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2022 will be the year of the DAO– internet communities with shared ownership. According to ConsenSys, DAOs now have over a million members collectively, and the top twenty groups have nearly $14B worth of digital assets since last summer. The ecosystem is witnessing a surge of new coordination mechanisms that propel diverse use cases for collectives everywhere. From the decentralized philanthropy of Kimbal Musk’s Big Green to a crowdfund for the US Constitution, Web3 is enabling a range of human coordination never before seen on the internet, all thanks to DAO-tooling.
In a Twitter thread, investor Li Jin said “DAOs will face their own set of challenges around scaling, governance, and balancing the interests of capital providers vs. active contributors.” Although each has its own unique set of needs, every DAO endures the same growing pains as they navigate how to organize teamwork, track accountability and sustain engagement from members. With functions similar to traditional firms, all DAOs have to balance efficiency and decentralization while running a community, marketing arm, treasury and oftentimes a product.
DAO-tooling is a rising need looking to service the ever-growing list of DAOs and digital collectives, from small membership organizations to investor entities. These functions share a throughline in their endless opportunities for contribution– making it possible for any members to take initiative. As a result, a slew of DAO tooling services have entered the space, hoping to cater to the increase of these project ecosystems and unlock the true power of DAOs.
DAOs must maintain transparency and visibility of how their decisions and funds flow in and out of the community, actions that are typically intertwined.
Members can earn voting privileges in the DAO through contribution and express their opinions by voting on specific actions. Once approved, those votes automatically translate to on-chain action (recorded on the blockchain) such as transferring funds from the treasury to an external entity.
On-chain governance tools include Tally, Sybil and Boardroom. However, in the past few years, rising gas prices for on-chain execution has led many DAOs to opt-in on basic polling, using off-chain services boards such as Discord, Discourse and Telegram polls. Token-based signal voting tools such as Snapshot are also favored to capture community sentiment.
Because governance is complex and hard to get right, most of these tools are used in conjunction with each other to construct a system for checks and balances. Voting will continue to play a crucial role of incentivizing decentralized governance and participation.
“A DAO’s treasury is its lifeblood,” says blockchain writer Nichanan Kesonpat. Once voting is in, the power to execute actions relating to the treasury is left to the DAO’s admins (multi-signature signers). Therefore, how the DAO conducts and promotes transparency for its asset allocation and financial health is critical.
At the moment, the multisig of choice for DAOs is Gnosis Safe, a multi-signature smart contract wallet that allows users to define and limit a list of signers required to confirm a transaction. The Juicebox protocol also acts as a payment terminal and programmable treasury for projects, allowing DAOs to manage treasury actions such as crowdfunding, employee salaries and automated payouts when a project closes.
On the other hand, before becoming core members, many individuals go through a similar journey that may start with exploring message boards or completing their first task with a DAO. “Bounties” are a good way for DAOs to define the scope, deliverable and rewards on menial to large tasks for anyone looking to contribute to a DAO. On-chain tasks can be automatically verified by tools such as Rabbit Hole, or off-chain tasks (usually self-reported) use tools such as Gitcoin and Coinvise. Once the task is completed, many DAOs turn to tools such as POAP or MintGate to provide token-gated assets as a reward or badge to represent credibility.
Ultimately, the DAO community’s behavior will determine its success. The most important part is that the community keeps caring about what they are doing— the best tooling today is built to promote social cohesion and prioritize long term coordination.
The few tools previously mentioned are only a snapshot of an ever growing landscape of products and services looking to ensure and sustain high-functioning communities as they scale in members and mission. 2022 is ripe for the next wave of tools that will undoubtedly reshape how DAOs are managed and operated— as will the next wave after that.
ABOUT THE WRITER
Ivy Tsang is a Tech Innovation Fellow at Identity Review from the University of Southern California, where she explores the intersections between the Arts, Technology and Business of Innovation.
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