If you’re interested in Crypto or Web3 in any capacity, it’s likely you’ve heard the word DAO with increasing frequency over the past few years.
DAO stands for Decentralized Autonomous Organization. The most important thing that makes a DAO a DAO is the use of computer systems and code to decentralize ownership. DAOs are formed by people who have a shared interest or goal, who then employ the use of coding and blockchain technology to equalize the structure of the organization.
Unlike traditional company structures, DAOs aim to operate under complete transparency and governance. Members of the DAO vote on changes and updates to existing protocols, while work is divided equally among members with payment usually done through an automated process.
What do DAOs do?
DAOs are formed for many reasons. There have been DAOs built to purchase a rare copy of the U.S. Constitution, like ConstitutionDAO. FreeRossDAO was built to raise funds to free Ross Ulbricht, the founder of The Silk Road, from prison, through selling his drawings as NFTs. Creator Cabin is a DAO with the goal of creating physical co-working spaces in nature for its members, while raising money for environmental impact. They’ve already built an IRL co-working community in Texas and minted an actual cow as an NFT to live there with them.
DAOs are formed as social clubs, like the famous Friends With Benefits, or as an art collector’s guild, like PleasrDAO. Some of the most popular types of DAOs serve as treasuries, investment groups, and social activism collectives. All it takes is an idea and a strong community willing to put in the work, and DAOs can be born.
Who can form a DAO?
Anyone! Creating a DAO can be easier if you have an audience or community already built around the concept you want to turn into a DAO. It’s also essential to have a web developer or coder on board to help create the ‘autonomous’ aspect of the organization. If you just have a group of people working towards a goal without the machine aspect of governance, you have a club or group, not a DAO.
For example, Nadya Tolokno, original member of the Russian anarchist feminist punk band Pussy Riot, launched UnicornDAO in March of 2022. The purpose of the DAO is to pool resources together to purchase socially and politically charged artwork and to support artists working towards goals that align with the DAO. The DAO then collectively owns the artwork purchased, increasing the value of their treasury and allowing them to support more artists. Some notable collections they have invested in include Olivie Allen’s Passport Burning NFT, a short video of her lighting her Russian Passport on fire to represent her disapproval of Putin’s war against Ukraine, and to show support for Ukraine.
Why are DAOs revolutionary?
DAOs do not have a traditional corporate hierarchy. For the majority of modern history, humans have grown accustomed to working their entire lives for a liveable wage and human rights such as healthcare or retirement savings. It’s common knowledge that the hard work of employees under the top of the hierarchical pyramid benefits the ‘leaders’ at the top of the pyramid, but since there were no other options, we were forced to accept this work environment.
Many people work their entire lives to slowly climb up a few steps on that ladder of hierarchy, for minimal raises, the opportunity to take vacations, or to pay for their children’s education. We’re taught that complaining or expressing dissatisfaction with this system is equal to laziness or defiance.
DAOs challenge this system. Humans and machines become one in a successful DAO, ensuring that the gains of the organization are divided equally amongst the people putting in the work. Each individual is recognized for their unique strengths, and those strengths and talents are used for the betterment of the DAO, and in turn, the betterment of their lives.
DAOs also exist without the control of one central government. All regulations are embedded in the blockchain that keeps the DAO running, removing any need for middle management, and in turn, reducing the likelyhood of hierarchy and power inequality.
The History of ‘The DAO’
The first official DAO, simply titled ‘The DAO,’ was launched by the Ethereum Foundation in 2016. The idea was to connect the Ethereum community with the development team to work together in creating the future of the organization. The first DAO was both a massive success and massive failure.
The first major decision in the DAO was to sell tokens to the Ethereum community to fund further development of their project. They managed to raise over $150 million in a matter of days. Through their automated governance system, which allowed users to submit proposals and approve them through voting, a hacker was able to approve themselves for taking millions of dollars of capital from the DAO at the expense of members.
Unsurprisingly, the entire project fell apart. A white hat team of hackers was employed to steal back the tokens through their governance system’s 60 day automated approval process, which bought them a bit of time to hack the hacker. The DAO ultimately agreed on a hard fork, or a permanent alteration in the Ethereum blockchain. That is why today there is Ethereum and Ethereum Classic. Ethereum Classic is the currency on the blockchain from before the hack, and Ethereum is the currency post hack, after the hard fork was initiated.
Most of the stolen funds were returned, but the damage was done. The DAO’s reputation was tarnished, setting the Ethereum Foundation back in their progress.
If you want to learn more about The DAO and everything that happened before, during, and after, check out Laura Shin’s book, The Cryptopians: Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Craze. Shin was the first full-time Crypto journalist and former Senior Editor of Forbes Magazine, and did years of research with Ethereum’s founding team to write the book.
