Decentralized autonomous organizations (DAOs) are the blockchain-enabled frontiers for social coordination and incentivized engagement. The stakeholder-driven and transparent nature of DAOs, often driven by on-chain tokens or NFTs that act like a voting stock and blockchain protocols’ smart contract, allow for great flexibility and openness to govern organizations. DAOs provide the structure and incentives necessary for Internet citizens to organize resources towards a collective mission or goal.

People use DAOs for all sorts of purposes, particularly as investment clubs (FlamingoDAO, Seed Club), communities (FWB, IreneDAO), and to support protocols (Compound, Aave). Notably, there has been rapid experimentation in best practices and incentives among DAO structures and frameworks. The incentives for someone to join these DAOs often feature the following factors:

1. Price
2. Utility
3. Exclusivity

Buy-in Price of DAOs

Price is the biggest factor for most people. The buy-in for some DAOs is in the millions, and highly exclusive (See: PleasrDao). Often the buy-in is pooled in use as a collective treasury often with specific goals such as buying certain NFTs or assets. Additionally, it can create an aligned incentive where if one contributes meaningfully in DAO efforts, this will increase the value of the community’s offerings and their total assets will collectively rise in value. Driving the first adopters to join a DAO, often requires the founders to feature a model for social or financial upside (See: ApeCoin DAO). Additionally, founders must consider how much capital is enough to accomplish the DAO goals, which may require correctly pricing the entry costs (see: Nouns).

The Utility of DAOs

Utility can mean many things: governance, off-chain and IRL benefits, community, etc. Many times people buy in for a single use case like FWB’s NFT NYC event. It is much easier to justify the price for a direct outcome, not the hazy promises most DAOs make. With protocol DAOs, the utility is often governance participation, but what they don’t tell you is you need to own a big percentage for your vote to matter. In most of these DAOs, so few people vote that one whale can swing the whole vote. A shocking less than 1% have 90% of the voting power in DAOs.

The Exclusivity of DAOs

Exclusivity refers to openness to new members and ease of access. It is not easy for most to buy into an expensive DAO, much less a gated DAO that selects its members. The crypto rich often join not for utility, but for branding, to be able to use DAO membership as a sign of prestige. DAOs often seek to curate a community that is aligned with their values and use filtering mechanisms to self-select out those who are not aligned with the community’s interests. 

This is an important disconnect that people building in the crypto space do need to be aware of. Crypto-wealthy people often join DAOs for tribal affiliation and fun and self-expression, but our long-term target audience wants DAOs designed around very pragmatic needs. https://t.co/Dj5lV6Y6EC

— vitalik.eth (@VitalikButerin) September 11, 2022

Each DAO has unique incentives which map to various practices. Plan your DAO accordingly and thoughtfully for your goals and the community involved. 

ABOUT THE WRITERS

Sophie is a fellow and contributor from Stanford University. She covers blockchain, finance, and tech.

Andy is a fellow and contributor from the University of Southern California. He covers technology and impact.

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