Everything That Is Wrong with DAOs

We're going to take a deep and hard look at DAOs together.

If you're unfamiliar with DAOs I highly recommend that you read this. The short version: DAOs are a way for people to manage and harden the rules of an organization, using a blockchain. DAOs are also communities of people who rely on software to enhance their ability to coordinate resources, especially financial capital, with less risks.

The ultimate goal of the DAO movement is to enhance the ability of humans to cooperate and coordinate beyond any of our existing primitive organizational technologies. We want to defeat human coordination failure itself.

The specific kind of DAO that we need to talk about is called a "Service DAO". Service DAOs are a bit like a company; they facilitate the provisioning of valuable services to clients in a similar way to a corporation.

DAOs are less coercive than traditional primitive institutions; and that is both a blessing and a curse. Low coercion can be very attractive for individuals; especially those with nearly infinite work options. It also overturns all normal conventions of operating an organization. It's very hard to fire someone, or discipline them in a DAO.

DAOs will absorb and cultivate the world's foremost excellent talent over the coming decade.

If everything is wrong with RaidGuild; then why does it feel so good?

Raid Guild has no investors. No owners. No bosses. And somehow we have delivered over 180 successful client engagements to happy customers.

Raid Guild has etched it's name in the annals of historical decentralized autonomous organizations (DAOs) as the world's first high performance service DAO. The RaidGuild DAO, and DAOs in general suffer from tons of problems, yet it feels so incredibly right. How?

RaidGuild provides unlimited freedoms, an outrageously relaxed and creative environment, resources for participants, and unrestricted capacity for human growth and improvement.

“No gods, no masters”. This mantra defines us. It serves as the bedrock of our kingdom. In RaidGuild, there are no bosses to please or corporate ladders to climb. We are a digital co-operative where every member is an equal.

RaidGuild asks the question, "what if a ‘boss’ is nothing more than a relic of the past?". We represent a radical departure from the norms of working life.

Unfettered by the shackles of traditional corporate culture, creativity flourishes. Everyone is encouraged to think outside the box, innovate, and challenge the status quo. This unrestricted creative atmosphere breeds solutions and software that are as forward-thinking as they are functional.

Unlike a typical corporate environment, where creativity often takes a backseat to bureaucracy, RaidGuild actively encourages innovative thinking. We offer a platform for professionals to venture outside the conventional box and propose novel ideas, foster innovation, and set new benchmarks in Web3.

Raid Guild isn’t just a DAO; we're an incubator for extraordinary talent. The organization pushes the boundaries of human capital development, creating an environment where personal and professional growth is the norm, not the exception. This has made us into a powerhouse for cultivating and accelerating human potential.

Out of all of the strengths of the guild; this is probably the mightiest.

Raid Guild has emerged as some weird, straight-from-a-scifi-novella engine for accelerating human capital.

RaidGuild massively concentrates it's resources and benefits in the members.

Unlike traditional organizations where benefits, influence and pay often trickle down from the top, Raid Guild directs resources straight to it's members. Each participant reaps the rewards of their hard work and contributions, ensuring a fair distribution of wealth across the Guild.

In the rapidly emerging Web3 space, Raid Guild has positioned itself as a radical career launchpad. By creating a culture of innovation and continuous learning, we enable individuals to build and expand their careers in an industry that’s set to redefine the future.

Raid Guild doesn’t just attract talent — we create it.

The Guild’s nurturing environment and demanding projects serve as the perfect breeding ground for exceptional talent. We're known for cultivating Web3 rockstar builders who deliver work of great quality.

Our members have built products for: options trading, an investment DAO incubator, a music NFT marketplace, social media platform, making DAOs, making DAOs that actually work, DAOs as a service, risk-free on-chain commerce. And of course for the love of everything good and righteous in this world; beer.

Okay enough with the shilling. Let's get down to business.

RaidGuild sounds idyllic. However, it’s not without its set of issues. Some of these issues are inherently interwoven, creating a complex web of challenges that the organization must navigate.

These problems are not exclusive to RaidGuild; rather they are common problems that plague DAOs. If you're not an avid DAO connoisseur; you might want to watch this video which breaks down a tremendous amount of data collected during DAOHaus DAO Week from a wide array of DAO operators.

Let's codify, formalize and define all the reasons why DAOs suck:

Service DAOs are new organizations that completely redefine what it means to work. They are so alien and foreign to the conventional corporate world that they are challenging to fathom. There are textbooks, articles, coaches and consultants to learn the dark corporate arts. There's a mountain of material from successful and failed corporations. Service DAOs have no such thing.

This is by far the most difficult problem in the blockchain space. It's not something that can be solved purely by engineers. It's solved by trying things and failing spectacularly, gathering data, dusting yourself off and trying another thing.

RaidGuild is the playbook.

