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Having The Hard Conversation: Building Better Compensation Frameworks in DAOs
You're reading State of the DAOs, the high-signal low-noise newsletter for understanding DAOs.
Gm and welcome to DAOlife! It’s time for us to have “The Talk”... When the vibes are high and the music is loud, it’s easy to ignore about things like roles, vacation, and compensation, but Samantha Marin is here to have an adult discussion with us about how to maintain contributors and build better compensation structures.
Next, we share the TL;DR on the latest DAO ecosystem takes and thought pieces, making it easy for you to cut through the noise and stay up to date on the world of DAOs.
This is the current state of the DAOs.
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Having The Hard Conversation: Building Better Compensation Frameworks in DAOs
Author: Samantha Marin
In corporate life, figuring out compensation is usually pretty easy. Someone at the top of the chain tells someone in the middle of the chain what your bottom of the chain job should be paid. If you’re entering mid-chain, there might be a little negotiation in between. Maybe a little extra stock or bonuses if you sell yourself well.
In DAOs, figuring out compensation is usually really, really hard.
Because there’s not a top-down approach to compensation, the community must determine who gets paid what. And this gets pretty tricky, because not everyone knows what others are up to, and decision-making moves slowly in a large group.
But compensation is also one of the most important things to consider. There are more opportunities than ever that are pulling skilled contributors away from your DAO and toward someone else’s.
The compensation talk, aka “The Hard Conversation”, is one of the, newsflash, hardest things we’ve been trying to figure out in BanklessDAO, and I know it’s been a barrier for other DAOs, too. Peer-allocation systems like Coordinape can solve some of these issues, but delineating a full salary off of what someone is allocated via GIVE tokens is probably not gonna cut it when it comes to attracting top-notch talent.
Here’s my attempt at having The Hard Conversation based off many other Hard Conversations I’ve lurked in or been part of.
Start with a basic remuneration outline that internal projects can build from (but not too basic).
People work better if they have a general idea of the constraints they’re working within. Those constraints can be wide or narrow—but there should be something for people to work within. So the first thing you should do is build this framework.
One way I’ve seen this framed is as “recipes, not instructions.” Rafael, core contributor at Cabin, wrote that “it’s probably best to think about community guidance as contextual (artistic!) recipes while encouraging individual members and guilds to find the right solutions for their context.”
For example, in BanklessDAO we started with a set token-per-hour remuneration instruction which can now evolve into a recipe with a lot of room for extra spices. Contributors were seeking the nuance but didn’t have a framework to test the nuance in. What about one-off bounties where hourly effort wasn’t recorded? What about contributors’ different speeds of working? What about participation in synchronous meetings? Should some difficult, essential tasks be valued higher than other easier, less-essential ones?
The hourly rate estimate was a good start, but not enough of a flexible framework to work within.
We quickly saw projects and guilds start building their own remuneration frameworks. Some shot for the moon with their funding asks, while others seemed to be pinching gwei. I’ve been told that I could’ve asked for more funding in some situations, and found myself wondering how I could have possibly known that. This left a heavy burden on our funding processes and created an environment where it was too hard to say no to projects.
But, as we grow and iterate, we’ll be coming up with new funding structures and frameworks for our projects to use. Here are a couple funding frameworks that could be applied in any DAO:
Active membership in a project or guild is factored into the amount of tokens received.
Level of knowledge in the DAO and experience is a component to receiving funding.
Critical importance to the health and functioning of the DAO means a higher token bump for that project.
Projects should be considered by subject matter experts, who can provide consultation to increase or decrease the amount of tokens sent to that project or guild.
Higher community support and voting attendance translates into more tokens, as it shows the full community is in support rather than just the small number who decided to traffic forums that day.
More time spent in the DAO (honestly stating the percentage of your work bandwidth that you put to the DAO) means more tokens via a salary or base compensation structure.
Build roles that have small remuneration decision-making abilities baked in.
People sometimes think DAOs are completely flat organizations where everyone makes every decision together. Those people have never been in a DAO.
Roles should have a level of remuneration decision-making ability baked in. A role-holder might have the ability to create and set bounties for tasks that are related to the role. A Design Lead could set remuneration structures for one-off POAP designs, for example. Since they would best know the scope of work for those bounties, they should be allowed to set the remuneration structure for them.
