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State of the DAOs #7: Social Tokens and the Future of Work
You're reading State of the DAOs, the high-signal low-noise newsletter for understanding DAOs.
Gm and welcome to DAO life! This week we explore how DAOs use Social Tokens to create trust, align incentives, provide ownership, and give power back to the people through voting rights and community decision making. DAOs are qualitatively different than companies. Crypto protocols are responsible for enabling trust, letting humans focus on creating communities and making strategic decisions collectively.
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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Social Tokens and the Future of Work
Guest Author: Eliot Couvat is a french writer passionate about Social Tokens, Web3 & the Creator economy. He works as a Head of Community & Growth at Coinvise, a thriving platform that allows anyone to create social tokens, where he helps hundreds of Web3 creators & communities build open economies. You can find him on Twitter @CDTEliot.
For decades, individuals have collaborated and ensured trust between parties by creating companies and signing legal contracts. While this system has been successful, it has shown its limits, favoring security over flexibility and centralized guidance over individual initiative in a period when employees are reinventing themselves and looking for new opportunities at work.
As power shifts from organizations to people, we need new solutions that enable individuals to be flexible, while having the right tools to easily collaborate and create trust with each other.
Social tokens are a complete paradigm shift in the way people collaborate, and DAOs are leveraging them to give power back to individuals worldwide. The next generation of workers might start their professional career in a DAO, starting by simply vibing into these tokenized communities, helping to grow the projects they love, getting paid for having fun, and ending up never working for traditional companies.
As our society is changing, Social Tokens seem to be the right path to reach this future of work and seem to be a growing primitive for enabling collective effort.
1 - What problems do companies have?
Collaboration has always been key in innovation. It is well known: “if you want to go fast, go alone, but if you want to go far, go together.” There have, however, always been major challenges in collaborating because there is only so much you can trust someone you don't know.
Overcoming the barrier to trust is one of the reasons people started to create companies. It was easier to collaborate with someone in the long term by hiring them and signing proper contracts, ensuring this person wouldn't reveal the company's secrets. It was also easier to raise and allocate capital when the company limited risk and liability to shareholders.
Over time, the model of signing working contracts with traditional companies has shown its limits. Deciding to work for a company in the long term means saying no to hundreds of other exciting projects, losing flexibility, and limiting incentivizes for salaried workers to do their best work.
The current model of traditional big tech companies prevents employees from making decisions over future strategic plans, lacks employee ownership, and incentivizes companies to stay in a closed environment, not encouraging partnership with others.
Today, we're seeing the unbundling of traditional employment where the individual is now the atomic unit. Individuals worldwide crave more flexibility, autonomy, and companies still struggle to evolve quickly enough to keep up with those changes.
We're leaning toward a more fluid way of working, where individuals will follow their interests, collaborate on multiple projects simultaneously, and not have the constraints of working at a single company. At the same time, these individuals often need to collaborate with others to achieve their goals and don't want to work independently for the rest of their lives.
To deal with these problems, we need new solutions that enable individuals to be flexible while having the right tools to collaborate and create trust with each other. Social Tokens might be the key to the future of work.
2 - How do Social tokens and DAOs solve these problems?
2.1 - Social tokens as a way to create trust
Social Tokens create trust. I don't think they will completely replace what we use today to create trust at work, such as legal contracts or fiat payments, but they are a way to start projects more quickly than with traditional legal status.
One way to create trust through tokens and crypto mechanisms is to create a multi-signature wallet (multi-sig). A multi-sig is a crypto wallet that allows you to manage your community crypto assets (tokens), with the option to require a predefined number of signatures to confirm transactions. As it is necessary to have multiple team members to execute every transaction, it prevents unauthorized access to the funds in this wallet. No one can leave with all the money as it would require the authorization of the majority of other members.
Social Tokens also create trust when splitting the benefits through smart contracts. A smart contract is code that only accepts the transaction when all the conditions have been met. Instead of having to trust that someone will share the benefits with you, we could imagine a smart contract that would say, "if the item we've collectively created has been sold, then the benefits of the sale will be shared equally between the following crypto addresses." As the smart contract is deployed on the blockchain, it is impossible to make changes to it, ensuring trust between parties from the beginning.
