This article is written by @gigarahul in collaboration with @contentguildxyz.

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Classifying DAOs is important

If you’re interested in contributing to a DAO as a voter, delegate, grants applicant, paid employee, or in another way, you’re probably thinking about whether the DAO is the one that’s best for your passions and career interests. The same is likely true if you’re an investor looking to invest in governance tokens, or if you’re a trader interested in speculating. The truth is, tons of people are interested in finding the right DAO for them.

But that search can be challenging. Every DAO is unique across a wide array of factors, and the workstreams and culture you find at one DAO might exist differently or may not exist at all at another. In fact, in this world of infinite composability and programmability, finding two similar DAOs can feel like finding the same needle in two haystacks.

But fear not—learning to analyze DAOs with categories and metrics can help you understand DAOs with greater sophistication, and find the one that’s right for you. And going through this process of classifying DAOs will make you a smarter and more successful DAO contributor, more prescient of the risks and upside of going down the DAO contribution journey.

Analyzing DAO metrics

One of the best metrics-based frameworks I’ve seen is Ferdinand Regner’s “How to assess a DAO?” from 2022. Regner analyzes DAOs across five types of categories: strategic, financial, governance, community, and technical. Each category comprises metrics that measure some fundamental publicly accessible onchain or online attributes that DAOs generally share.

Four out of five of these categories don’t focus on the technology, tools, or infrastructure a DAO uses and this, I think, captures a fundamental essence of DAOs: that the most essential part of a DAO is its members and their capacity for collaboration.

Let’s go one by one and review all the categories and what they measure, and try to go beyond the framework.

Strategic metrics

Strategic metrics focus on the DAO's mission and purpose. The key question every DAO must address is "why join?" The answer doesn't necessarily need to be complex or profit-driven. Many successful crypto communities have rallied around simple concepts like memes. For instance, Bitcoin and Dogecoin have gained significant traction through memes alone. Similarly, DAOs operating as democratic entities can capture attention through unique or engaging ideas, with values and goals following suit. Nouns DAO is a prime example, having built a million-dollar treasury and an active governance board around a meme, leaving a significant impact on the crypto industry.

Guild DAOs, such as Vector DAO, Content Guild, Twali, and Safary DAO, focus on talent and services. These DAOs comprise skilled professionals like designers, writers, and consultants, offering service packages to companies seeking talent. In return, they provide attractive rates for their members who work for these clients or bring in new business. These organizations may not prioritize token price or even have a tradable, publicly accessible token, emphasizing their unique strategic focus.

The legal framework of your DAO matters when considering many non-obvious interactions, such as fundraising, revenue generation, and taxes. I’m not a lawyer so I won’t dwell on it, but A16z has written comprehensively about selecting a legal framework and the considerations and consequences of each legal framework in their article, “DAO Entity Features & Entity Selection”. Definitely worth a look-see.

Financial Metrics

Financial metrics are crucial for understanding a DAO's current and future financial health.

• Treasury size: What are the total assets under management (AUM) of the DAO? It's important to know not just the total value, but also how much the treasury would be worth if all assets were liquidated immediately.

• Revenue streams: How much the DAO has earned over a specific period, such as a week, month, or year? This provides insight into the DAO's ability to generate income.

• Burn rate: How much the DAO has spent its funds during the last period. Understanding the burn rate helps gauge the sustainability of the DAO's financial practices.

• Diversification: This metric evaluates the composition of the treasury. It's important to know how much of the treasury is immediately liquid and how diversified the assets are to mitigate risks.

While treasury size and revenue streams are important, burn rate and diversification are equally, if not more, critical for assessing a DAO's financial health. DAO treasuries often follow a power law distribution, with a few large DAOs holding a significant portion of total AUM. However, the size of the treasury is not the only factor to consider. Many DAO treasuries are predominantly denominated in illiquid governance tokens, which can significantly impact the token price if sold. Therefore, larger DAOs often focus on diversifying their assets by acquiring stablecoins, blue-chip cryptocurrencies, or real-world assets (RWAs). They may also pursue revenue generation strategies, such as lending tokens, to build antifragile treasuries that can withstand market volatility and sustain operational expenses for an extended period.

Governance metrics

Governance metrics are essential for gaining a deeper understanding of a DAO's decision-making health, inclusivity, and power dynamics, which are crucial for assessing its overall effectiveness and sustainability.

Governance activity: How many proposals have occurred over time? How many votes occurred over time?

• Proposal frequency: This metric tracks the number of proposals made over time, providing insight into the DAO's level of activity and engagement. You could also look into the DAO’s Discourse forum page to see how many temperature checks have been made.

• Voting activity: This measures the number of votes cast over time, indicating the community's involvement in decision-making.

• Proposal types: Understanding the types of proposals created and what is being funded helps gauge the DAO's priorities and focus areas.

Governance participation: How are voters actively participating in proposals?

• Voter engagement: Analyzing the percentage of the voter base that participates in voting reveals the level of active involvement in governance.

• Key voters or delegates: Identifying the main voters or delegates can highlight power dynamics within the DAO.