But the remuneration abilities should be limited. Should the role-holder be able to set someone else’s base compensation or salary entirely by themselves? No. But giving some compensation-setting power, especially with bounties, could be a huge unlock for DAOs experiencing decision fatigue and contributor burnout. There should be rails, but those rails should allow experimentation and ideation.
Without clearly-compensated roles with bounty and even sub-role-creating abilities, bounty hunters and non-role-holders suffer. They get paid too little or too much. They don’t know when to pick up a bounty because they’re not sure if it will be worth their time. Roles with remuneration abilities inside them must be designed for the well-being of workers picking up those bounties, not the role-holders themselves.
Create a salary for full members to encourage time off, essential governance tasks, and deep work.
Many of the DAO’s most active members don’t actually have a role—they’re compensated for their work via bounties and Coordinape rounds. But this encourages members to only pick up work they can turn around quickly, so they can pick up another task. In other words, it incentivizes fast work rather than slow, methodical, deep work.
A salary for the DAO’s most active members is a solution to this problem. This is similar to DAOhaus’s base and bonus system: contributors are paid a base salary but receive bonuses via Coordinape for above-and-beyond work.
By providing full members with a salary, these members are incentivized to stay in the DAO and continue working on the DAO. If the member only works part-time in the DAO, they get a part-time salary or salary.
Once salaries are set, the DAO can then ask members to:
Take time off for mental and physical health, restored clarity of thought, and family time. The DAO can even set up season-long sabbatical for contributors who want to spend time researching and learning rather than building and creating.
Participate in governance through forum posts and voting.
Focus on deep work tasks rather than just turning around work as quickly as they can.
Members who receive salaries should still pick up bounties, participate in Coordinape, and hold roles. The salary is what will keep the members around and increase the stickiness of the DAO.
Couldn’t members abuse this? Yes. People in Web3 are smart and can figure out how to exploit almost anything. That’s what makes this whole thing fun, right?
Luckily, we are also smart and know how to get around the exploiters. Here are some options:
Social pressure (always present in a DAO).
Committee that checks in on the level of governance participation and ensures contributors are taking their time off—kind of like a more active, governance-focused Human Resources arm.
1-on-1 member check-ins with key role-holders and governance leaders to ensure the members are getting what they need out of the DAO.
Re-evaluation of salary levels once or twice a year by core team members.
Salaries solve a lot of problems. But, like anything new and experimental, they create some problems, too. I’m excited to follow the DAOs that are testing base compensation and salary within their ranks to see what we can learn from them.
Limit Coordinape rounds to small circles of people who work together to prevent the dreaded popularity contest.
Coordinape is fun. But it only works if everyone is actually working together.
Our small Coordinape rounds are very effective. Everyone knows what others have been working on, so they can easily allocate GIVE tokens without guessing. But the DAO-wide Coordinape is not nearly as effective. Less outspoken individuals get the short end of the stick, while people who traffic a lot of channels end up getting more tokens. Sometimes, trafficking more channels means you have been working on and in the DAO more. But….sometimes it doesn’t.
Coordinape rounds should be small, held amongst project and department groups only. Remuneration structures suffer when people don’t know who they’re remunerating or what they’re remunerating them for. Coordinape is a great method for DAO remuneration, but should only be used as bonuses and only within groups who know each other and work together.
Encourage projects to iterate on the DAO’s remuneration outline and share their findings so the whole DAO can improve.
Within projects and guilds (guilds in BanklessDAO are half corporate department, half professional association), there has been iteration on the hourly funding structure. But we haven’t been very good at sharing it.
It’s no one’s direct fault—we’re all heads down, working. But, for DAOs to learn how to successfully compensate contributors, they must become better at sharing it.
Large DAOs are lucky to have so many SubDAO experiments happening inside them. But, we need to set standards in which those mini experiments can happen and report findings without feeling as if they’re going against the wishes of the larger DAO. Experimentation is necessary at this early stage in DAOs. However, the experiment must be documented in a standard template so members can easily take key learnings from it. Experiments that aren’t documented and shared are wasted.