Some projects have successfully leveraged the power of social tokens to create trust. For example, The Modern Billboard Collective is a project between three startups that aims to create a tokenized equivalent of the Million Dollar Homepage, a web page consisting of a million pixels arranged in a 1000x1000 pixel grid where anyone could buy a pixel for $1 and place an ad, making the entire page worth $1 million. The collective aims to take this idea and using tokens allows brands to advertise without using an intermediary on their respective websites by selling part of their homepage's pixels. In pursuing leveraging crypto-mechanisms for the whole project, they created trust between the three founding startups. Indeed, by letting anyone buy a digital "lot" on one of the three websites "on-chain," it is easy for each company involved in this collective to trust each other, as the royalties will be shared fairly and automatically between all parties. Without this technology, the three startups would have needed legal contracts, costing money and time, and required royalties to be shared manually, again costing time and creating an inefficient process. Social tokens enable trust, flexibility, and speed.
2.2 - Social Tokens as a better way to align incentives
The whole concept of creating a Social Token is to build a virtual economy where early believers can share the upsides. It's a complete paradigm shift in the way people collaborate.
Basically, the end-goal of DAOs is often to reward contributors helping the community grow by giving them shares (Social Tokens) of the community and creating such an ambitious and robust community that people are keen to buy the token to have access to the special accesses, perks, and voting power in this community. Early supporters can then sell their Social Tokens to those newcomers and get compensated for the work they've put in at the beginning. Instead of simply getting paid with an existing cryptocurrency (similar to a salary), contributors are incentivized to help the DAO succeed, as the value of their tokens is directly correlated to the project's success, and can gain an almost infinite value.
In a sense, we could compare Social Tokens with equities. In the beginning, they hold no value, but people truly believing in the project will be keen to work in exchange for those equities, hoping that it will be worth much more later. This system allows community leaders to fairly reward anyone contributing. With aligned incentives, collective effort is much easier to foster.
2.3 - Social Tokens give ownership over future key decisions
Social tokens also come with voting power. Contributors can use their tokens daily to vote on proposals and have ownership over future strategic decisions within the DAO. Efficient tools have been created to facilitate the voting process.
One of these tools is Snapshot, which allows anyone to vote on-chain for proposals with their token, making it easy for individuals worldwide to vote on important decisions. The fundamental difference between DAOs and traditional companies is that these individuals team up around joint missions and values that vote for strategic decisions.
In theory, the more tokens someone has, the more voting power they have. This "token" voting system allows a genuinely flat culture and removes all hierarchy. Everyone can vote on future decisions in a truly equal way.
In reality, the voting system through tokens is still not perfect and there is still a lot of inequality in terms of voting power. The core contributors being paid in tokens each month and the early believers in the project that might have received an Airdrop at the beginning are often considered whales, and usually have much more voting power than the average member of the DAO. There are still problems with token voting, but people are hard at work trying to solve them.
To solve this problem, lots of people are working on new solutions. New tools should soon implement an option to allow quadratic voting, a system that gives the same weight to each voter, no matter the number of tokens they hold.
DAOs are like employee-owned cooperatives, and everyone involved in this ecosystem tries to make them as fair and decentralized as possible. Social tokens are like stocks with voting rights. They are not perfect yet, but in traditional companies, employees often receive stock options that do not grant voting power, and no one in the traditional corporate environment is trying to change this.
2.4 - Social Tokens tools to give power back to the people
More than the token in itself, it's the ecosystem and all the tools around it that are valuable. Indeed, new solutions are created every day to power this revolution and to make life easier for those Web3 communities and individuals wanting to start a new project.
