GM Readers,
Hope you enjoyed your weekend! The fall season is upon us!
Today we start diving deeper into DAOs. We will explore topics around work, organization and coordination in the coming weeks — always in our Life in Color voice. Today we start with asking Why DAOs. Like our other 101 pieces, we use these pieces to scratch the surface to tee up what we’ll be writing about in the coming weeks!
Check out: Life in Color Twitter for summary threads of our our pieces there. 🧵🪡
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Humans are social beings. We point out in our pieces that though we’re spending more time online, the need for connectivity never goes away.
We’ve also talked a lot about NFTs and the Metaverse recently.
Taken together, all of this leads us to the notion that organization and coordination is really important… because without organization and coordination, Web 3 would be a very chaotic place. 😱🙀
But more seriously, organization and coordination are critical in a decentralized world. Without reframing organization and coordination through a Web 3 lens, it will become impossible to drive large-scale efforts in a community-driven way.
These primitives bring us to the concept of DAOs (Decentralized Autonomous Organizations).
According to a16z, you can think of DAOs like this:
Decentralized, so the rules can’t be changed by any one single party
Autonomous, so they’ll function (without human intervention) as long as the underlying blockchain continues to work
Organization, so a distributed community of stakeholders can coordinate activity among
We like to think DAOs are a bunch of people online (community, etc.) coming together to do work, allocate resources and drive toward a common set of goals… all in a decentralize way.
For more on this topic, we recommend this read here.
We always say Web 3 is early, and the potential for DAOs might be one of the best examples of this. DAOs will play a really important role in the workplace of the future (among other things)… so even though there’s still a lot left to figure out, we’re excited about the possibilities.
This piece is admittedly less about what doesn’t work today… but rather thinking through DAOs with the assumption that we’ll iron out all the kinks in the future.
Let’s dive in.
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Bottom up > Top down
Most organizations pre-Web 3 are hierarchical.
The way this plays out in the workplace is that unless you work for yourself, you’re likely working for someone else.
The corporation model most of us subscribe to is “top down”: people at the top make the rules, hire others to enforce them and everyone else follows. There’s a clear way of doing things and a clear hierarchy to respect.
This pyramid inherently means some people have more power than others and more decision-making rights. It naturally follows that those at the top reap the rewards in an outsized fashion than those at the bottom.
Does it naturally follow too, then, that those at the bottom are doing the least amount of work? 🤔
No… this is where the top-down model falls apart.
In a corporation, you might be adding outsized value, but because of your title and level, your pay is often fractions of that. Who creates value and who captures value seems a bit misaligned.
See our article on Leaders, Followers and Community
DAOs flip this structure on its head with a bottom-up model.
Bottom-up model: people choose to organize together and contribute, capturing value more aligned to their contributions and efforts. We get out what we put in, no middleman.
At a higher level, this means if you do the work and others value it, you should capture more of the value. So… DAOs flip the script on corporations. 📜
DAOs are set up so that you can still capture the benefits of the corporation via shared value capture (with voting / governance rights), but in a less centralized way where power / wealth is concentrated only in the hands of a few.
Today there’s no mechanism for this without crypto. We may do work all the time, but we don’t directly reap the benefits of our work. For example, you may be getting X% arbitrary bonus “tied” to your salary based on some contrived measure of productivity.
Ultimately DAOs embody more even value capture, but employ mechanisms that do so in a more transparent way than the top-down model.
In a bottom-up model where people are voluntarily choosing to spend their time, they get to design the value capture mechanism they want to participate in (see our article on horizontal work models).
This is the magic of DAOs… having a say in the matter.
And if you don’t like it, start a new DAO.
Headless Leadership in an Output-led Model
If DAOs flip the script on value capture, they also create room for unique leadership structures.
We see DAOs as “headless leadership”. DAOs are experimenting with distributing “leadership” across a wider set of people and contributors—there isn’t one clear leader at the “top” or small group of influencers making the rules.
But don’t organizations need a leader by definition? In both the traditional top-down model and bottom-up model, that is true, but in a bottom-up model like DAOs, leadership just looks different.
