The DAO model originated in 2016 with The DAO, aka Genesis DAO. Though DAOs are still early and immature, they have proliferated across a wide variety of interests, communities and goals. Over the last few years, we’ve witnessed a Cambrian Explosion of DAOs -- branching out from the original goals of governing an on-chain treasury to governing protocols, advancing research, and reinventing marketplace structures and incentives. This article will cover what makes DAOs successful and competitive with traditional organizations, as well as the different types of DAOs that have proliferated over the previous few years.
What is a DAO?
DAO, of course, is an acronym that stands for Decentralized Autonomous Organization. Though this was intended to be very literal, today's DAOs vary in their adoption of decentralization and autonomy. DAOs are still so early that I suspect that the future, successful DAO models looks very different from the DAOs of today.
Fundamentally, DAOs are on-chain, community-governed organizations with a shared purpose and a shared treasury. This treasury is primarily held in on-chain assets, and community decision-making is done through on-chain governance. These two features (on-chain assets and on-chain governance) differentiate DAOs from other collectively-owned organizations (i.e. unions, cooperatives, or clubs) and create huge advantages.
What makes DAOs successful?
On-chain governance and on-chain assets bring a number of benefits that allow DAOs to succeed where similar attempts may have previously failed, and even present competitive advantages over traditionally structured organizations.
Efficient capital distribution. DAOs that keep their treasuries primarily on-chain are more easily able to transfer funds and access loans or liquidity vs traditional organizations. Their banking processes are automated and streamlined, which allows them to deploy or develop capital without increasing internal overhead.
New mechanisms for incentive alignment. As natively on-chain organizations, DAOs are uniquely positioned to leverage a variety of token setups to create incentive alignment among their participants. Traditional organizations have a lopsided, top-heavy method of value capture: when Uber does well, executives get bonuses and cash out their stock options, while drivers’ earnings remain the same and passengers pay the same rates. With aligned incentives, success (and failure) can be realized by all parties, creating a system where all participants are bought-in and participating in shared goals.
Empowering stakeholders. DAOs have been able to harness a remarkable level of talent. They do this by providing accessible frameworks for participation and empowering new stakeholder groups outside of traditional employee <> employer relationships. For example, DeFi DAOs allow any tokenholder to propose a modification to rates, markets, or other parameters. By opening up the decision making process through governance, DAOs benefit from the wisdom and ideas of all involved participants.
Protection against fraud. By operating its treasury on-chain, DAOs allow anyone to have transparency into the state of its assets, transfers, investments, etc. Additionally, on-chain governance provides transparency into the decision making process for a DAO. While neither on-chain governance or on-chain treasuries themselves prevent fraud, they provide a structure in which fraud or other nefarious activities are much more easily exposed. This transparency is especially impactful in the innovative, fast-paced environments DAOs operate in -- which typically require a high degree of trust in order to harness funds, launch experiments, etc. DAOs can leverage on-chain transparency to lower this threshold of trust and move boldly and quickly.
What are the different kinds of DAOs?
The DAO model is proliferating across a wide variety of use cases -- we’re truly living through the Cambrian Explosion of DAOs! There are a wide range of structures, purposes, and revenue models that fall under the DAO umbrella. I’ve identified the models with significant traction to date.
Service DAOs
What are they? Service DAOs act as the builder and facilitator of a two-sided marketplace between Creators & Consumers. The Service DAO itself is responsible for constructing a fair and efficient marketplace. The two parties in the marketplace setup are Creators (who produce and validate work) and Consumers (who request and pay for work to be done.) When a Service DAO marketplace is operating effectively, creators are easily find opportunities that fit their skills and get rewarded fairly and quickly when the task is complete. Consumers easily request work and receive outputs that are verified as complete and accurate.
