in

The DAO’s Roadmap Planning When should a crypto project launch a DAO?

When to create a DAO, now or later, is a question worth pondering.

Towards the DAO of the future

To be honest, DAOs will be the organization of the future. The elements that make up a DAO (Decentralized Autonomous Organization) have been around for a long time, and it’s time to combine them to make something greater.

The COVID-19 pandemic has prompted us to discover many things that the tech world is already familiar with, such as how distributed teams can still collaborate efficiently. Compound, Gitcoin, and a few others have shown us that it is possible to integrate teams and communities and let them make decisions.

So, does this mean that every startup should create a DAO?

5768165_image3

not completely.

First, not all businesses are suitable for DAOs (like a sock store on Shopify). Even if it fits, there is still quite a bit of work to be done before the first on-chain voting takes place within the DAO.

DAOs are communities. A shared vision is formed within the community and a mission is developed on how to achieve this vision. For example, the We Run Uptown community established by Hector Espinal revolves around a common mission: “To inspire New York runners to become better themselves and to enjoy the fun of running by building a community network.”

But it wasn’t the way he got his Washington Heights (northern Manhattan) neighbors to run with him, instead he just posted on Facebook: “Wait for me at 168th and Broadway, we’ll be together Go for a run on the bridge.”

Those who join Hector know exactly what they’re going to do (running) and with whom (neighborhood). But as for why they do it, everyone has their own reasons, but they all share a common vision: to be healthier.

The same is true for DAOs. It’s hard to start a project until you really understand what the project is, how, and why, and whether it’s going to get people’s attention.

In addition to a sense of community, DAOs also need governance and incentives. Although the community will build these mechanisms later, the framework needs to be built first. Because the governance and incentive structure will carry your blueprint vision, outline the general direction of the DAO, and ultimately be the main reason for people to join.

So, when should you start building a DAO? Jesse Walden of a16z has some answers on this:

– Progressive decentralization

Walden believes that crypto startups should gradually decentralize: “Building a successful product from the start comes at a high price: product leadership, rapid iteration, step-by-step market orientation, although these lead to community ownership and governance The road to compliance has become complicated, and that’s what guarantees its long-term health.”

Building a community around an untested idea often leads people to overlook the most critical task: testing the idea. To avoid such mistakes, Walden recommends the following three steps:

  • Explore product-market fit
  • Build an active community
  • Transition to community ownership

5768166_image3

Explore product-market fit

Things move fast, and directions change fast. You need to work in sprint mode: define the problem, draft the solution, and test it. The core team can continuously adjust and repeat the above steps until the product meets the market demand.

Focus and rapid iteration are critical. To optimize for speed, you need to keep features small and flexible. Walden suggested that decentralization should not be considered at this stage.

Community Involvement

When you find your target market, you’ll find that you’re solving a real problem for a large group of people. Even if your product is still in the drafting stage, it will continue to receive requests from users. Some users even ask for functionality. So now, it’s time to start building a community.

If building a DAO is not in your plan, building a community might be a good idea, for two main reasons:

  1. Gain customer insights to help make product adjustments;
  2. Increase customer stickiness. Because it’s very easy for consumers to give up on a product they didn’t meet through the community.

In Web2, businesses build communities in order to derive value from them. For example, Coda, the documentation app I used when writing this article, has a vibrant online workspace where people can share templates, develop workflows, and exchange experiences. While community members can benefit from these interactions, the greatest value goes to Coda. It mines forums for use cases, feedback, and ideas. In return, users pay for the products they help develop.

This looks like exploitation, but it is. Even though community membership is voluntary, things might not have to go that way.

5768167_image3

If Coda decides to go the DAO route, it can:

  1. Get community members to suggest product development.
  2. Build governance and incentive structures at the community level.
  3. Backtrack value by rewarding members for contributions (e.g. template creation, workflow development), etc.
  4. Introduce a token mechanism to realize value exchange among community members.

community ownership

All the efforts of the first two phases will converge into one step. The founding team returns full control to the community. From now on, token holders will make all decisions about the future of the organization.

Governance and incentives are the biggest challenges in making the leap from a supportive but hands-off community to an operational DAO. No matter how much work you have done in the previous stages, it is ultimately up to the community to improve the governance structure and develop the processes and procedures to enable the DAO to handle all aspects of the business.

In addition to day-to-day operations, there are some challenges in terms of existing shareholders, employees, taxation and company registration. Most states and countries do not recognize DAOs as legal entities. Do you want to register it as an LLC or choose to register it as a DAO in the state of Wyoming? Based on the choices you have made, what will happen next with respect to wage deductions and compliance with labor laws?

I don’t currently have all the answers to the above questions. And frankly, I don’t think anyone knows. As we’ll see in the examples below, designing a reasonable architecture can take years, and often more than three years.

How other projects turned into DAOs

Gitcoin

In 2017, Scott Moore and Kevin Owocki created Gitcoin, a platform to fund public product development for Web3. Earlier this year, Owocki explained that many exciting projects have not been developed for a simple reason: a lack of funding in the initial stages. So to solve this problem, Moore and Owocki started this grant project to support developers building open source code for Web3.