One solution for this is to create a compensation or funding team that dives deeply into each project’s funding structure at the end of each cycle or season. Even a simple feedback form can do wonders when it comes to identifying how SubDAO funding experiments are panning out. DAOs are performing tons of interesting experiments, they just need to document them.
Design compensation frameworks to keep talent in-house, rather than bleeding talent to DAOs with more sophisticated frameworks
Without the requisite perks needed to keep them at the DAO, highly skilled members can and will take their skills elsewhere. If DAOs don’t acknowledge that membership retention must be of utmost priority, they will lose people who have and could have become core members.“DAOs should create ways for contributors to make longer term commitments, and even encourage and incentivize such commitments as a way of retaining their talented contributors,” wrote Spencer Graham, core contributor at DAOhaus, in a piece for The Defiant. In other words, paying contributors to stick around helps them make the decision to actually stick around.
The Dead Sea Effect is when an organization has a hard time keeping highly skilled members, because those individuals naturally have more opportunities available to them. If the organization doesn’t meet their needs, it’s easy for them to go elsewhere. So, the organization gets left with the people who don’t have opportunities elsewhere, kind of like the salt in the Dead Sea.
If you work in a DAO, the Dead Sea Effect should scare you. It might even be the biggest problem a DAO needs to tackle in order to survive more than six months.
It’s scary, but again, we have options. Tackling these problems looks like:
Setting higher-than-normal bounties or salaries for essential DAO work, such as treasury management, governance framework building, and member onboarding and retention.
Salary or base compensation for deeply active members.
Incentive structures for members who go above and beyond, like additional bonuses at the end of the season or cycle.
Reputation-bumping incentives, such as mobilizing on Crypto Twitter to support each other.
Required time off.
Exclusive NFTs and merch.
Don’t let your DAO become the Dead Sea. Set healthy compensation frameworks. Jesse Walden of Variant Fund put it succinctly: “if you can't incentivize talent, good luck attracting/retaining it.” I couldn’t agree more.
Educate contributors on how to talk about payment structures and take away the stigma of “money talk”
DAOs wouldn’t be able to move forward without having these Hard Conversations. So, creating spaces where it’s encouraged to talk about compensation is essential. Some of these spaces include open discussion-style meetings, office hours, forums, and channels where the environment is calm and trusting rather than angry and hostile.
Money talk can get uncomfortable fast, so consider voicing your concerns like this:
Talk about the role or the bounty itself, not the person who holds the role or completed the bounty. “This role has too much allocated to it because….”
Compensation is personal—there’s no way around it. Express these personal sentiments in “I feel” statements. “I feel that my role is under-remunerated because….”
Avoid blanket “we should” statements, as those distribute decision-making in a way where nothing gets done and can unintentionally sound as if they’re assigning blame. “I’ll talk to them,” rather than “We should talk to them.”
With these conversation tools, we can start having The Hard Conversations without feeling endlessly awkward about it. Which, honestly, could be the biggest unlock DAOs will have.
They never said it would be easy….but it’s definitely worth it.
Even though there’s still a ton to figure out about compensation structures, that doesn’t mean we shouldn’t put in the hard work to do it. The cloudy, secretive compensation structures of the corporate world are easy but damaging. Avoid the damage. Run toward hard things. We’re building a better system—we just need to put in the hard work and have the hard conversations to make it happen.
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DAOs at a Glance
Hand-picked articles to understand the current state of the DAO ecosystem
Author: Steve Glaveski
Technology has transformed the way we work and where we work. The Industrial Revolution brought farmers indoors to assemble machines in factories, and further automation created a wave of administrators carried out work in offices. As the World Wide Web further envelops our lives, it’s natural to expect more changes on the horizon, and DAOs will begin shaping the way work will look like in the future.
The tech-forward nature of web3 means that algorithms and automation are freely embraced, so in time, work there will be more about the creativity and less about monotonous tasks. It's said that 85% of today’s global workforce is disengaged, but DAOs provide contributors the opportunity to choose among initiatives that resonate with their values and match their talents. Because these groups are coordinated online, they provide increased geographical flexibility. Perhaps these features will alleviate the stresses of work-life imbalances, lack of autonomy, and office politics. They might make it more difficult for traditional corporations to attract talent too.