With DAOs, we have a more even distribution of power, formalized by tokens, voting rights and contribution. DAOs eliminate unnecessary barriers to entry to contribute (things like pedigree and nepotism) and empower more people to step up.
This means we can let the work speak for itself… if what you create is valuable, you can rise to the top.
In the world of DAOs, no one cares where you went to school or if you had a high title in your last job. If you’re more invested than the next person by spending more time / energy on the DAO, or you’re an expert in something critical to the DAO etc., then your contribution and work outweighs someone else’s.
This is a critical feature of DAOs and has the potential to work at scale on the internet. In Web 3, everyone wants to collaborate, but largely under a psuedo-anonymous nature… so frameworks like traditional pedigree, nepotism and credentials need to evolve too. Work output and track record of work output end up informing the basis of your reputation.
Said another way… in the traditional world, you can hire for pedigree, but that person may still not be right for the job… DAOs get around this by just measuring contribution and output.
It is simple… do the work, reap the rewards. 💰
The Path to a DAO
Okay, so we’ve established why DAOs exist: humans tend to congregate and want to contribute and be recognized for their efforts. This is still true in a (psuedo) anonymous world. Arguably the need for governance is even more important under anonymity, otherwise you get total chaos. And since it’s a headless leadership model, we are all stewards responsible for the success of the DAO.
So… you’re excited about certain niches within Web 3 and want to explore those passions… where do you start?
Whatever your passion may be, there is probably a DAO for it. Really anything you can think of… if you can’t find one, then start one.
As we’ve argued before, DAOs are uniting like-minded individuals to take action collectively. And given they unite people across the internet around the world, they can bring together people who otherwise would’ve never had a chance to cooperate with one another and share resources.
Of course DAOs are still a ways away from this implementation. Admittedly this is how DAOs can function in a future state of decentralized work. The evolution of this journey looks something like this:
A small group of people have an idea to achieve a goal
This group starts an online community to contribute
It grows into a larger community, so they consider implementing a DAO structure
Today, we are somewhere in between 2 and 3, but a lot to figure out on 3.
Notably, the key pillars to making a DAO work centers around:
🧵 [Governance] principles set forth community rules, reasons for existence, token distribution, etc.
🧵 [Value capture from value creation] means financial incentives encourage participation, because without them, members have no reason to dedicate time, energy and resources to the group
🧵 [Coordination] involves how people will vote on important topics that determine the future of the group and how people come together to get work done
…all of this in decentralized fashion.
However, the above 3 pillars are in the early stages of implementation and experimentation.
I.e. we haven’t figured out how this can work at scale, but believe that if / when it works at scale, it will usher in a new era of work.
DAOs are critical to bringing us to the Future of Work.
Toward a “daVinci lifestyle” 🎨 🔬🎵👩🔬
So far, DAOs have been organizing people at the idea level. Whatever variable you want to organize around, you start that community.
But what about the future of DAOs… the “potential” we mentioned earlier?
We think DAOs have the potential to disrupt work as we know it.
When we think about the “future of work”, we are thinking multiple projects at once, the freedom to choose, leveraging different skill sets.
We call it “the daVinci model”.
Leonardo daVinci pursued passions across many disciplines: art, math, science, inventing… but the modern workforce constrains us to one job at a time. If you want to work on something new, you have to leave your job altogether.
The current model is a remnant of the industrial revolution: the capitalist owns your time from 9 to 5 under contract. You likely don’t get out what you put in.
But we think DAOs, in connecting like-minded people for a project, will start a flywheel around community-driven projects that compensate you for what you contribute. Imagine being plugged in to 2 to 3 projects at the same time that you choose and getting to reap the rewards directly.
You are master of your schedule.
We’ve already started to transition to a flexible work model post-pandemic, and there’s no signs of slowing down. DAOs help usher in a new future of work that we are already experimenting with.
The current DAO model is far from perfect, and there are definitely things to iron out, but we think it’s laying the foundation for the next big trend defining work culture.
After all, it’s been a while since we’ve updated our model of work. ⌚