This blog was originally a talk I gave at DCENTRAL Miami, if you’re too lazy to read you can watch it here.
The goal of this talk was to look at the different players within the DAO landscape, to understand where we’re headed next. What I find personally most fascinating about DAOs and the wider web3 field is that everyone seems to have a different understanding of what DAOs actually are. For some people it’s all about community, for others it’s “just” an internet LLC. A pretty cool problem that underlines the decentralized nature of it all.
I’ll not make an attempt here to define what a DAO is, but I’ll invite you to read along to consider some different examples of what a DAO can be.
The early days 2013 – 2016: DAOs & DACs are starting to pop up
The idea of DAOs pops up first in 2013 in a blog post by Vitalik Buterin on Bitcoin.com. A year later the term finds mentoning in the Ethereum Whitepaper. There, DAOs are defined as decentralized autonomous organizations (DAOs) – long-term smart contracts that contain the assets and encode the bylaws of an entire organization.” This early definition focuses mostly on how funds are managed within an organization, being entirely governed on-chain.
Besides DAOs Vitalik also mentions the idea of DACs, decentralized autonomous corporations, and decentralized organizations (DOs). DOs come probably the most close to today’s DAO landscape. They describe on-chain communities without auto-executable code where humans first need to discuss and coordinate to find consensus.
There are two different use cases that become already apparent back then for DAOs.
- DAOs that build stuff together
- DAOs that fund the building of stuff together
The two first examples of that are Maker DAO and The DAO.
Maker DAO was started in 2014 by Rune Christensen. The goal of the DAO is to build DAI, an algorithmic stable coin that is backed by a basket of crypto assets, including USDC and ETH, initially though only starting out with ETH. Before grounding itself in the offline world through the creation of the Maker foundation, Maker DAO acted pretty much like an internet LLC.
On the other hand is The DAO, which was started in 2016. The DAO raised 9 figures to invest into the Ethereum ecosystem, but got hacked, which led to the Ethereum hard fork. This was a DAO that invests into building, more like a decentralized VC fund. Laura Shin wrote an entire book on its entire story, I recommend checking it out.
Even though The DAO is no longer around, the original investors can still be tracked down on-chain. DAOs are portable communities that still exist even after an “official” shut down. The team from Personae labs has build and Ethereum OG twitter account through which early participants in The DAO can tweet anonymously from, their membership being attested through zk proofs, without doxing their real identities. Unlike a facebook group or a crowdfunding campaign those communities can be tapped into and leveraged way beyond their actual purpose and time.
2nd wave DAOs 2017 – 2019: co-investing
Even though The DAO failed spectacularly, the idea of co-investment DAOs stayed around. Shortly after, several co-investment DAOs popped up like Meta Cartel, Moloch DAO and Gitcoin. Today co-investing DAOs have probably emerged as the biggest DAO category and it would be impossible to name them all.
3rd wave DAOs 2020: A Cambrian Explosion
With the pandemic hitting and the last bull run we’ve seen a cambrian explosion of different DAO categories. The DAOs named here are not meant to represent entire ecosystems, but to just exemplify the various categories.
Protocol Governance DAOs
By now every major protocol has at least partially turned itself into a DAO or launched a DAO on the side to manage the funding of public goods built with the protocol, grants, or sometimes just parties. Here being a token holder does usually only give you the right to decide what gets built and not the right to (just randomly) contribute. Two examples for protocol DAOs are Aave or ENS where protocol governance is mostly done through DAO proposals and then executed by employees / core contributors of the DAO.
The problem is that governance tokens don’t necessarily mean auto-execution of proposals. As a recent vote on Arbitrium has shown, votes in some cases are just merely considered a recommendation. Without knowing this with 100% certainty I’m assuming the Arbitrium Foundation is based in Switzerland, where indeed Swiss lawyers will recommend to interpret token votes issued by governance token holders only as a recommendation. If the token holders would have actual voting power Swiss law would deem them a security.
At the end of the day this kind of protocol governance is nothing more than a legal LARP to avoid securities fraud. I’m not saying governance shouldn’t be done, but we also shouldn’t kid ourselves with these pseudo votes dominated by whales that are eventually only just recommendations and not on-chain actions.