Coinvise is one of the most thriving Web3 platforms today that has created a complete set of tools to help DAO leaders create and manage their Token. Their Airdrop tool, for example, allows DAO leaders to send tokens in bulk to Ethereum addresses, making it easy to reward contributors for their work, bringing awareness to a project by sending tokens to people in the leader's network, or sending tokens to grant access to token-gated content. Coinvise also creates quests at scale, creates a vesting schedule to disincentivize speculation, and bridges tokens to a Layer 2 to avoid gas fees in minutes. This set of tools allows anyone to create a tokenized community and easily take actions at scale and in a trustless way.
2.5 - Social tokens foster culture and retain contributors
Traditional companies have, for a long time, tried to create a strong culture and foster belonging, but the primary purpose of a company is to make a profit. Culture is often a secondary layer serving to make a profit and acquire new market shares.
On the other end, DAOs are virtual communities where people with shared values decide to join forces to hang out and achieve their goals. It's not about work. It's first and foremost about culture, about vibing together and creating with others, building what you've always wished to create. In DAOs, culture comes first, products and projects come second. Not the other way around.
To build a robust culture, DAO leaders can set up tools to boost members sense of confidence or to encourage gestures of kindness and support, two critical elements of a great culture. In many DAOs, this can be achieved by sending tips to other contributors as a display of appreciation, recognition, and connection. By focusing on culture first, DAOs can overcome the barrier of trust that traditional companies struggle with.
Effective DAO leaders put a lot of attention and effort into creating a strong culture. Culture is not an add-on, it's a core feature. It is what bonds people together and creates trust on a different layer than crypto mechanisms.
Of course, Social Tokens haven't solved all of the traditional companies problems. They are not perfect, and the perfect solution may never exist.
DAOs seek to solve many of the most pressing problems that traditional companies face today thanks to cryptographic mechanisms and Social Tokens. By leveraging new technologies, they give freedom and power back to the person, and give back assets that individuals seek today and that traditional companies took away a long time ago.
Incentives will never be fully aligned in Web2 companies. The more companies pay their employees, the less profit they will make. With this outdated model, employees will never work as hard as they can as they know the hard work they are putting into the company will never be fully rewarded.
On the other hand, we're seeing tokenized communities thriving today and leveraging all the advantages of social tokens to create projects that would have been impossible without them. Constitution DAO is a perfect example. This tokenized community was created to buy one of the original copies of the United States Constitution at an auction held by the high-end auction house Sotheby's, which ended up raising $40M in seven days. They convinced thousands of people worldwide to send them funds, leveraging smart contracts to create trust between parties.
We still have a long way to go to see these DAOs be completely efficient and genuinely decentralized. Most tools being created today won't be around in a few years, but that's the normal cycle of true innovation. We are experimenting at lighting speed.
I'm convinced we'll see more ambitious people build DAOs instead of companies because of all the advantages this new collaboration model allows. We'll also see more DAO-to-DAO collaboration, as DAOs need to capitalize on their strengths and can't do it by relying on products and tools made for Web2 companies.
DAOs are the new startups. We're still very early, and this new way of collaborating is messy, chaotic, and unproven. But by joining a DAO, you will learn quickly, have unparalleled upside, and discover more freedom and flexibility than ever.
Get rid of Web2 companies. Come work for a DAO.
⛏️ Dig into Forefront Social Tokens courses
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DAOs at a Glance
Hand-picked articles to understand the current state of the DAO ecosystem
Author: Itamar Goldminz
Once DAO membership crosses the 1,000 member threshold, using data to proactively manage the health of the DAO is a necessity. A healthy DAO can be summarized below as:
Healthy DAO = healthy community + healthy governance + healthy finance
In monitoring the health of the community, a DAO should track the member conversion funnel, the small world score and the top five connectors and outliers. The conversion funnel provides actionable insights into the membership of the DAO and surface more pointed issues. The small world score helps to monitor groupthink while tracking connectors and outliers helps to take action against issue such as burnout and attrition.
Governance Health can be tracked by monitoring proposal approval rate, voting participation rate and rolling vote participation rate. A big part of the DAO ethos is engaging the entire community in governance decision rather than leaving it in the hands of a select few. The above metrics provide the insight necessary to course correct.