• Listlessness

• Confusion

• Apathy

• Being overwhelmed

• Too Many Cooks

• Ambiguity of Ownership

• Wat

• Blood, sweat and tears

• Continuous experimentation and documentation during dozens and dozens of DAO launches

• Wine, dine and whisper sweet nothings to any or all of the following: Dekan, Spence, Veng

• Hire Bootleggers or Silo

The "magic money" problem is where value is drained from the DAO without an equal exchange. If the DAO over pays contributors or external actors without receiving adequate value - the system can enter a downward spiral. This can happen for a few different reasons. Perhaps the DAO token holders collectively uphold a magic money problem because it benefits them in the short term. Or perhaps there's a complex incentive structure without adequate oversight; which is subsequently gamed by participants. Often this happens in the bull market euphoria.

Whatever the cause - Magic Money has been the downfall of many different DAOs. DAOs need to cautiously steward their resources or risk going the way of many of their fallen predecessors

• Unsustainable models

• Euphoria

• Properly aligned incentives

• DAO purchasing methodologies

• Enabling competition from producers and suppliers of value

The "too many cooks" problem is when people with conflicting skillsets, knowledge or comprehension attempt to solve the same problem. The lack of clear rules or a specific code of conduct can result in conflict, with everyone trying to add their own flavor to the mix.

The downside of an open boss-less organization is the potential for chaos. Unlike traditional settings where roles are clearly defined, in DAOs, everyone is potentially a decision-maker. This lack of hierarchy, though empowering, can lead to friction, slow decision-making processes, and diluted responsibility.

Luckily RaidGuild has solved for this problem during the act of creating and delivering service to clients. But we still suffer from this problem when trying to take decisive action within the Guild.

• Governance paralysis

• Contributor friction or conflict

• Abandoned projects

• Apathy

• Someone Anyone No-One

• Small working groups with clearly defined roles and responsibilities.

• Clearly defining roles within the DAO.

• Hats Protocol

As an unincorporated DAO, Raid Guild grapples with the question of who owns the product of its efforts. Who retains ownership rights over an internal project? The individual contributor? The collective Guild? This lack of clarity generates confusion and can potentially dampen the motivation to innovate. It can also causes people to spin out away from the guild.

How can a DAO or it's members enforce their legal right to their own creation? As it stands right now; someone could trademark or copyright property that rightfully should be owned by RaidGuild. It could be very hard for RaidGuild itself protect against corporate espionage. We could end up with some corporate bully eating our lunch.

DAOs need to be able to define and manage systems that define legally enforceable ownership rights.

• Hurt feelings

• Conflict

• Theft

• Sticky Incentives

• LexDAO has come up with a number of interesting solutions for these problems.

• The LexDAO Corpus Contracts

• Metacartel Venture's Grimoire

• Blockchain native lawyers from LexDAO; LexPunk Army, Gabriel Shapiro and Yev Mnuchkin

• MolochDAO_v3 Shamans; which can issue the right to claim beneficial ownership of an on-chain organization.

Without a clearly defined playbook and clearly defined roles, then we can't have clearly defined responsibilities. Who pays the subscription costs for web-domains? Who handles new client requests? Who updates the WAGMI integration when WAGMI rolls out an update that impacts our front-ends (godamnit WAGMI)?

Service DAOs work especially well when there are very dedicated individuals that just take any and all responsibilities on themselves. However these people can get overwhelmed by all of the responsibility or burned out. People tend to really appreciate the responsibility eater for about 3 months; and then non-responsible participants just expect the responsiblity-eaters to continue to shoulder that weight. (Shoutout to Mano for just being an eater of responsibilities. This guy is a big part of how Raid Guild succeeds.)

Game theory dictates that agents will always seek out the highest reward for the lowest effort. DAOs need better incentive mechanisms for regular maintenance or recurring responsibilities.

• Stuff doesn't get done

• Responsibility bearers can burnout

• Friction and conflict

• Ghost Offboarding

• MolochDAO_v3 Shamans can simplify recurring rewards for administrators or responsible persons.

• Cookie Jar allows DAO members access to small amounts of capital whenever they need to cover DAO expenses.

• Having clearly defined loci of responsibility for participants.

• Hats Protocol

DAOs are open horizontal quasi or completely democratic organizations; as such anyone can put forth ideas and shape the destiny of the org. This freedom to self-determine and insist upon the determination of the organization is the super power of DAOs.

But that very same super power can be also be a nightmare. Imagine a DAO with 155 members and an individual member puts forth a detailed idea which takes 30 minutes to read, comprehend, digest and reply. If the other 154 members read that idea and reply; they've expended a combined 77 hours of manpower. Now if every member reads each other member's reply, - assuming the average reply time takes 30 seconds to comprehend - that consumes an additional 197.6 hours of manpower.

Does it make sense for Software Engineers to spend 274 hours debating spending $8,000 from the treasury on a marketing project?

DAOs need to begin clearly defining what types of issues actually warrant this massive resource expenditure.

• Operational and Governance Paralysis

• Listlessness

• Friction

• Conflict

• Bestowing agency and powers to DAO participants using Hats Protocol.

• Defining the loci of power and agency in DAOs more clearly.

• Creating rules on what issues are so critical that only the DAO can make those decisions by consensus and voting.

Corporations succeed and thrive by having specialized experts work on specific problems; with great agency. DAOs can be like a void. Participants can feel like they have a good idea; but that they aren't welcome or allowed to take action.