• Voting limitations: Assessing any restrictions on voting, such as token limits or anti-Sybil mechanisms, helps understand the inclusivity of the governance process.

Governance distribution: How does power manifest in the DAO?

• Token distribution: Examining how the governance token is distributed provides insight into the decentralization of power.

• Voting systems: Evaluating whether the DAO uses one-token-one-vote, quadratic voting, or one-person-one-vote systems can reveal the fairness and inclusivity of the governance structure. Quadratic voting and one-person-one-vote systems may be more equitable than one-token-one-vote, but they could also deter people from purchasing the token.

These metrics can be observed on platforms like Tally to what and how decisions have been made over the course of their history.

Community metrics

Community metrics provide insights into the size, engagement, and composition of a DAO's community, which are crucial for understanding its reach and influence.

This can be a complex category to measure. For one, each DAO defines “community” for itself differently. “Community” in the Nouns DAO ecosystem extends beyond just tokenholders, and includes creators, artists, proposers, and might even include the members of DAOs that have forked the Nouns model like Purple DAO and Lil Nouns. Conversely, DAOs like Optimism or Uniswap may define their community as only tokenholders, because there are so many and the token is easily accessible to new prospective members.

But by analyzing these community metrics, you can gain a comprehensive understanding of a DAO's social fabric, which is essential for evaluating its ability to capture attention in the crypto industry.

Community definition: What are the bounds of the community?

• Membership criteria: How does one become a community member? Do they buy a token, or do they simply have to identify with the mission or vision of the DAO? Do they have to contribute a proposal first or participate onchain? Is there a ledger, onchain or otherwise, with all the community members of the DAO?

• Scope of obligations: Assessing members' obligations, such as participation in governance or community events, reveals the level of commitment expected within the community.

• Exit mechanism: Analyzing how members can exit the community provides insight into its inclusivity and flexibility. Can they leave by selling the token or are the boundaries more ambiguous, or perhaps harder to leave from?

Community size: How large is the community?

• Member count: The total number of community members indicates the DAO's scale and reach.

  • Size matters when it comes to communities. The scale of a community can dictate how power is distributed, how contributors are paid, and how slow the DAO moves. It can also impact the strategic Balaji Srinivasan’s great essay on startup cities has a 4x4 matrix that shows how communities that operate at different scales and time-horizons are fundamentally different types of organizations. Joining a DAO that’s 100 members large and meant for a month long project is very different from working at a 10,000 member DAO with year-long contracts.

• Engagement on social media: Monitoring engagement on platforms like Twitter, Discord, Lens, and Farcaster helps gauge the community's activity level and ability to attract new members.

  • A strong social media presence is underrated, but can be incredibly valuable to DAOs. Some well-known DAOs, like Constitution DAO and City DAO, leveraged viral Twitter traction into multi-million dollar rounds of crowdsourced investments.

  • With a berth of new activity on Farcaster, I expect there to be a new opportunity to do the same this cycle on that platform. Just my opinion, but I expect DAOs that experiment with and integrate new social technologies early will be rewarded with more attention, more members, and a successful flywheel.

Community makeup: Who is in the community?

• Contributor evaluation: How are contributors selected and compensated for their work? Assessing contributors based on time committed, level of talent, and prosocial participation in the DAO can help you estimate what the community's capability and potential for collaboration might be.

• Influential members: Identifying well-known or influential members can highlight the DAO's reputation and appeal.

• Builders: If your community members can build for the DAO, whether by developing software, creating products, or simply motivating others in the community, encourage them to do so and incentivize them with RetroPGF or other funding mechanisms if your DAO has that capability.

Community dynamics: How is the community changing over time?

• Evolving characteristics: Tracking changes in size, quality, and definition over time provides insight into the community's growth and adaptability.

• Cultural identity: Recognizing the influence of the blockchain ecosystem (e.g., Solana's focus on trading, Ethereum's emphasis on public goods) on the community's culture helps understand its values and priorities.

Technical metrics

Technical metrics are about the infrastructure the DAO uses to manage fundamental operations like sending transactions on the blockchain or voting.

Generally, this means following best practices for treasury management, smart contracts, and voting, and depends on the blockchain used. For EVM chains, basics include using Tally for governance and SAFE for multisig.

Blockchain details

• Gas fees: Assessing the cost of gas fees for transactions on the blockchain is important for understanding the financial accessibility of participating in the DAO. Lower gas fees can make it easier for members to buy in and exit the DAO.

• Virtual machine (VM): Knowing which VM the DAO uses (e.g., Ethereum Virtual Machine (EVM), Solana Virtual Machine (SVM), etc.) can provide insights into the compatibility and availability of tools and infrastructure for the DAO's operations.

Smart contract security

• Audit history: Checking whether the DAO's smart contracts have been audited and by whom can provide insights into their security and reliability.

• Bug bounties: Assessing whether the DAO has a bug bounty program in place can indicate its commitment to maintaining secure and robust infrastructure.

Some other notable frameworks for analyzing DAOs

The fun of analyzing and classifying DAOs doesn’t end here—there are many other frameworks for assessing DAOs and you should take the liberty to create other metrics and categories as you see fit for the questions you want answered.