The Financial health of a DAO can be measured by looking at the top 10 outflows, planned vs. actual spend, and the community token Gini Index. The community token index is important because as DAOs are meant to be owned by their communities, and understanding the pattern of ownership is important.
While the above might not be the exact set of metrics, they are a good starting point for maintaining a healthy DAO.
Author: Santi Ruiz
Recently, the Constitution DAO tried to purchase one of the last living copies of the US Constitution. This exercise revealed how challenging it is to run a successful DAO, just like any political challenge. The history of the US Constitution throws light on some key governance lessons that may be applicable to DAOs. To begin with, the Constitution Convention itself created doubt about whether there would be a compromise to conclude on a singular document in light of contrasting State interests. While there were many discussion points, some delegates wanted to establish an entirely new governance system. Here are some takeaways:
Early birds get worms: James Madison showed up eleven days ahead of the Convention’s start date. In contrast, delegates from other States, including George Washington, did not arrive until a week later. This gave Madison sufficient time to get his thoughts organized and prepare a game plan to have an actual impact on the proceedings.
Importance of social lubricants: Benjamin Franklin, one of the Founders, contributed nothing of intellectual value to the proceedings. However, he recognized the importance of how “good food, liquor, and conversation could lubricate the machinery of government and politics.” Much of the actual deal-making happened in these informal events.
Clout counts: Much like Franklin, Washington was of little aid to the actual proceedings. What he did bring was a lot of clout, prestige and pressure. He turned the Convention of self-interested men into “a deliberation among thoughtful, public-spirited men”.
Play the press carefully: While the actual impact of the media hype is undetermined, it placed immense pressure on the delegates to live up to the pressure.
Big committees give you legitimacy, small committees get results: Generally, the Convention had brainstorming sessions which resulted in mere recommendations and rather than binding decisions. This helped delegates come around regarding thorny issues and gain consensus. In the meantime, smaller groups devised more concrete solutions to tough issues and built a shared consensus among delegates.
If there’s one thing that helped the Convention succeed, it’s that all the members leveraged their specific strengths for the project.
DAOs demand a lot of their contributors’ mental capacities. After the initial euphoria of contributing to a DAO wears off, many people are left in a state of psychological burden that can be called mental debt. This debt is the result of:
Tired brains. The amount and pace of information members process to effectively contribute is magnitudes greater than most fast-paced work environments. The always-on DAO model is hard on the brain.
Bad tooling. The DAO tool stack is not optimized for asynchronous work. Forcing contributors to work with ill-fitting tools creates mental fatigue.
No focus on mental fitness. DAOs are not optimized to encourage mental health.
To combat mental debt, DAOs should help members understand that their experiences in DAOs can interplay with the dopamine system within the brain. These dopamine triggers can help propel our work forward, but they also drain the brain of its energy. More thoughtful DAO design can help members find balance while also providing high-level contribution.
Along with system-wide design, DAO tools need to be developed to reduce tiresome content. We all love emoji-based communication, but replicating the “like” mindset of Web2 does not lead to long-term member health and contributor retention. As DAOs mature, they should create a culture focused on mental health as well as productive growth.
A DAO is only as healthy as its members. Burnout is real, and DAOs should have systems in place to address burnout and provide support for those suffering from it. Many long-time DAOists face financial strain from long hours and abnormal compensation that often doesn’t align with real-world finances. This needs to be fixed. As DAOs scale, mental health should be front and center in that conversation and part of any core design principal to ensure that DAO contributors can continue their work in a sustainable manner.
How should DAOs evolve as they scale up & membership grows? One possible structure is to allocate work across numerous sub-DAOs. In such an arrangement, each unit would manage their own internal governance, compensation & allocation of responsibilities as they relate to the proposal & execution of projects. Any application for work would list the specific KPI(s) being executed.
Every few months, the DAO would undertake two-week intensives to review their guiding performance indicators, and make changes as voted on. Sub-DAOs that produce results more consistently would be allocated more resources and competitive forces could be used as further incentives. For example, having two or more groups working to advance a common KPI using different strategies.
