If you were asked what a DAO is, you probably would simply recite what each word of the acronym stands for, but is that a full capture of the concept behind these organizations and how they operate? Due to the several forms in which DAOs are structured, it's not surprising that it may be quite difficult to have a clear definition of what a DAO is and what we're working towards.

But as HiroKennelly writes, "regardless of what a DAO is, they are all built using the same dozen or so building blocks of digital organizations, many of which are akin to social legos". This issue’s editorial delves more into these foundational blocks as the author taps into years of DAO experience to introduce us to the 10 C's of DAOs.

As usual, we also feature latest news and updates in the DAO ecosystem. From VitaDAO's latest biotech spinout to governance, incentive structure, and social security issues in web3. This issue is fully packed to help you cut through the noise and get up to speed with the current state of the DAOs.

Contributors: BanklessDAO Writers Guild (Quilia, Warrior, ab_colours, Vi-Fi, Boluwatife, Kornekt, trewkat, siddhearta, HiroKennelly)

This is an official newsletter of Bankless Publishing, a BanklessDAO-affiliated project. Please subscribe and share to help us grow our audience as we fulfill our mission to build user-friendly crypto onramps.

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The Building Blocks of DAOs

Author: HiroKennelly

Although DAOs have been around for seven years, they are still pretty hard to define. The term ‘decentralized autonomous organization’ does very little to describe what they are, what they do, or how they do it. Even those of us who work and play in DAOs for hours each day have a really hard time describing just what it is we are doing and how we are DAOing it.

Is decentralization a reference to the technology, the people, the workstreams, the organizational structure, or the ownership distribution?

Is the decentralized organization autonomous because it historically has not been part of a regulatory or statutory regime, because of the idea that decisions are entirely left to onchain votes and executed by smart contracts, or because these entities enable maximum agency so that people can contribute as they see fit?

Are DAOs a tightly run, smart-contract enabled, on-chain voting organization of the future or are they loose collectives of nomads with a multisig and a governance token?

The answer to these questions is that it depends on the DAO.

Regardless of what a DAO is, they are all built using the same dozen or so building blocks of digital organizations, many of which are akin to social legos. When I first wrote of my experience in DAOs, I had all these ‘C’ words swirling in my head, writing that DAOs “operate at the confluence of contribution and collaboration, coordination and consensus, cohesion and community, all fueled by capital through a tokenized incentive structure.”

This is true, but after two years of bear-market building, I would add a few more C’s to the list of seven, namely culture, centralization, and constraints. As the bear gets sleepy and the bull begins to stir, let’s do a brief overview of these social legos to better understand how to get ready for the next great wave of DAO contributors.

The 10 C’s of DAOs

As with the DeFi primitives from which the social lego concept derives its name, the many C’s are composable — that is, interchangeable — but the way in which these legos are set and stacked determines the kind of DAO that will be built and maintained. As with DeFi primitives, some of these legos can be amplified or toned down depending on what behaviors the DAO wants to encourage.

Unlike with DeFi composability however, social legos don’t just easily slot together; many become embedded only once a solid structure is built. Some would call this stickiness, but it’s also a metaphor for resilience. If we can learn how these legos fit together and how to properly calibrate them, we should be able to build modular, resilient DAOs that will be ready to scale. But like all world-changing acts, first we need a list and a brief description.

In no particular order, the building blocks of a DAO are:

1. Contribution: Wanting to contribute to the mission of a DAO is often what draws people to a particular organization. In this context, contribution refers to the efforts and inputs of each member. Depending on the DAO, this can be almost anything, from coding, content creation, operations, and community management, to design, translation, and specialized knowledge that adds value to the DAO and helps to drive its mission forward.

2. Collaboration: Like any organization, DAOs require collaboration. Unlike many traditional organizations, however, members’ efforts to achieve common objectives are often self-driven, cross-functional, and asynchronous. Given the decentralized and distributed nature of DAOs, collaboration is typically facilitated by digital platforms and relies heavily on social capital, trust, and mutual respect among members.

3. Coordination: In a very technical sense, coordination refers to the effective organization and alignment of tasks, resources, and members' activities within the DAO. On a practical level, DAOs are experiments for finding new ways to coordinate at scale, leveraging technology to make Layer Zero – the human layer – stronger.

4. Consent: Consent refers to the idea that a particular course of action is deemed safe to try by a DAO’s members. Contrast this with consensus, which requires that all members of a DAO agree on a particular course of action. Although these terms are often conflated, rarely, if ever, is consensus achieved.

5. Cohesion: The glue of web3, cohesion is the unity and alignment of members with the organization's mission. It is a sense of belonging, of collective identity, that binds the members together, creating resilient organizations. A cohesive group will try to find a way to work through individual disagreements for the good of the whole.

6. Community: The community is the lifeblood of any DAO; the collective as manifested by its members and stakeholders. Community is the critical element in the DAO social stack, as DAOs are inherently community-driven, relying on the active participation, engagement, and collaboration of their members to fulfill its mission.

7. Culture: Culture in a DAO encompasses the shared values, beliefs, norms, and practices that shape its members: some would call it the vibe. A DAO’s culture influences how the DAO operates, how decisions are made, and how members collaborate and communicate. Culture and community often mirror each other.

8. Capital: We’re in crypto, so capital primarily refers to financial assets, to cryptocurrencies. Yet in DAOs, capital can also refer to other resources such as human capital (skills and expertise), social capital (networks and relationships), and intellectual capital (knowledge and ideas).

