Introduction
Many people have become more interested in DAOs (Decentralized Autonomous Organizations) over the past few years, as an increasing number of organizations, both traditional and not, have recognized the capacity for DAOs to enhance and transform work environments. In brief, this is due to their innovative structure as blockchain-based systems which enable communities to govern, make decisions, and manage funds collectively, without the hierarchies of traditional management systems. Furthermore, they operate through smart contracts, which are automated decision-making operations based on predefined rules. The following article succinctly describes the key systems and players that make this possible.
Why Do DAOs Matter?
Since The DAO was launched in 2016, as the proof-of-concept for this organizational structure, DAOs have become foundational to decentralized ecosystems. Perhaps most notably, DAOs have come to represent a fundamental shift towards more democratic and open forms of operations and governance in the crypto sector. DAOs create a platform in which every stakeholder has a voice, and the collective direction is determined not by a select few, but by the consensus of its members. For companies that value transparency, community engagement, and decentralized governance, establishing a DAO ecosystem can help with this. However, understanding the intricacies of how these systems work is essential before trying to create one.
The goal of this article is to provide a comprehensive guide to the DAO ecosystem, from contributors, to delegates, to governance token holders, service providers, and investors. For, all of these are crucial roles in the functioning, decision-making, and overall success of DAOs.
How Are DAOs Relevant?
Traditional finance firms as well as those already in the crypto sector have been investing in Decentralized Autonomous Organizations (DAOs) for several years now. For example, Sequoia and White Star Capital are both backers of Index Coop, IDEO Ventures backs Gitcoin, and Andreesen Horowitz supports both PleasrDAO and MakerDAO. Furthermore, DAOs are being used as a business model for not only crypto-native projects, but for a wide range of meaningful undertakings. In 2022, UkraineDAO was formed to support Ukrainians undergoing the war, and has since donated over $7 million to the Ukrainian government and NGOs. In the realm of the arts, the music festival Coachella is developing a DAO for fan-designed merchandise, powered by NFTs. Even mainstream companies like Salesforce and Ubisoft have explored tokenizing certain products on-chain. In sum, DAOs offer an innovative means by which to connect with customers, inspire innovative thinking, and become leaders in our digital-first economy. Whether or not you’re currently involved in the crypto ecosystem, understanding the multifaceted roles within DAOs is vital for anyone aiming to participate effectively in the business landscape of the digital economy.
Who Are Core Contributors?
Core contributors are the backbone of every DAO, playing a vital role in choosing directions, driving projects forward, and maintaining operational integrity. Similar to full-time employees of traditional web2 companies, core contributors specialize in marketing, operations, business development, and other typical departments of a business. They take on significant responsibilities, from leading specific initiatives, to managing community engagement, and ensuring that the DAO's strategic objectives are met. Again, leadership within a DAO is less about traditional hierarchical control and more about stewardship and facilitation. Therefore, core contributors such as Owocki for Gitcoin, Ameen Soleimani for HAI, and CupOJoseph for Open Dollar, are more like stewards of the organization than employees.
Furthermore, decision-making in a DAO is primarily tied to token ownership, so core contributors, though perceived as “leaders", might not hold as much actual influence as other members that have more significant token holdings. This structure is inherent to the decentralized ethos at the core of DAOs, and aims to provide a more equitable distribution of power than traditional organizational structures.
To become a core contributor, technical expertise in blockchain technology, smart contracts, and cryptocurrency is highly valued, as are more social skills like project management, community engagement, and strategic planning. It is crucial, however, that individuals are able to work collaboratively, in a decentralized environment, and often asynchronously. For, one of the biggest challenges of core contributors is balancing the ideals of decentralization with the need to operate productively. The decentralized nature of DAOs means decision-making processes can be slower, requiring consensus-building and often complex coordination among members. Core contributors must therefore foster an environment where decentralization does not impede efficiency.
Who Are Governance Token Holders?
Governance tokens empower DAO members, otherwise known as holders, with voting rights and influence over the organization's decisions. Unlike traditional stockholder voting in corporations, DAO governance tokens offer holders both stake in the financial success of the organization as well as direct influence over its strategic decisions. In other words, governance tokens enable the decentralization of power in a DAO, distributing decision-making authority across a broad spectrum of stakeholders rather than centralizing it in the hands of a few.