DAOs are governed by token holders, operating like most other digital assets in its ability to be traded or used as collateral across the crypto ecosystem. However, this means that the coins can also be purchased by non-contributors, complicating governance. Within the community, members earn these tokens by completing tasks or bounties, which drive the overall mission forward. While voting structures are likely to evolve over time, working on projects you care about and the ability to shape the direction of organization are will continue to shape future labor markets.
Author: Richard Kim
Crypto has been one of the greatest generational wealth transfers in history, coming in various waves and laying the foundation for a modern industrial revolution. This started with digital currencies like Bitcoin, evolving into smart contract execution layers like Ethereum. The creation of Ethereum and alternative Layer 1s unlocked more creative uses of tokens: DeFi, NFTs, Play2Earn, and community tokens. The most recent bull-run has softened the general public to the ideas of self-sovereignty, pseudonymity, and decentralization, parts of the crypto ethos that may have been unpalatable to all but the most stalwart explorers.
But as the crypto ecosystem progressed, we’ve created an environment of chasing short-term money and status games, which are an unfortunate byproduct of the “moneyness” of tokens. While the first waves in crypto caused friction in the ecosystem's path towards mass adoption, we’re facing the threat of building a “cold” crypto ecosystem, one that is too exclusive, isolating, scarce, trustless, and rife with zero-sum games.
If we are going to build money and status games, we need to make them sustainable and help support the effort of building lasting communities that connect to our broader humanity. This is how we unlock “warm” crypto.
Author: Curtis Yarvin
DAOs are here, but they are immature, and have not yet been subject to the ruthless optimization that is the modern corporation. As the joint-stock ownership company came to dominate business, it refined it’s decision-making practices to near optimal. In its current organizational form, a DAO cannot compete with this. But an optimal autonomous organization (OAO) can.
In OAOs, the goal of governance token holders should not be conflicted—governance decisions are solely focused on the success of the organization—regardless of how that organization defines success. The fundamental motivation for designing an OAO is to bring a streamlined version of corporate governance on chain.
The OAO is designed to maximize efficiency and accountability. These optimized organizations achieve autonomy by running decision-making on chain and by bestowing anonymous trustees with the power of the purse and the ability to make changes to governing structures, including the executive(s) who runs the OAO. The OAO must first define its mission, then actions taken outside the mission should be seen as problematic and rebuked by a trustee.
An OAO is really like a corporation running on a blockchain, but with certain corporate inefficiencies eliminated. Retained, however, is the corporate-like management structure that has made the modern corporation so effective. In DAO v. Corp, the corporation will always win. OAOs give the blockchain a chance.
Author: Patrick Woods
Businesses must invest in the community. A Go-to-Market (GTM) strategy involves figuring out who it is you’re selling your product to and using your resources to convince them that your product’s value-proposition is worth taking, but today, having a “Go-to-Community” (GTC) strategy is equally important. This is the process of implementing and optimizing your community building efforts to match business objectives.
The key is to create value with and for them instead of capturing value from them. A good way to guarantee success is to do community discovery. Through these phases: Awareness, Acquisition, Activation, Retention, Product and Referral, the user can become familiar with the product through word of mouth and continue to propagate of the mission.
Author: Mark Baylin
Incentives encourage or motivate people to participate in certain communities and these incentives can be extrinsic, intrinsic, or both. Some problems can emerge when the interests of the community are no longer aligned with the incentives of the core contributors. When changes are not made, core distributors will look for more attractive opportunities.
But if the DAO swings too far in the opposite direction, it risks attracting contributors that only seek monetary incentives, and mission-aligned contributors may be pushed to the margins or leave entirely.
Typically, the incentives of online communities progress from having zero incentives, to utilizing reputation as an incentive, and, ultimately, to using monetary payments as an incentive. There is also a middle step where contributors earn “sweat equity” (ownership of a company that hasn’t gotten any money) which is a healthy step in the sequence of community growth.