Agency is powerful and efficient; DAO will not thrive without more agency.

• Low participation

• Slow projects

• Abandoned projects

• Advantageous Friction

• Better defined organizational rules, process and norms

• Hats Protocol

"Kabuki" is a traditional type of Japanese Theatre. In the DAO space, Kabuki means the power in a DAO is not actually decentralized. This is a spectrum as well; which can range from a small group of people own all of the governance tokens in hyperfinancialized DAOs, all the way to a small group of signers on a multisig having the ultimate final say on what the DAO is allowed to actually do.

If you want people to vote; and then you will maybe do what they voted - you don't need a DAO - you need a forum. Just use a forum.

The Safe multisig is one of the most powerful tools ever created on Ethereum; but it is not a DAO. Multisig ruled DAOs were necessary for many DAOs because they supported arbitrary smart contract execution. In other words; multisigs can do anything that a normal Ethereum wallet can do.

MolochDAO_V3 "Baal" fixes this - because it supports arbitrary smart contract execution.

• Arbitrary changes to proposals which successfully pass.

• Refusal to execute proposals after they pass.

• Karate chopping RFV Raiders in the throat.

• Loss of confidence.

• Angry users

• MolochDAO_V3

Ghost offboarding is when someone just leaves a DAO with a classic Irish farewell. They just stop responding to messages and their specific knowledge of the DAO or projects is lost.

Especially with software or relationship based domains; off-boarding is a critical process. I haven't seen a DAO with a good off-boarding strategy.

DAOs need incentives to encourage participants to off-board appropriately.

• Redundant efforts

• System, pipeline, software or process failure

• Bad vibes

• Stress

• Stake based commitment contracts - these are smart contracts that require participants to forfeit some kind of staked asset if they fail to offboard

• Token incentives for off-boarding

• Clearly defined off-boarding processes

RaidGuild has attracted and amplified some of the most talented people in the space. These "rockstar builders" become highly sought out individuals in the Web3 industry. Individuals like this are difficult to retain because they demand sticky incentives.

Typically indispensable people in organizations demand ownership or command large salaries - and RaidGuild hasn't built out the infrastructure to enable these sticky incentives.

DAOs need to provide bigger, better and stickier incentives for world class talent.

• Brain drain

• Employment sniping

• Ghost Offboarding

• Alumni DAOs; which are capable of providing or facilitating stickier incentives for rockstar builders.

• We are building our first RaidGuild Alumni DAO called SilverDoor

Ops maximalism could also be referred to as the "lore keeping problem". It arises as a result of the fluid nature of participants in a DAO. "Ops Maxis" are people who use their extensive knowledge of the history and process of the organization to gain considerable soft power. That isn't a problem in and of itself - but it can become a problem if that soft power is then wielded at the expense of others.

Ops maximalists can use their role as the lore-keeper of the organization to take on a role which is "boss-like" and they can create friction for people who are trying to get things done. Everything becomes a rigorous debate and the Ops maxi tries, often successfully, to set the bar for what constitutes a good idea. This can be especially problematic when combined with the "Too Many Cooks" problem. where the ops maxi ends up blocking ideas they might not even be qualified to analyze. In fact, any idea in the DAO must be thoroughly explained to the Ops Maxi before it gets blessed.

The result is that that they end up acting as a gatekeeper of action, the shaper of discussion. While the people who are Ops Maxis are undoubtedly incredibly valuable to the DAO, they can damage the freedom and agency of individual participants.

Ops maximalism can dull the shine of the DAO.

• Friction

• Reduced participation

• Abandoned projects

• Reduction of the DAO's magical energy

• Advantageous Friction

• There is no currently working solution to this problem without sacrificing the magic of DAOs.

• A hypothetical "Lore Keeping" large language model similar to the amazing Guild Genie created by Mano

Game theory dictates that each individual participant of a DAO will act to their best interest. Sometimes that means the participant will take on as many tasks as possible; but only complete the tasks with the highest rewards. Since their is no cost to incomplete tasks; this becomes the natural default behavior of DAO participants.

This is incredibly costly for larger at-scale DAOs, and it can be incredibly costly during onboarding. I believe the "onboarding problem" of DAOs can pretty simply live under the umbrella of this problem.

DAO participants need skin in the game, in the form of voluntary opt-in staked token commitments.

• Incomplete work

• Hoarding of high reward tasks

• Dereliction of low reward tasks

• Stuff not getting done

• Low coersion, opt-in consequences

• Token staking commitment contracts

• We built one of these for onboarding and it worked absolute magic on cohort. It's called Rite of Moloch

This is a problem that arises in DAOs where there's a large difference in the financial opportunity cost of participant's time. Since DAOs are open organizations where everyone's voice and vote has power, people with a lower dollar opportunity cost for their time can wield this discrepancy to their advantage.

If Alice's time is worth $200/hour and Bob's time is worth $20/hour; Bob has a cost advantage when dragging out a proposal debate. Bob wields Alice's enormous dollar denominated value against her.

• Brain drain

• Friction

• Conflict

• Inaction

• Increase participant agency

• Create domain specific loci of authority and process

There is no conclusion - there is only to be continued.