What new narratives will DAO have in 2023?

Original author: Samantha Marin

Original compilation: Bai Ze Research Institute

How much do we understand about DAOs in 2022?

What we've learned is definitely more than ChatGPT:

DAOs went through many twists and turns in 2022, leading many of us to have a completely different view of DAOs now compared to the beginning of the year.

I asked on Twitter if anyone's perspective on DAOs had changed. Here are some of my favorite responses:

DAOs can serve as brands with decentralized funding

DAOs as organizations?

DAOs as networks?

DAOs as brands with decentralized funding??????

I find this perspective super fascinating.

Existing DAOs often try to replicate what traditional organizations have already done, which is no secret. Therefore, the narrative of DAOs as a new way of old organizations has become quite stale.

However, DAOs as networks for collaboration between individuals and organizations is exciting, and even more thrilling is the idea that DAOs can serve as brands with decentralized funding to support branding and development activities. I find this mental model fantastic when thinking about what the next wave of successful DAOs will look like.

We used the wrong time scale

DAOs will be more efficient and scalable than companies. The only problem is that we are judging DAOs using the time scale of measuring technology. DAOs will need more mature tools and cultural shifts to fully develop.

I really like this perspective because I often hear people say that DAOs are lagging behind the pace of technological development and implementation. This is seen as a disadvantage for DAOs.

However, DAOs are a technology-centered, human-centric organizational structure. Even if technology matures rapidly, if we cannot keep up with the pace of human thinking, the maturity of DAOs will only slow down.

The ideals of DAOs do not match reality

When it comes to decentralization of power, transparency, and providing autonomy to users, few are willing to put in the effort.

In the DAO space, we love to talk about what our DAOs will become with hard work. But the process of achieving these goals is long and arduous. I find the above perspective appropriate because indeed, very few are willing to do the work necessary to lead us toward a future with DAOs.

Unfortunately, we prematurely let existing DAOs adapt to a final state instead of evolving slowly over time, which distracted us. The process is chaotic.

The use cases of DAOs in 2022 differed from expectations

In the purest sense, DAOs are for protocols (e.g., Lido)

In the broadest sense, DAOs are for communities with a single goal (e.g., ConstitutionDAO)

DAOs for everyone else: not essential (but ignited the spark of inspiration for the next generation of organizations)

The Web3 community shares a common belief that every organization should become a DAO. However, looking back at 2022, current DAOs are best suited for two use cases: simple DAOs designed for specific, temporary purposes, or on-chain DAOs built to maintain protocols like Lido.

I find this viewpoint really interesting, and I like the shift from "everything should be a DAO" to "here are some things that can be DAOs and can develop better than traditional organizations."

However, I do believe that once we make significant progress in DAO development tools, more DAO use cases will be unlocked. But in 2022, successful use cases were very limited.

The problems of DAOs are just human problems

A year ago: DAOs were not decentralized enough, and anonymity could lead to accountability failures.

Today: DAOs are a better choice. Companies are also struggling with accountability failures.

This is something I have to remind myself of constantly; my thoughts get caught up in all the problems DAOs face, forgetting that DAOs, like anything else, are human organizations. They have the same problems, and we cannot expect to solve all the common issues faced by human organizations solely by ourselves.

In many ways, DAOs are still a better alternative to traditional organizational structures. The problems existing DAOs face are often human-made rather than unique to the DAO structure. When we are in the DAO space, it can be hard to remember this, but it is important!

DAOs after the bull market

I used to think DAOs were just a gimmick to promote NFTs, but now I believe DAOs are the precursors to "nations."

I love the dichotomy of this perspective, on one hand, the bull market hype, and on the other, the powerful vision of DAOs. What excites me about 2023 is how DAOs will expand their use cases beyond the bull market hype.