Case Study: Honey Badges
To exemplify how DAOs can change the future of work and people’s individual lives, we interviewed the Honey Badges DAO, a community focused DAO and NFT collection that offers grants to change makers. When asked why Honey Badges decided to become a DAO instead of just an NFT project, founding member G.D. Anderson said, “Creating a democratic voting mechanism via a DAO was always core to the Honey Badges concept.”
They also provided context on the difference between a standard NFT project and a DAO. In their case, they’re still working hard on fleshing out the details of how the DAO operates, and how to separate it from self-managed aspects of the project. Anderson continues,
“Creating a DAO is not easy and must be very intentional. There’s never anything simple about democracy and it requires a lot of organization but when you get it going, it’s brilliant and empowering. Most projects in the NFT space are [just] projects, they have a team and they have leadership. At Honey Badges, we split the business into two. We have the brand, run and managed exclusively by the team and we have the philanthropic arm, managed by the DAO. These clear lines allow us to best represent Honey Badges while also allowing our community to learn about DAOs and feel very much a part of the most important decision making”
A DAO is Born
The Honey Badges DAO also provided valuable input on how they formed the DAO in its earliest stages, starting with a group of 10 leaders to provide equal input into the formation of the DAO’s mechanisms. This was considered the foundation that their DAO was built on. Imagine that they are building a railroad track, and the DAO will run automatically on that track. If the formative team doesn’t build the track correctly, the train will derail.
Even the DAO leadership team is voted on by the larger DAO every 3 months to make sure everything remains fair and transparent. The DAO explained how they formed their voting process.
“DAO leadership along with myself, crafted the voting process in a super collaborative way, taking into account suggestions from members with all kinds of backgrounds and experience. Some elements of the voting process were made simple and familiar, such as utilizing tools like google forms; and others were made purposely difficult, like mixing up the applicant orders and requiring voters to go to new tabs to vote. [This helped us] get thoughtful voting and not quick clicks. Voting took place over 48 hours which we have since discussed extending after feedback from the DAO.”
Using a DAO to Change the World
The most important core aspect of Honey Badges is the peer-to-peer grants awarded to change makers both inside and outside of the community they’ve built. The NFT project, with artwork by Aslan Ruby Studio, artist of Meta Angels, serves as the primary funding source for the grants. Grants are voted on by DAO members, who become members by minting or purchasing a Honey Badge NFT.
Proposals are submitted through an online form, and the core team of the DAO decides which proposals will make it to the wider voting stage. They explained their decision process and how they keep it as fair and transparent as possible.
“All proposals make it to the DAO unless DAO Leadership determines they are not credible, do not serve a non-profit purpose, or suggest a potential misuse of funds. We use a risk evaluation table, which we plan to publish next month, and conduct zoom interviews with applicants. If the applicant misses multiple zoom calls with the team or does not respond to an email requesting further information, that application is excluded as it suggests a lack of interest in the grant and the potential to mismanage funds.
However, even applications that DAO Leadership determines are ‘high risk’ or ‘not very impactful’ are put to the DAO for voting provided they are credible. It is not for DAO Leadership to put forward appealing candidates, only credible ones, the DAO is the one making the decision on what aligns with the majority.”
The Growth and Formation of a DAO
2022 has been popularly monikered as ‘The Year of the DAO’ in crypto communities and beyond. The space is full of opportunity and excitement, but there are still glaring issues that need to be addressed. When asked what can make or break a DAO, the Honey Badges
leadership team replied,
“Arrogance and dictatorship. Joking… Kind of… I think DAO’s are a very new concept and many of us are interested them conceptually but we’re learning, pivoting, and improving along the way. A lack of flexibility or a reluctance to collaborate is the quickest way to alienate your community and without a community, there’s no DAO. It’s important to listen, ask questions, check in, get feedback and at the core of it, make sure people feel represented.”
They went into further detail about some pain points of DAO formation they and other DAOs have experienced, and how to overcome them,
“Admin with no hierarchy! It’s very difficult to create a team of non incentivised individuals from all over the globe, with different experiences and values, and bring them together to be an efficient and high performing team! Somehow, don’t ask me how, we have got this at Honey Badges.
Our DAO Leadership is truly incredible and they stun me week after week but I believe that’s because we’re philanthropy focused, so there’s a willingness to volunteer, be generous and learn along the way. In normal DAO governance, I shudder to think about how this works while remaining truly fair. I guess that’s the autonomous part, you really need to bring in the computers to streamline what could otherwise be an impossible pain point.”
We closed out our interview with Honey Badges by asking them one very important question. What role do you think DAOs have in the future of work? They responded,
“So long has the power been in the hands of VC’s and heavy weight investors but potentially creating a large number of small shareholders who get a say through voting mechanics is exciting. I see it as the future of some small business and I think it’s empowering across the board!”