Traditionally, organizations that reach the top, find it harder to stay there. A common reason for this is their inability to produce disruptive innovations. This will hold true for DAOs as well. Once past the initial growth and after finding product-market fit, DAOs slow down and tend to focus on sustaining and improving their current product offering and less on disruptive innovation. A way to solve this is by creating a subDAO which will spin off from the parent DAO. All decisions related to new product or disruptive technology should be offloaded to this subDAO.
Reasons the subDAO will succeed as a disruptor are that it will have a culture distinct from it’s parent, it will be free to innovate with quality and compensation structures of it’s contributors, have the ability to fail early through quick iterations, and at the same time have access to the vast resources of the parent DAO.
🔥 and 🧊 insights from across the DAO ecosystem
Author: Matt Cimaglia
🔑 Insights: Web3 empowers creators to produce content on decentralized platforms that allow for monetization through direct contact with their market. It fulfills the promise of technology working for democratization because gatekeepers are removed and the tools unlocked by smart contracts ensure content producers have access to secure revenue streams. Creators benefit from:
Platforms are enabling an ever-expanding marketplace where digital content is easier to create and ship to the consumer.
Smart contracts guarantee contract terms, including who owns the content, who gets paid, and when the payments happen.
In addition to recording the value of a piece of content and its provenance, the blockchain returns the margin from middlemen to the creator, who can monetize on a low-fee platform like OpenSea and tag royalties on the contract for future revenue streams.
🔑 Insights: Long-time crypto podcaster Cobie says that Web3 doesn’t exist. Not yet at least. But there is promise in a decentralized landscape where value can accrue to the creator, even if a dystopia is a remote possibility on the horizon.
Early launches of Bitcoin and Ethereum reflect the fairness we aspire to, a place where the already rich didn’t have a special advantage, unlike post-ICO 2017 where both inside investors and cash-grab founders captured the wealth.
Given the rise of inequality, a better world is one where ownership and self-autonomy allows for participation that results in value, such as the case of ConstitutionDAO where members didn’t make the purchase, but they did become members of a valuable organization.
It may be that VCs and scammer founders lead us into a greedcorp world that looks worse than the present, but there is still hope if the regular people who were harvesting profits for big companies can exit to build an equitable and cooperative future.
🔑 Insights: Currently, communities in Web3 are not being as intentional about their identities as they should be. At the moment, some of the values of web3 space are immutability, rigidity and permanence. Unfortunately, these values are incompatible with the concept of identity which is constantly changing.
Images in web3 mean different things to different people. To one person, a Bored Ape might negatively represent an “exclusive frat club”, while to others it is viewed positively as a “status symbol.”.
Communities using profile pictures can lead to dissonance. Profile pictures are static and don’t evolve. While a community could have at one time bought into a Profile Picture Project (PFP), its identity changes and thus the PFP represents different things to different members of the community.
PFP projects allow people in web3 to have fun and express themselves, but on the other hand people make assumptions based solely off the PFP. Whether people use NFT projects or their real faces, it is a signal to the wider audience on how to read and approach them.
Identity management then becomes important and as such people should think about themselves and their identities: do you want to be passive and unintentional or active and intentional?
Author: Packy McCormick
🔑 Insights: Many are drawn to Web3 out of speculation and this can produce a greedy ugliness. However, the output across the various projects are composable solutions to real world problems:
Reductionism is a method of breaking phenomena down into their principal components as a means of understanding the whole. Adopting this perspective to Web3 causes many to roll their eyes at the memes and rising valuations.
Complexity science was pioneered by researchers at the Santa Fe Institute(SFI). The methodology studies systems by modeling the interaction of many “agents” operating within. These actors are preprogrammed to get smarter with passing iterations, which can lead to a better understanding of how behaviors and outputs might change over time.