For example, Marlene Marz has created a fantastic graphic outlining the various DAOs by their aggregator, type, and number of DAOs found per category.

Additionally, Christian Zeigler and Isabell Welpe have created this taxonomy of DAOs:

How to find DAOs to analyze

• You can find DAOs on aggregators like DeepDAO, Messari, and DAOcentral.

An incomplete list of a kind of analysis that you may do to scan the landscape.

Investment DAOs – These are DAOs that want to invest in startups, collect NFTs, or other collectively invest asset classes. Examples include Hydra DAO, Chainforest, Metacartel, and Social Graph Ventures. They are usually anywhere from 1 to 200 members, track membership with a whitelist or non-transferable token, and use blockchain SPVs to invest into startups.

NFT DAOs – These DAOs are formed around an NFT collection and often use treasury funds to market their NFT by hosting events and projects that spread their brand. Examples include Pudgy Penguins, Bored Ape Yacht Club, and Solana Monkey Business (SMB). These DAOs limit members to holders of the NFT, yet may also have an elected board of delegates that oversees their treasury and is compensated.

DeFi protocol DAOs — DAOs that govern over DeFi protocols and their treasuries.

• L1s – Ethereum, Solana

• L2s – Arbitrum, Optimism, TreasureDAO

• LSDs – Lido, Rocketpool

• AI – TAO

• DEXs – Uniswap, Jupiter

DeSci DAOs – Organizations that seek to improve scientific institutions by funding impactful research or solving structural problems. Examples include VitaDAO and ResearchHub Foundation.

Ecosystem grants DAOs — DAOs with the aim to distribute grants to projects, typically open source projects with minimal or no revenues that have a disproportionate impact on the blockchain ecosystem they belong to like Arbitrum, Celo, and Aave.

Quadratic funding grants DAOs — DAOs with the aim to distribute grants using more equitable methods that let the community decide who to give to and how much to give from a matching pool. Typically open source projects with minimal or no revenues that have a disproportionate impact on the blockchain ecosystem. Examples include Gitcoin and Octant.

Guilds – DAOs that organize workers and work as contractors to earn revenues. Examples include Content Guild, Vector DAO, and Bankless DAO. There are many different types of guilds that can focus on different niches, like growth, but they are characterized by their members working on behalf of the DAO for payment from external companies.

Network states – DAOs that organize using the philosophy of Balaji Srinivasan’s Network State manifesto. From the website, “A network state is a highly aligned online community with a capacity for collective action that crowdfunds territory around the world and eventually gains diplomatic recognition from pre-existing states.” Examples include Epoch and Praxis.

Some final tips before you go

Still, even after performing a multifactor analysis of every DAO in existence it can be daunting to actually take a chance and start participating. This is normal. DAOs present a unique set of challenges and opportunities, but you can get through them with some simple tips. Here are some final points to consider:

1. Understand your expectations: Whether you're a trader, investor, founder, developer, hacker, or voter, it's important to recognize how you want to contribute, express your expectations regarding payment, voting rights, and participation in proposals, and act respectfully and collaboratively with other DAO members.

2. Embrace dynamism: DAOs can have varied cultures and operational models. Familiarize yourself with the norms of one DAO, and then gradually explore others with different cultures to broaden your perspective and network.

3. Navigating complexity: DAOs can be complex to maintain due to their ever-changing nature. However, this complexity is also what makes them fascinating and a testament to the potential of decentralized collaboration in the crypto space.

   1. Openness: DAOs may engage in a range of activities such as investments, grants, funding, and services, so they’re a great chance to get involved with all kinds of new and exciting fields of operations that may otherwise be hard to break into.

   2. Adaptability and entropy: Unlike immutable smart contracts, DAOs are dynamic and subject to change. This inherent entropy requires constant adaptation and management but also adds to the excitement and potential for innovation.

   3. Power of incentives: A well-structured incentive system can motivate members to work towards a common goal. By aligning interests around a mission and creating a sense of belonging, DAOs can harness the collective power of their members.

4. We’re all newbies: Don’t feel intimidated by another member’s experiences or resume. DAOs are such a new organizational construct and a constantly evolving space, so it’s very likely that they’re relying on your knowledge, insight, and expertise as you are with them. So don’t feel worried about asking for clarification about a term you don’t understand, and chances are they’ll be happy to help.

And with that you should have enough of a foundation to know what DAOs you want to engage with. Now you can navigate the world of DAOs more effectively and contribute to their success while also growing your own skills and network within the crypto community.

Good luck on your DAO contribution journey: bon voyage! If you want to chat, reach out to me at @gigarahul everywhere, anytime.

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Sources

• https://medium.com/@marlene.marz/how-to-classify-daos-according-to-their-mission-part-1-existing-classifications-e0fde6d9f4d

• https://medium.com/smape-capital/how-to-assess-a-dao-11e79988b87e

• https://medium.com/@vectorDAO/introducing-vector-dao-6eed7ff13aa6

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This article is written by @gigarahul in collaboration with @contentguildxyz.

To learn more about Tally visit tally.xyz or DM us @tallyxyz.