Anyways, everyone has a protocol governance DAO now. Some more examples are the Aave grants DAO to distribute funds to ecosystem builders. So does the Ethereum L2 Polygon, however Polygon itself is not a DAO and governed just like a normal company. (Of course not all of those will be impacted by this Swiss security law dilemma.)
The biggest category in the DAO landscape are DAOs that function as on-chain communities. These groups usually don’t build one thing together but often come together to support the building of things or gather around a specific interest. Some sub-categories are:
- Developer DAO: a collective of hundreds of web3 developers, a network to tap into for hackathons, resources, learning and gigs
- HER DAO: female-only version of developer DAO
Bridge Builders DAO: co-learning for Web3
Co-ownership of physical space
- Empire DAO: co-ownership project for a co-working space in New York
- Cabin DAO: co-ownership of cabins
These groups could literally be facebook groups but have decided to organize in a decentral setting on-chain. To be honest, I didn’t take these groups very seriously at first sight, but I think they really lead the way in exemplifying what a decentralized web could mean.
I do wonder though whether the over-financialisation through token games will work in favor or against the wider adoption and growth of these groups.
DAOs as company structures
These DAOs are different from protocol governance DAOs. A lot of protocols still pay their employees in fiat whereas the DAOs that operate in this category are really a lot more like an internet LLC where all payments are being made in crypto. Some company decisions can be inspected on-chain, but the main purpose of the DAO is to just run the company, without much outside interference in its workings. Just like a privately held company would do as well.
An example is the Sarcophagus DAO, a fully on-chain company, all investments were made in crypto, all salaries are paid in crypto and some contributors are AFAIK anonymous.
The DAO DAO, builds DAO tooling for DAOs, fully organized as a DAO, all salaries are paid in DAO tokens. Speaking of a circular economy.
But having an IRL company in the back of a DAO still seems to be more beneficial. The Sushi DAO, the decentralized autonomous organization behind crypto exchange SushiSwap recently voted on the creation of a Panamanian foundation, a Panamanian corporation and a Cayman Islands foundation to govern & structure the different aspects of the Sushi Swap business.
Why do we need DAOs?
A couple of days ago I gave a talk for a normie, non-crypto native audience. They really struggled with the “why DAOs” which I think is fair enough. A lot of this can be done without a blockchain, you can just incorporate a company, have shareholder agreements, voting etc.
The innovation beyond the “everything is on chain” and therefore transparent, inspectable, immutable, is rather in how to allow for the formation of global communities whose members are anonymous, pseudonymous or open. It goes back to the original 1990s promise of the internet, namely that: “online nobody knows that you’re a dog.”
DAOs harness this paradigm and enable people to build an economy on the internet where contributors remain anonymous. Here is a strong focus on DAOs as a corporation, a meritocratic internet LLC.
More anonymous contributions.
You vote in crypto for a proposal and everyone will know that until the end of time. Same when you’re debating that given proposal or making a proposal yourself. People are working on solutions to make this process anonymous, but until then DAO governors will only be able to vote in public which certainly skews results.
An example of this is Nouns DAO. They just implemented a way for governors to vote & debate anonymously powered by zero knowledge proofs. Votes becoming anonymous on chain is similar to how democracy already works IRL. You vote for party A and no one but you knows about that.
DAO Governance ≠ Fiat Governance
Or when on-chain governance is conflated with legal rights.
- Constitution DAO: is a co-ownership project. They collected millions in ETH to buy the US constitution, failed and then the gas costs were too high to pay everyone back. Another interesting problem here was that the DAO had no shielded treasury, meaning everyone could see how much the DAO was able to bid on the constitution which made it easy to outbid them.
- Spice DAO thought the buying an old copy of a script for a never produced Dune movie would give them the IP rights to produce that movie themselves. They shut down and paid back investors once they got aware of that. In principle a cool idea to crowdsource the production of a movie though.
DAOs as a new class of legal entity?
If DAOs fully replace traditional jobs, they could introduce insurance mechanisms and taxation systems among themselves to fund public goods accessible to their members, or establish exclusive physical spaces for members scattered around the world. Currently, DAOs operate somewhat beyond the traditional borders of states, but as they gain more recognition from governments, they could eventually emerge as governments themselves. Thus, we might witness the evolution of DAOs from company-like entities to collectively emerging as non-territorial network states.