9. Centralization: While DAOs work to be operationally decentralized, there still exist concentrations of power, control, and decision-making authority. DAOs often strive to use technology to minimize centralization to ensure more open and democratic operations.

10. Constraints: No surprise, constraints refer to the limitations or boundaries within which the DAO operates. These often include resource constraints like contributor numbers or budgets, but they can also include technological constraints, regulatory boundaries, or operational rules that bind the actions and decisions of the DAO.

This list is obviously not complete, and there are many other ‘C’ words that come readily to mind, let alone the other 25 letters of the English alphabet, but I’m hopeful this short list provides a catalyst to think about how we’re building and why we’re building it.

We Can Change the World

It’s true, we can change the world, and that is really what I’m trying to figure out – how to build DAOs that will thrive at scale. DAOs are laboratories for new ways of reimagining social relations — human relations — but we have to be certain that we understand what we’re building in order to create the kind of change that only comes through aligning human potential with opportunity.

Such alignment is where we will find the sweet spot: the paradigm shift we crave; the move towards a society of self-sovereign individuals no longer fully bound by centralized, hierarchical power structures.

These ten building blocks are barely a beginning, but they are helpful to understand some of the core building blocks, the colorful social legos, with which we are building the organizations of a farther-and-closer-than-you-think tomorrow. I’m certain that DAOs can create structures that align humans in ways that will absolutely change the world, but it’s up to us right now to make sure that we are focused on building systems that won’t just change the world, but will change the world for the better.

Ecosystem Takes

🔥 and 🧊 insights from across the DAO ecosystem

Pfizer-backed DAO Launches Community-funded Biotech Firm

Author: James Hunt

🔑 Insights: VitaDAO, a decentralized organization focused on longevity research, has launched Matrix Biosciences, a biotech firm, through a collaboration with Dr. Vera Gorbunova from the University of Rochester’s Aging Research Center.

• VitaDAO provided an initial funding of $300,000 to Matrix Biosciences, with plans for additional funding through IP-NFT fractionalization.

• Matrix Biosciences aims to utilize the funds to develop cancer and aging-related treatments by studying hyaluronic acid-based compounds found in naked mole rats, known for their longevity and cancer resistance.

• VitaDAO is fronting the DeSci movement, which seeks to revolutionize research funding through crowdfunding initiatives and decentralized ownership, representing a shift away from traditional centralized approaches.

• The DAO boasts of a community size of over 10,000 members and has successfully funded 19 projects and deployed $4 million in capital to date.

Manufacturing Consensus

Author: Dryden Brown

🔑 Insights: The article provides an important perspective on the challenges and risks associated with the decentralization of crypto projects. It highlights the shift of power from Direct Leaders to Opinion Leaders and argues that this decentralization process can centralize power across the industry, making it more vulnerable to capture and attack.

• While crypto projects decentralize to transfer decision-making power to Token Holders, the shift often centralizes influence among Opinion Leaders. This centralization of power occurs due to the preference of voters to delegate decision-making to perceived higher-context Opinion Leaders.

• Premature decentralization can lead to Dead Player projects, where founders retire, creating a power vacuum and vulnerability to external influence.

• Decentralized projects, without strong Direct Leaders, face difficulties in making bold strategic decisions, leading to smaller outcomes and higher industry costs. Recruitment becomes harder, and potential recruits may opt to become founders instead, limiting the talent pool for established projects.

• The author advocates for a regulatory framework that allows tokenization without removing Direct Leaders, creating an environment where founders can retain leadership while benefiting from tokenization. This is crucial to fostering growth and reducing vulnerability to malicious actors leveraging decentralization.

Social Security for Web3 Work

Authors: Laura Lotti, Nick Houde, and Tara Merk

🔑 Insights: This article presents a preliminary exploration of the design and deployment of solidarity primitives for web3 social security. It proposes a modular framework to develop solidarity primitives addressing the three dimensions of security for DAO contributors: psychosocial stability, financial stability, and regulatory clarity.

• Building structural support around the talent that works on blockchain-based infrastructure is crucial to ensuring the ecosystem’s longevity and legitimacy, both internally and toward external stakeholders such as regulators and policymakers.

• Creating mechanisms that enable contributors across functional areas to receive stable and predictable income is key to retaining talent across market cycles. At minimum, stability requires contributors to be paid in fiat, stablecoins or other fiat equivalent.

• Regulatory uncertainty is an important distinguishing characteristic between DAO workers and traditional freelancing. While most freelancers face additional administrative overhead, the situation is even more complicated for web3 contributors given the lack of clarity around tokens legal status.

• Developing a solidarity primitive requires a few seemingly straightforward elements (membership structure, funding and distribution mechanism, purpose), these call for a concerted use of on-chain mechanisms, internal working norms, and extrinsic rules.

Designing Reward Systems for Web3 Governance

Author: Eliza Oak

🔑 Insights: The author explores the challenges and considerations involved in designing reward systems for online governance, with a particular focus on the comparison between reputation-based and token-based systems in web3.

• The historical wealth-based nature of political influence poses a challenge to transitioning towards merit-based governance. There is a need to prioritize contributions over wealth and connections.

• At the root of designing reward systems are two non-trivial questions: what should be rewarded and who gets rewarded? Web3 lets us design and implement rewards at scale and across contexts, opening possibilities for merit-based online governance.

• Reputation-based systems are considered more meritocratic, prioritizing long-term community alignment, while token-based systems offer scalability and liquidity, albeit with potential plutocratic dynamics.

• Exploring reputation-based governance and other ways to move beyond transferable token voting is an open and likely fruitful area for decentralized governance.

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