Could Web3 be interpreted through the lens of complexity? Projects in the space feature the intersection of rapid innovation with huge sums of capital. The resulting group coordination produces tools to help address challenges unique to each circumstance, but adaptable elsewhere.
Author: Dan Wu
🔑 Insights: Governance is a tool for organizations to decide where power rests. An ideal governance model is necessary to maximize a DAO’s meaningful participation and the realization of its mission. The need for governance is enhanced with the increase in risk and coordination costs. Governance is especially needed in treasury management and project funding.
A review of the available on-chain data shows that as DAOs scale, voter participation falls. A study of Compound’s on-chain voter participation statistics revealed that the subject matter of the proposal, materiality and breadth of impact play a major role in whether voters feel qualified and empowered to vote. Further, it was revealed that three-quarters of all $COMP token delegates never casted a single on-chain vote. Since 80% of $COMP delegates participated in governance a huge gap was discovered in delegate voter participation.
In light of this, three primary issues were identified with governance:
Engagement and Participation
Governance primitives known as pods could potentially help resolve these issues. Since it is a smaller group, there is naturally more trust between the members and the information is more accessible. They also avoid engagement traps and improve accessibility by increasing visibility towards decision making and creating formal on-chain requirements for people in-charge of decision making.
DAO Spotlight: GRO DAO
Gro protocol is a stablecoin yield aggregator that allows users to automate and leverage up their stablecoin returns by using a variety of neutral yield strategies like lending income, trading fees from Automated Market Makers, and protocol incentive farming.
The protocol has a yield and risk tranching mechanism that allows users to choose from Vault, a higher risk product with higher yields, or PWRD Savings, a yield-bearing stablecoin which is protected by Vault funds (in the unlikely event of protocol or stablecoin failure). It also recently launched Labs to offer automated leveraged yield farming on Avalanche.
The Gro protocol DAO was voted on and established by community members. As a result, it has a focus on rewarding long-term alignment by distributing tokens to members via a vesting mechanism. Gro is committed to decentralized governance through its use of contributor defined rewards and community votes on tokenomic changes and treasury spend. Protocol decisions include: the protocol roadmap (priorities and future projects), protocol parameters (including fees or funding rates), and yield strategies.
Gro is committed to accruing the value it creates to the Gro DAO token through token utility (gated access to information and services) and performance fees. If you’re interested in learning more, get involved!
Get Plugged In
This is a free, long term, data-stewarded directory for DAOs. It's built with diverse community cooperation and participation, which aims to enable greater understanding of the emerging DAO ecosystem, allow for more interDAO communications and awareness, and increase visibility and accessibility of joining a DAO.
🌄 ETHDenver - February 11-20, 2022 - ETHDenver is a member-owned Community Innovation Festival. With the genesis of SporkDAO in June of 2021, ETHDenver is the first event-based DAO in the world. The ETHDenver #BUIDLATHON is about bringing diverse creativity around a common purpose. Distributed computing is the future and Colorado is a leading community supporting this emerging technology. Our event empowers participants to shape this new world, while cementing the Rocky mountain region and the State of Colorado as a thriving hub of Ethereum and blockchain innovation.
🏔 DAODenver - February 15-16, 2022 - We're going to Colorado, come with us! What will be one of the biggest DAO events is coming in February alongside ETHDenver. Two full days of discussions with the most influential DAOs and DAO leaders, helpful community-run workshops, and great VIBEZ! Whether you want to learn more about evolving DAO governance models, or how to be a better collaborator, DAODenver will have it all. This event is completely DAO-led and managed! All proceeds go to DAODenver organizers and DAOists.xyz treasury with the goal of providing free information and best-practices for DAOs.
🏝 Permissionless Conference - May 17-19, 2022 - Tickets are on sale for one of the biggest DeFi conferences! Over 5,000 people will be attending in total and every two weeks 250 more tickets unlock. Once 250 tickets are purchased, registration closes and you’ll have to wait until the next release. Speaking of the next release, prices are currently at $732 and almost sold out. Speakers include our very own Ryan Sean Adams and David Hoffman, as well as many others.
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