Buckle up. The puns will get worse until morale improves. But, other than being an amazing vehicle for terrible puns, what exactly is a DAO? Wikipedia will tell you:
A decentralized autonomous organization (DAO), is an organization represented by rules encoded as a computer program that is transparent, controlled by the organization members and not influenced by a central government, in other words they are member-owned communities without centralized leadership. A DAO’s financial transaction record and program rules are maintained on a blockchain. The precise legal status of this type of business organization is unclear.
DAOs were made possible because decentralized computing such as Ethereum now exists. They’re a great tool for enabling financial and logical controls in decentralized projects, so over the last 4 years, lots and lots of DAOs have been created. Of course, over the last 4 years, many, many DAOs have collapsed, been hacked, or exploded in spectacular ways. So are we too early? Are DAOs just a bad idea? Or are we using them in ways they’re not well-suited for?
Let’s DAO it better
To create effective DAOs, we have to learn from those failures, hacks, and explosions, and design our code and behavioural systems in ways that either prevent explosions, or mitigate the effects of them.
Let’s look at prevention first. All we have to do is write code that has zero flaws, and can handle every future case that the world can throw at it. If you know code, you’ll realise that the word “all” is doing an impressive amount of heavy lifting in that sentence. Attempting to write flawless code that’s entirely future-proof is easy. Easy in the way that doing brain surgery on yourself is easy. Sure, you can try it. But the results aren’t going to work out well for you.
But, let’s assume that we can make a flawless perfectly spherical DAO in a vacuum. It can manage an entire project from start to finish, and grow smoothly. Is building that even a good idea? Most likely, what we’ve built is slower than a traditional organization to adapt to changes. It also took us longer to build, and we spent more resources doing it. So even if we could build the perfect DAO, it’s pushing us into sub-optimal working practices. Preventing DAO explosions entirely isn’t going to be viable.
So we’re left with mitigation. This is immediately more promising, because we can point to a corollary type of organization that also experiences a high rate of explosive failure: traditional startups. Looking at the numbers, startups fail at a significantly higher rate than DAOs (though it’s early days yet, and the DAOs may catch up). And yet, the startup lifecycle is not only accepted, but celebrated. Failure is expected, and the failure states are well-known and easy to manage. Can we replicate this in the DAO world? Maybe – it’s certainly worth trying.
The big difference between startups and DAOs is that startups compartmentalize risk extremely well, while most current DAOs are “all the eggs in one basket” organizations. For startups, very few people are “all in” – usually just the founders and a few of the early employees. The investors are highly diversified, and the risk to later employees and other stakeholders is lower – there are always more tech jobs.
DAOs are basically a giant bucket of risk, held together by a single piece of slightly dodgy code. One piece of software runs the whole show. In addition, the participants are more heavily invested, both economically and emotionally (and mostly, they got involved with little or no due diligence). Clearly, we need to de-risk DAOs if we want them to be effective and successful.
We can reduce risk in exactly the same way that the startup industry reduces risk – by modeling ourselves on a venture capital firm, rather than on a single startup. VCs are the real winners of the startup economy. They know they’re in a risk-based game, and they do a ton of work to de-risk their portfolios. The biggest thing they do, of course, is right in the title: They have a portfolio of investments, so they have smaller eggs, and more baskets. Their investments are also long-term (5 to 10 years or more; practically forever in crypto terms), and chosen very carefully – VCs say yes to way less than 5% of opportunities.
Looking at a decentralized project, this model fits remarkably well. We can set up a non-profit or foundation managing the overall health of a project – mirroring the VC in the startup world, and then lots of DAOs, each set up for a single, focused purpose – mirroring the individual startups. This balances decentralization with flexibility, speed, and resilience. If one DAO fails or is compromised, none of the others are affected, and the majority of project funds are unaffected.
It’s probable that a smart team could eventually design a DAO to take the role of the central organization. That organization is making simple yes/no decisions; it can require a high bar of votes to say “yes” to things, and it can minimize risk by limiting the funds that can be spent on a single project, or over time, and by setting up clear rules for milestones and vesting. Even with a foundation in charge, the foundation would likely codify similar rules, and could increase transparency and decentralization by doing that. I’m hopeful that someone will design and test something like this in the near future, because if it works, I’d look at adopting it for the Genesis Foundation portion of Genesis Worlds.
What DAO we do?
At Genesis Worlds, we’re taking the slow route towards a DAO-based organization. Step 1 was fully centralized; that was our startup phase while we were figuring out what to do. Step 2 was “community involvement” – lots of conversations with the community, and sharing information. Step 3 is now – community voting. We can get a stronger sense of what the community wants using a mix of discussions and off-chain voting tools like Snapshot.org.
The next step beyond this is setting up the Genesis Foundation, an organization explicitly tasked with maintaining and growing the Genesis ecosystem and community. Instead of using smart contracts to enforce behaviour, we can use the legal system instead – if the foundation breaks explicit promises to the community, legal action can force it to comply. Beyond that, we’re planning to implement the sub-DAO system, providing direct management of development funds for individual worlds or other in-game communities. It’s entirely possible that in the future, DAO technology will advance to the point that we’ll be able to complete DAO-ification of the whole Genesis Worlds project. I’m hopeful that can happen; we’ll see what the future holds for it.