What are alternatives to this kind of DAO? Consulting organizations (McKinsey, Ernst & Young), outsourced/gig labor (Upwork, Fiverr), traditional enterprise-controlled marketplaces (Uber, AirBnB), marketing agencies (WPP, Omnicom)
Their DAO superpowers:
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Incentive alignment. Using tokenized incentives allows for creators, clients, and the DAO to move from a model that pits clients vs the DAO (or creators) and into a positive-sum relationship.
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Empowering stakeholders. Giving a greater share of voice to creators and clients through on-chain governance allows pertinent feedback and ideas to shine.
Examples of Service DAOs:
Investment DAOs
What are they? Investment DAOs raise funds from their members or outside LPs, and invest those funds into organizations of their choosing. These organizations often act like an on-chain hybrid of crowdfunding and venture capital -- like crowdfunding, they raise from a number of small donors, but like venture capital, they do a fair amount of diligence and research prior to investing. These DAOs use on-chain governance to select and distribute their investments, and some may also choose to issue their own token to use as a governance tool.
What are alternatives to this kind of DAO? Traditional VCs, private equity firms, or crowdfunding platforms like Kickstarter, GoFundMe, etc
Their DAO superpowers:
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Efficient capital distribution: On-chain assets allow Investment DAOs to easily participate in funding rounds without bank fees, processing times, or the headache of coordinating wire transfers.
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Protection against fraud: LPs can easily tell where their funds are being distributed and even check the flow of assets in funded investments.
Examples of Investment DAOs:
Research DAOs
What are they? Communities that deploy a treasury in pursuit of research objectives, many of which center on the physical or social sciences. Their goal is to democratize research funding in a way that prioritizes the needs of their communities.
What are alternatives to this kind of DAO? Traditional scientific research organizations and publications
Their DAO superpowers:
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Efficient capital distribution: On-chain assets allow Research DAOs to easily participate in funding rounds without bank fees, processing times, or the headache of coordinating wire transfers.
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Protection against fraud: Individual investors can easily tell where their funds are being distributed.
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Empowering stakeholders: By harnessing the passions of individuals to direct research funds, Research DAOs are able to direct funds towards issues their stakeholders care about that traditional research orgs may not prioritize.
Examples of Research DAOs:
Social DAOs
What are they? Social DAOs started as a big group chat with a bunch of like-minded people. Even as they grow more sophisticated, at their core, they are a way for friends to communicate and occasionally organize towards an event or goal. Social DAOs are more concerned with connection and sustainability than financial success or business impact. On-chain governance gives them a way to moderate their communities as they grow.
What are alternatives to this kind of DAO? Group chats, gated discord servers, Meetups, non-tokenized internet communities
Their DAO superpowers:
- Empowering stakeholders: Traditional communities necessarily adopt hierarchy as they grow in order to govern the group and prevent bad actors. With on-chain governance, a wider group of stakeholders can be empowered to govern themselves and establish standards for activities and moderation.
Examples of Social DAOs:
DeFi DAOs
What are they? DeFi DAOs are composed of a group of token holders associated with a financial protocol. They are often distinct from the organization that launched the protocol, which maintains a separate entity (eg - Uniswap Labs). These DAOs often operate with the highest relative degree of decentralization due to the regulatory scrutiny that they have received.
What are alternatives to this kind of DAO? Traditional finance and banks (JP Morgan, Vanguard, etc)
Their DAO superpowers:
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Efficient capital management: On-chain assets managed through smart contracts allow for novel financial technology, including non-custodial swaps and lending that can be completed in minutes with minimal fees.
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Protection against fraud: Users can easily tell where their funds are being held and monitor the health and status of the protocol.
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Empowering stakeholders: Any token holder can propose or evaluate changes to the protocol and vote on whether they should be executed. On-chain voting is secure and transparent.
Examples of DeFi DAOs:
Rollup DAOs
What are they? Like DeFi DAOs, Rollup DAOs are composed of a group of token holders and are distinct from the organization that launched the protocol. These DAOs support governance, sustainability, and growth for a rollup (aka a scaling solution for the Ethereum protocol). Due to their broad scope and mandate, these DAOs have introduced or formalized new concepts like the Arbitrum Security Council and Optimism’s non-token-based Citizen House. These DAOs also operate with a high relative degree of decentralization due to regulatory scrutiny.
