.
Do you need to register a DAO? How can one register it as it is a decentralised organisation?
Legal frameworks are still evolving for this. You’ll notice that there are many different structures that people are adopting worldwide; different DAOs are choosing different ways to incorporate them. I wouldn’t say there’s a right way or prescribed way yet. The best is the way that lets you function and operate the quickest, at least right now in a legal manner.
Incorporation is something that is going to be a top priority for a long time, especially given how diverse jurisdictions are. Just the sheer diversity every day, for example, in developer DAO, you have at least one person from almost every continent in the world. And then you have people spread across distributed even within these continents. So it’s a very tricky thing that will take a long time to establish. So yeah, I would say there isn’t a standard now.
What if a few members quit the DAO before achieving the mission? Can the DAO builder onboard new members then?
If a member fails to contribute or decides to quit the DAO, one will transfer the ownership of one’s NFTs to another member. Either you transfer it out of goodwill to someone more deserving, or you could sell your NFTs on Open Sea so that someone else can buy them to gain access. Currently, that’s how it works.
Can a member manipulate the DAO and indulge in scams? How can such events be prevented?
That is how it’s structured and how the governance works. Right now, because there’s so little information outside, we’re seeing a lot more scams because there is a strong need to do your own research on these things. Over time, as with all the other things we’ve seen in crypto, you become more and more informed on the dos and don’ts in setting up these organisations.
Even with NFT projects, you now have certain signs telling you this is good or bad. These signs will get more and more codified and structured. And it will be ingrained in us. There would be the kind of society with self-imposed regulations that we are doing within our society or community ahead of regulation catching up. It is going to take time. It is up to us as a community to educate people around us. Those are the steps to take right now in forming the best practices for how a DAO could look in the future.
How is DAO relevant to the startup ecosystem?
Every software company starts as a startup, and these startups then grow and scale over time to become big. Over time, people will stop differentiating geography and boundaries, and we will have more and more decentralised communities forming.
After all, an organisation is just a group of people. It means we will see communities form who want to build many things. They want to build products for themselves as well as for other communities. This will be the foundation of the startups of the future.
DAOs, as I said earlier, are tools that enable these communities to function in a more distributed manner. It is only relevant to a startup to become a DAO when they are trying to accomplish something that requires them to be distributed somehow. You must have proposals and run on a blockchain from day one. These things would require some form of transition and should be very objective-driven.
When tools catch up over time, you could have DAOs emerging everywhere and functioning from the first day. The way blockchains work is based on how distributed consensus is achieved. You need to adopt that mindset of power DAO wields, the openness of it, the ability to enter or exit it whenever you want, the ability to have an equal say in decisions, and the ability to democratise certain decision-making processes.
Those concepts are what is relevant to startups today. And if they can leverage the good things and reduce or remove inefficient processes, they will have many benefits.
Can a DAO raise VC funding? Also, is collaboration possible between two DAOs?
Of course, we see that happening regularly. Many models are coming up for this, such as superDAOs and subDAOs. You have DAOs of DAO, and these manage a portfolio of DAOs.
Each DAO is a community doing its own processes and functions. The value of these sub-DAOs is then derived into the Super DAO. All of these community members funnel into this overarching DAO.
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There are other concepts as well where you can seek funding. Every DAO will be different from other DAOs; it’s all based on how your governance mechanism is set up. If an investor wants to invest in developer DAO, he/she can do so in multiple ways.
For example, they could start by purchasing an NFT to join the DAO. One way to invest is you buy NFTs and participate in proposals. Another way to contribute is to partner with some of our projects or developers; your contributions in this process could be compensated hypothetically in whatever token the developer comes up with.
So there are multiple ways you can contribute and participate. As I said, managing a decentralised community is just a way. I think the ways of investing and ways of collaborating financially remain the same. It’s just how the structure would be, what the process would look like, and what the legality of that is, and I think, is up for regulation to catch up.
Is there a cap on the number of members participating in a DAO?
For developer DAOs, there is a cap on the initial genesis members. The cap is the total number of NFTs they are listed. I can’t remember the exact number of this, but I think it is 2,000.
For DAOs generally, there are no hard and fast rules on how many people can participate. There are different phases. You don’t want to decentralise too quickly or have too many members because you need structure and processes to manage large decentralised communities.
For that, you need to have active contributors; you need to have a motivation for people; you need that incentive mechanism in place to get people to contribute and things like that.
I’m sure we will start seeing larger and larger DAOs as this concept starts seeing more traction.
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The post ‘DAOs aren’t different from community-building efforts seen in Web2’: Menyala’s Siddharth Krishnan appeared first on e27.