It wasn’t until May 2021, when it launched its governance token (GTC), that Gitcoin became an official DAO. For the four years prior to that, Owocki and Moore had primarily set out to identify problems, design solutions, and build a community of builders and sponsors. After all the above issues were resolved, the team started to develop a governance framework for the community and how to hand over responsibility to the DAO. The issuance of GTC tokens is the culmination of all the above efforts.

AAVE

In 2017, Stani Kulechov founded ETH Lend as a decentralized peer-to-peer lending platform.

A year later, Kulechov and his team transformed their business model into a liquidity pool fund pool platform, and they also changed their name to AAVE – Finnish for “ghost”.

It wasn’t until 2020 that AAVE officially started functioning as a DAO.

What did Kulechov and his team do in those three years? First they improved the business model, rebranded, and validated their product-market fit. After AAVE gained some traction, they decided to become a DAO.

MakerDAO

In 2015, MakerDAO was initially established as the Maker Foundation. Rune Christensen articulated the vision to build a stable digital asset (e-Dollar) to support the exchange of value on the Ethereum network. The problem Christensen wanted to solve is one we still face today: mainstream cryptoassets are too volatile to be practical tools for everyday transactions. The world of encrypted digital assets needs a stable digital asset.

Over the next few years, Christensen abandoned the Maker Foundation and released a limited-edition stable of digital assets , DAI , and paved the way for the formation of a DAO. You can read the full version of the process here.

Like many other DAOs, MakerDAO has successfully advanced the evolution of DAOs through progressive decentralization. However, this method is not a panacea.

When progressive decentralization fails

Progressive decentralization is best suited for Layer 2 applications. Typically, they are built on Ethereum and use smart contracts. Most DeFi and Web3 applications fall into this category. However, some business models require decentralization from the start.

Layer 1 protocol

By design, projects like Ethereum, Solana, and Polkadot need a community of participants from the start. Their real purpose is to provide concrete solutions through decentralized blockchain technology. They operate in a decentralized environment from the beginning.

If the founders of Ethereum had all the decision-making power, it would never have succeeded and would no longer be a trusted public chain. It becomes another Amazon or Airbnb, a network with parameters pre-set by centralized decision makers.

The value of a blockchain network lies in its decentralization. Therefore, it needs to be optimized from the beginning.

Social clubs and investment funds

If it weren’t for Web3, The LAO would be a traditional VC fund and PleasrDAO would not exist.

The LAO’s success lies in its community of participants who co-invest in crypto projects. In traditional venture capital, The LAO will have a general partner (GP) who will raise funds from limited partners (LP) to set up a fund, and the general partner will be responsible for the investment and return of this capital.

This model works when the limited partner is not interested in the day-to-day operations of the fund. Many LPs take this approach because as long as the fund can deliver the promised returns and maintain the same risk profile, there is no need for them to step in.

However, there are LPs who care about more than just bank accounts, and decentralized organizations like The LAO and Meta Cartel are perfect for them.

The implementation of The LAO is inseparable from the DAO. By design, it is based on a network of people in different roles, including investors, Bole, mentors and founders. Together, they built this project that will shape the future.

The same is true for PleasrDAO. It brings together a group of people with a common goal who collectively own digital artwork. Often collectors clubs exist offline, however they tend to be overly centralized and have a limited number of members. Thanks to a single tweet, PleasrDAO has brought together scattered and largely anonymous members who, without forming a centralized corporate entity, currently have some of the best NFT art in the world.

While projects like The LAO and Ethereum would not benefit from a phased approach to decentralization, they were also not fully decentralized from the start. They also need a small team of committed founders to keep things moving.

In Infinite Machines, Camila Russo describes how Vitalik Buterin worked on the project with Gavin Wood, Charles Hoskinson and Anthony Di Iorio. Although they have different roles, they all come together to make key decisions when it comes to company, legal registration, token issuance, etc.

According to Russo, the original Ethereum was anything but smooth. Quarrels and power struggles are also common. Most of the original founders left the project because of conflict. Even if the founders get along well, the initial stages of any business can still be tough. And trying to create a DAO just makes things more challenging.

Many in the crypto world are familiar with the story of The DAO. Within weeks of its release, a bug in its smart contract led to a hacker withdrawing millions of dollars worth of ETH tokens. Researcher Quinn DuPont provides an in-depth assessment of the challenges The DAO faced in its early days, noting that “we are seeing a vision of a future governance structure breaking down and shifting to a traditional social model – using existing strong relationships to negotiate, argue And against — all this without a single line of code.”

That’s why it’s important to clearly define the process and timing of the transfer of power to a community-driven governance structure, and to have a clear understanding of the shared vision, so that it can operate in a way that allows the community to fight alongside you .

What do you think?

23 Points
Upvote Downvote
5768227_watermarknone.png.webp

What is the creator economy? What can NFTs and cryptocurrencies bring to the creator economy?

1642672483_hqdefault.jpg.webp

What is Decentralized Web || Web 3.0 || Brave browser.