DAOs are the decentralization of capital and ownership, not the decentralization of labor

I once thought DAOs were a way to get more people involved in building

But now I believe DAOs are a way to get more people involved in deploying funds for others to build

This is interesting because this perspective articulates a new shift in labor within DAOs. The center of DAOs is composed of tokens and shared funds. The decentralization of DAOs is the decentralization of capital deployment, not the decentralization of the builder's labor force.

This reminds me of a tweet from Jacob Horne of Zora:

When DAOs mix the "1% rule":

1% Create

9% Propose + Vote

90% Own

The technical debt of DAOs is real

Technical debt of DAOs: When the "abundance mindset" of the bull market appears, DAOs can easily cover up coordination failures and take shortcuts that are more likely to create weaknesses. (Meaning developers compromised on the best solutions to accelerate development, opting for solutions that could speed up development in the short term, thus creating additional development burdens in the future.)

This perspective highlights a serious issue that occurs during bull markets: taking shortcuts to create DAOs faster without considering design principles and incentive alignment.

DAOs born during bull markets focus too much on quick launches, hoping tokens will rise rapidly during the bull market. However, when the bear market arrives, and these tokens crash quickly, we see the "technical debt" left behind by DAOs.

Technical debt is something that is hard to shake off, often requiring the establishment of a new DAO to escape old technical debt.

The bear market is a good opportunity for more creators to start thoughtfully designing DAOs instead of getting trapped in technical debt at the end.

DAOs as smart wallets

DAOs are essentially smart wallets, built on various decision-making mechanisms.

- Wallets can be upgraded to smart wallets with increasingly more functions

- Decision-making ranges from investments, grants, salaries, charity… and more

When you step back and look at what current DAOs are like, they are essentially smart wallets containing funds, with parameters controlling who can access the fund pool and how. For example, the number of decision-makers is a parameter programmed into the smart wallet, preventing wallet addresses that do not meet the parameters from accessing the fund pool.

DAOs as networks for sharing talent and capital

My view on how DAOs should be built has changed. Now I believe most DAOs should be part of a larger ecosystem rather than isolated entities, allowing capital, talent, and information to flow between them.

Web2's "siloed" apps are being replaced by open, composable Web3 dApps, which find it difficult to create "moats" around Web3 (which in turn makes it harder to establish sustainable business models). Therefore, the motivation for a DAO to hoard talent and capital independently diminishes. Instead, for ecosystem-centered DAO projects (like DAO public chains), it is better to allow talent and capital to flow freely throughout the ecosystem with a mindset of cooperation and mutual benefit.

Easier said than done, I know! But I love the picture this perspective paints of a large network sharing resources, contrasting sharply with the traditional Web2 world. As for whether this ecosystem-centered DAO can create recurring, repeatable income? That remains a question that will take time to answer.

DAO structure x existing organizations

Discussions on how to integrate DAOs into existing legal frameworks and how DAOs can enhance existing types of organizations are becoming broader------and better.

DAO structures do not need to be applied solely to new organizations. We can integrate DAO models (like voting and financial management) into existing organizations to improve their operations and give members more ownership of the organization. One reason DAOs are so difficult to build is that we are trying to create a sustainable business model and a completely new organizational structure at the same time. So why not apply the new structure to organizations with existing business models?

Expectations for 2023:

2022 was a crazy year for DAOs. We saw bright DAOs emerging even in extremely pessimistic market sentiment.

Here are a few aspects I am most excited about in 2023:

• Permission management. To truly achieve autonomy in DAOs without human participants managing everything, we need to integrate on-chain and off-chain permission management into our DAO designs. Permission management can be accomplished through rules that grant participants/smart contracts the authority to perform certain actions.

• Privacy. Besides fully public voting, we need more options. I am excited about the significant improvements in zero-knowledge proof technology over the past year and look forward to seeing how this technology is implemented in DAOs.

• Hyperstructures. I am less excited about one-off DAO tools but more excited about building layers that run forever and form dApps, as well as the foundational layer protocols on which DAOs build. Lens and Zora are two examples.

I can't wait to see how DAOs evolve in 2023!