[37] Rules of Engagement and Progress Mechanisms
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After taking the deep dive into DAOs and learning more about organizations in general, coordination is really just about the rules of engagement. And the most important rules of engagement are progress mechanisms, i.e. processes and mechanisms for “how we change.” Let’s dive in.
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Much of how society functions are through rules of engagement.
Some rules of engagements are explicit like law, code, policies, etc. Others are implicit… like not leaving your trash at the table when you’re done eating your meal.
🤖 Protocols are rules of engagement for machines.
🫂 Vibes are rules of engagement for humans.
📝 Contracts are rules of engagement between some number of parties.
A simple definition for Rules of Engagement: set of rules / instructions on how different parties and entities work / coordinate / co-exist together.
Having clearly defined Rules of Engagement helps answer coordination questions.
In building decentralized organizations (where there is no clear central leader), the rules of engagement become a foundation to a well-functioning decentralized society.
Often times the hardest part about coordination (especially in decentralized organizations) is simply defining the rules of engagement for the specific coordination outcome you are trying to achieve. Easier said than done… we often want to satisfy everyone… many projects make the mistake of wanting to be everything for everyone.
Some of the most important rules of engagement to define for decentralized organizations are:
Incentive structure: how we share value… If I contribute to a DAO, who decides whether the work is worth paying for? How much do I get paid? Etc.
Governance structure: how we make decisions… If we all come together to vote on a topic, how many votes do we all get? How do we put something up for vote? Etc.
Progress Mechanisms: How do we change the rules of engagement over time?
Most DAOs focus on the first two: incentives and governance.
The challenges there are usually around finding the right rules of engagement for the specific lifecycle of the project. For example, in the early days, extrinsic incentives might be easier to implement and get your community off the ground. But what about when the community matures? It’s a similar story with governance. In the early days, “one token, one vote” may be fine, but what if the token supply starts to concentrate in the hands of a few?
In building any company or project, new context requires new rules of engagement. What was designed for the early days becomes irrelevant during the next stage of growth.
This brings us to Progress Mechanisms: how do we change the rules of engagement, processes and mechanisms as the project, community, DAO evolves?
Progress Mechanisms
DAOs are complex systems, and the intended outcomes we design for may not end up being how the system behaves in the wild. Once you define and release the rules of engagement out in the wild, it’s important to have a process to change / update them.
For example, in the early days you might have a “one-token, one-vote” structure to optimize for fairness, but this can lead to a governance attack where a few people / entities acquire large blocks of token / voting power. While the design is sound, the actual outcome in the wild may be different than the intended outcome. [See this article on Governance attacks].
You cannot solve the “what will happen in the wild once we release it” problem ahead of time… but what you can do is have a process to update / change / evolve as you get feedback from the market. What that process looks like depends on the type of community, stage of growth, specific context, etc — there is no one size fits all approach.
Change is hard. And updating anything at scale, with forces outside of your control, seems like an impossible endeavor.
This problem is even more acute in DAOs because of the coordination challenges in DAOs.
A lot of DAOs (just like many organizations) optimize for growth, where growth is defined by number of community members – quantity framework.
DAOs that are growing fast suffer from growing pains. As DAOs grow, coordination challenges get increasingly complex. Organizations tend to change on some power law curve. I’ve heard it around power laws of 3.
When an organization has
3 people, it’s small and tight knit.
9 people, it’s still sort of small.
27 people, it’s now a medium-sized team.
81 people, it’s now time for sub-teams / departments.
243, 729, so on and so forth…
The actual numbers matter less, what matters is that at each stage, the number of potential relationships and sub-cultures grows exponentially. What works for 3 people may not work for 9 people… what works for 9 people will likely not work for 27 people… the organization’s coordination mechanisms (rules of engagement) need to evolve at each stage.
Progress Mechanisms are a key design choice for coordination – the process for how to change and evolve from one stage to the next.
Why is Changing Process so Hard?
We started off Life in Color asking a simple question: Why is Change so hard? We can probably write another essay on Why is Change even harder in complex systems (i.e. decentralized organizations)?
Organizations often debate whether change is needed? But the reality is that change will take place no matter what, is it the change you want or the change you don’t?
Change is hard enough when it’s one person trying to change their life.
Change is harder in an organization when you have to convince a group of people to change.
Change is significantly harder when you have to convince a bunch of people in a decentralized organization that change is needed.
For DAOs, change looks something similar to what we’ve written about, but with a lot more stakeholders involved in a decentralized environment. It looks something like this:
1st Stage of Change: Enough people have to admit something needs to change.
2nd Stage of Change: Actually dealing with the things that are broken (develop solutions, etc).
3rd Stage of Change: Convincing others that the new solution is better than the status quo.
As we said in our article, change is painful: “The new path will likely also cause a lot of pain: pain from trying the new and pain from shedding the old.”
So then, are DAOs and decentralized organizations screwed?
No, not necessarily… but it requires projects to define progress mechanisms upfront and realize change is a constant process. Managing growth with good process, communication and community engagement is ever more critical.
How we change is the most important rule of engagement of them all.
Ultimately this is a coordination problem. Coordination in Web 3 is super hard.
That’s why coordination is a superpower.