🔥 and 🧊 insights from across the DAO ecosystem
Author: Jeff Wilser
Jeff Kauffman has been online community building since Web1, when there was a genuine communication channel between brands and their customers. This relationship soured when the large Web2 companies gained more power and changed the rules. Kauffman exited the scene and emerged in Web3 to launch JUMP, a community for marketing and advertising professionals. From his vantage point as someone who runs bootcamps for crypto newcomers, he is able to identify future trends.
Brands can use NFTs and social tokens to build community in Web3, bypassing the intermediaries of Web2 (such as Facebook) which funneled communication through ad-littered platforms.
Brand tokens can offer loyalty programs on steroids; locked up points are replaced with transparent ownership.
Web3 communities will have an advantage over traditional companies at earning revenue, by tapping royalties and NFT sales, and rapidly mobilizing around new ideas.
It’s only a matter of time before communities take advantage of their strengths to purchase a Fortune 1000 company.
Author: Miles Jennings
The promises of decentralization are often debated. However, with the advent of programmable blockchains, composable smart contracts, and digital assets, developers have the tools to create community-centric ecosystems at scale. There are unique, but interrelated design challenges associated with building a distributed web3:
On the technical front, open blockchains support decentralization by providing a permissionless, trustless, and verifiable ecosystem through which value can flow. Products are constructed and maintained without requiring input from central intermediaries. Technology is the foundation of web3.
The tradable, digital assets underpinning public blockchains entwine economic incentives with the preservation and growth of open-source protocols. Tokens can be used to motivate behavior and distribute value to stakeholders based on their involvement. Balancing the interests of developers, contributors, and consumers can improve the user experience, which creates value.
The legality depends on government jurisdiction and each government acts with sovereignty, but they often take cues from each other, with U.S. securities laws being important, globally. Therefore, two important considerations should be contemplated when designing decentralized web3 systems: how to reduce information asymmetries and how to reduce the reliance on human managerial efforts.
Author: Sarah Campbell
CULTIVATING CATALYTIC COMMUNITIES
It is important to cultivate catalytic communities because to address systemic issues all parts of the system must work together. These communities bring together different actors to solve issues collectively, share information and resources freely, and coordinate and collaborate effectively.
Catalytic communities are formed where people begin to work together in scattered fragments where people or organizations know each other, then some person or group sees the opportunity to connect the different parts of the system together.
Information and resources flow across the network from person to person and from organization to organization without any having to go through a centralized entity and this creates a group of highly interconnected participants in the network’s core.
Leadership matters a lot when it comes to the catalytic community because it is extremely rare for people to spontaneously self-organize. This can create a form of hierarchy, but a minimum viable degree of structure is required.
The five core activities of building catalytic communities are: clarify purpose and principles, convene the people, cultivate trust, coordinate action, and collaborate to strengthen the whole system. Note that relationships are what make everything work.
The collective psychological health of a DAO can be propel organizations into the future or lead to a negative feedback loop. The talentDAO has created a DAO Health survey on Github that DAOs can use to improve contributor experience and the resultant outcomes of the DAO.
Predictors of healthy organizations include positive organizational attitudes, engaged workers, supportive cultures, aligned values, and clear communication, among others.
Their operational definition of DAO health is the DAO's ability to coordinate teams to work towards a shared vision and shared objectives as a function of the contributor socio-psychological factors that drive collective productivity, performance, leadership, and individual experience and well-being.
DAO Spotlight: [REDACTED] Cartel DAO
[REDACTED] Cartel DAO is participant in the Curve wars. A relatively new project launched in December 2021, [REDACTED] is an Olympus fork that utilizes protocol owned liquidity to control where incentives are funneled. Users can lock their governance tokens (BTRFLY) in the Hidden Hand protocol for 16 weeks and earn rewards in the form of the bribes captured by the protocol.
The cartel is building a large stockpile of important DeFi Governance tokens to generate yield for cartel members. The team has developed smart contract protocols to provide “Bribe Voting” capabilities like in Hidden Hand. Fees captured by the protocol are distributed between the treasury and BTRFLY holders. Locking BTRFLY into the new offerings will allow you to receive rewards.
Be on the lookout for Pirex. Pirex is similar to Convex, but provides users liquidity for their locked-up tokens. As with many new projects, you could get rekt, so proceed with caution!
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