What are alternatives to this kind of DAO? Rollup DAOs are a novel, Web3-first approach -- there aren’t identifiable alternatives or competitors.
Their DAO superpowers:
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Protection against fraud: Users can easily tell where their funds are being held and monitor the health and status of the protocol.
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Empowering stakeholders: Any token holder can propose or evaluate changes to the protocol and vote on whether they should be executed. On-chain voting is secure and transparent.
Examples of Rollup DAOs:
Collector DAOs
What are they? Collector DAOs pool funds to acquire, own, and govern shared assets. These assets are typically non-financial, including art, music, and NFTs. Many of these DAOs aim to support specific collections (like Squiggle DAO) or specific segments of underrepresented artists.
What are alternatives to this kind of DAO? Museums, individual buyers or private collections
Their DAO superpowers:
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Efficient capital management: These DAOs are able to efficiently leverage their on-chain assets and governance to acquire assets in auction and or private sale.
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Protection against fraud: Individuals can easily tell where the DAOs assets are being held and monitor the health and status of these assets.
What are examples of Collector DAOs?
Impact DAOs
What are they? Impact DAOs are similar to Research DAOs in that they support causes that are not receiving mainstream focus or funding. Unlike Research DAOs, Impact DAOs fund direct action in these areas or provide a means for others to fund public goods or initiatives.
What are alternatives to this kind of DAO? NGOs, non profit organizations, charities
Their DAO superpowers:
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Protection against fraud: Individuals can easily tell where the DAOs assets are being held and monitor the health and status of these assets.
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Empowering stakeholders: By harnessing the passions of individuals to direct impact funds, DAOs are able to direct funds towards issues their stakeholders care about that mainstream orgs may not prioritize.
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Efficient capital distribution: On-chain assets allow Impact DAOs to easily participate in funding rounds without bank fees, processing times, or the headache of coordinating wire transfers.
What are examples of Impact DAOs?
Creator DAOs
What are they? Creator DAOs invert traditional ownership structures, where publishing houses or record labels own the rights and distribution to a creation, and the creators receive only a fraction of the proceeds. In Creator DAOs, communities may co-own their IP or benefit from collaboration and inspiration with a like-minded community. **
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What are alternatives to this kind of DAO? Publishing houses, record labels, creator retreats, MacArthur fellowship
Their DAO superpowers:
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Empowering stakeholders: By harnessing the passions of individuals to direct impact funds, DAOs are able to direct funds towards issues their stakeholders care about that mainstream orgs may not prioritize.
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Incentive alignment. Using tokenized incentives allows for creators, clients, and the DAO to move from a model that pits clients vs the DAO (or creators) and into a positive-sum relationship.
What are examples of Creator DAOs?
Media DAOs
What are they? Media DAOs decentralize media creation, taking both content requests and submissions from their consumers. These DAOs create aligned interests between consumers and producers of media, with some consumer bases even exercising control over the types of advertisements and advertisers that appear on the platform.
What are alternatives to this kind of DAO? Traditional online or print publications, podcasts, and video news
Their DAO superpowers:
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Empowering stakeholders: By harnessing the passions of individuals to direct coverage towards topics they care about, DAOs are able to prioritize issues their stakeholders care about.
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Protection against fraud: Individuals can easily tell where funding is coming from and more transparently monitor the influence of special interests on media coverage.
What are examples of Media DAOs?
What’s Next for DAOs?
Some of the most promising vehicles for DAOs have only recently emerged (Research DAOs, Impact DAOs, etc) and are already having an enormous impact in their field. It’s obvious that traditional organizational models around the gig economy and creator economy are flawed, and that people seek belonging and community in an ever-more-online world. DAOs represent a novel way to collaborate in a positive-sum manner. By harnessing the power of on-chain assets, governance, and decentralization -- DAOs can take over the world.