Most DAOs use a one:token:one:vote model, meaning governance token holders have a weighted influence on the outcome of votes, thereby encouraging investment in the DAO as well as engagement of investors. This participation mechanism in which more investment means more decision making ability is fully transparent. Examples of this system playing a powerful determining role in the course of a DAO’s history include; Wormhole winning the vote to be Uniswap’s Designated Bridge to BNB Chain, Arbitrum’s proposal of a grant program to distribute $85 million, and MakerDAO’s vote to sell $500M in Paxos (USDP) , (about half of the token’s total supply, in reserve assets).
Who Are Delegates?
Delegates play a crucial role in the DAO ecosystem by aggregating the voting power of multiple token holders and acting as informed representatives in governance discussions and decisions. The rationale behind delegation is multifaceted and includes the following: 1) consolidating expertise, which in turn makes decision-making more efficient and informed; 2) ensuring active participation in governance, even by those unable to commit to constant involvement; and 3) allowing for representation of specific interests or viewpoints within the DAO's broader governance structure.
The delegation process in DAOs enhances the scalability of governance and ensures broader participation. In DAOs, governance token holders can delegate their voting rights to another member within the community, known as a delegate. The responsibilities of delegates is therefore significant, as they not only represent the interests of those who have entrusted them with their voting power, but also contribute to the informed and strategic decision-making that shapes the DAO's direction. To effectively represent their constituents, delegates must remain abreast of all relevant discussions, proposals, and governance issues, ensuring that their decisions reflect the collective interest of their supporters.
Becoming a delegate in a DAO involves being selected or trusted by token holders to represent voting interests. This selection process can vary but often includes nominating oneself and outlining how one intends to represent the community's interests. Professional delegates such as Olimpio, ChainLinkGod, and L2Beat, have strong communication skills, a clear understanding of the vision of their DAOs, and are able to maintain a high degree of transparency in the rational of their voting decisions.
Who Are Service Providers?
Service providers encompass a broad spectrum of entities and individuals that offer specialized skills and services which support a DAO's operations and strategic objectives. Raid Guild, for example, is a collective of developers and designers that offer custom blockchain development services. Gauntlet provides financial modeling and simulation services to manage risk for protocols. While Fire Eyes is known for its community engagement and governance strategy consulting. Such service providers cater to various needs within a DAO, from marketing, legal advice, and financial auditing, to technical development and strategic consulting.
Service providers are essential for DAOs to operate efficiently and scale effectively. They provide expertise that may not be available within the community of token holders, but they must be aligned with the goals and expectations of the DAO. Compensation for these services will range from traditional payment methods, to tokens, or other crypto assets, further aligning the interests of service providers with the long-term success of the DAO.
Who Are Investors?
Investors play a foundational role in the DAO ecosystem, as they provide the necessary capital to grow initiatives, operations, and innovations. Unlike traditional start-ups, investors in DAOs are often actively involved in the governance and strategic planning of the organization, leveraging their experience, networks, and resources to contribute to its success.
Investors can support a DAO through a variety of mechanisms including: 1) direct token purchases that grant immediate governance rights and potential speculative returns; 2) funding rounds where investors provide capital in exchange for a stake in the DAO or its projects; and 3) grants that are disbursed to support specific initiatives or research beneficial to the DAO or the wider ecosystem. Some DAOs, like Hydra Ventures DAO, MetaCartel Ventures, and Orange DAO, even act as investors in other DAOs and projects, pooling resources from their members to support other emerging projects and teams. Investor influence in a DAO can also resemble traditional venture capital involvement, with significant stakeholders guiding decision-making and strategy, such as a16z's governance model in various crypto projects. Essentially, all forms of investor support are paramount to ensuring that DAOs have the funds necessary to pursue their goals, coupled with the strategic guidance to navigate the complex blockchain landscape.
Summary
As EVM Capital, we recognize that there has been a fundamental shift in how companies are conceived, developed, and financed. This article has aimed to provide an exploration into the multifaceted roles within DAOs, as there has been a continuous emergence of new roles, and adaptations to existing ones. Inspired by the infrastructure laid by DAOs and their contributors, we are keenly anticipating what the next years will unveil about the future of work. Therefore, understanding and participating in these shifts is not just important for those within the blockchain industry, but crucial for anyone interested in the nexus of work, technology, and value in our digital age.
