DAOs and Commerce

DAOs have become a popular discussion point in web3 circles.

The jury is out, however, on if they’re a fad or viable new model.

Like a lot of web3 terms including ‘metaverse’, ‘NFT’, and even ‘web3‘ itself, the DAO term gets overused and stretched too thin.

We’re going to focus on wherever the value potentially lies for commerce businesses.

What is a DAO?

A DAO is a Decentralized Autonomous Organization. “DAO” was coined by web legend, Vitalik Buterin, as a variation of Decentralized Autonomous Companies (“DACs”) dreamt up by early crypto adopters in online forums.

It’s an organization largely operated by smart contracts (blockchain software) that hires people to do the stuff the code can’t yet do. Furthermore, it is typically designed to utilize crypto tokens (coins or NFTs) to quantify pro rata share of governance decisions and potentially dividends. 1 token = 1 vote = 1% of dividends. All secured by the blockchain.

In theory, this model aligns incentives across stakeholders (human and code alike) and codifies operating procedures into code. If incentives are aligned and codified into code, presumably less coordination is required to get stuff done, fewer errors are available to be made, and maybe most importantly – nobody needs to trust anyone because it only work the way it’s supposed to work anyway. A trustless and automated business.

What Are Pros and Cons of DAOs?

The benefits of DAOs are part obvious and part undefined dream. The obvious potential benefits are related to the operational benefits of trustlessly automated operations. When people know things work the way everyone agreed for them to work, there’s a lot less pain and loss. Their energy is liberated for grander human conquest.

The dreamy part is so vague it’s a bit difficult to comment. There are a lot of experiments and ideas in play we could discuss. Tokenized democracy, aligned financial incentives, aggregation of influence, transparency of actions and so much more. These are still experiments though. We’re yet to see what concepts will die off and which will become ‘the way’.

There’s one prevailing challenge across the industry – a lack of tooling. Some DAOs are forming to build tools. Until the good ones gain traction, the dream of a code-based business with human helpers is quite the opposite in practice.

Are there DAOs related to commerce?

There are SO many DAOs.

A more interesting question might be, “how might a DAO drive commerce activity?” We’ll cover that down below in our deep dive.

Backdrop of Shifting Workplace Expectations

Throughout history, people want to get stuff done. Early humans lived in small familial groups focused on survival. In time, responsibilities were assigned – hunters and gatherers. With the dawn of industrialization, enterprises grew in strength and amassed productive workforces. 

Even in those early examples, people had to do things. As more people needed to do things, eventually someone had to orchestrate the group. At some point, we had bosses.

Throughout history, there’s been some relationship between “bosses” and “employees”. Between the maestro orchestrating the ensemble and each person playing one instrument. The more complex the ensemble, the more complexity there is in orchestrating it.

Get to behemoth companies like we have today, or even small businesses with a few different teams, and we start to experience exponential growth in the chatter and disagreement. We’ve seen hundreds of companies spin up that profile personalities in an effort to simplify the chaos and bring order to the madhouse.

There’s a lot of people. Each has their own needs, wants and tolerances. Sometimes they align and sometimes they don’t. Sadly, I think most of the time they don’t. With new macro events and new generations, peoples’ needs, wants and tolerances change. 

What we’re seeing now – remote work, quiet quitting, silly little jobs – is a chorus of voices set against a particular macro and generational backdrop. 

It happens all the time. 

The longer we live, the more experience we gain in living amidst sea changes between generations. We’d help ourselves to remember that we are all a part of it and have been a part of every one in our lifetime. Each one happens to have unique aspects to it and unique people involved, making it a new experience with a familiar pattern.

DAOs are becoming popular in a time that might be suited just perfectly for them to evolve rapidly and gain influence enduringly.

Deep Dive

Having participated in multiple DAOs, one major obstacle keeps showing itself. It turns out that when everyone has pro rata influence that can be bought and sold on the open market, the leadership role takes a different shape. Often, we’re seeing individuals without leadership experience fire up a DAO, rake in a bunch of cash from members, and then flame out within months. Some members hold on while others race to sell as the membership (token) price tanks. Maybe a group tries to revive it.

A lot of DAOs are run like collectives. Members agree to not have bosses. They agree to assemble, discuss, plan, vote and then take action. Without a model that’s worked well enough to retain widespread adoption, most DAOs are figuring it out – creating from scratch, really – as they go. Sometimes it turns into calls with 300 members on and a founder saying, “This is a community. I’m not going to tell you what to do.” Sometimes it turns into in-fighting without a ref.

On the flip side, there is one major proponent that keeps showing up. Collective vision. DAO leaders are often ‘default open-minded’. The leader will start with a grand vision and invite members to join them on the journey. Members often join very early – sometimes as early as the initial vision posted on Twitter. The members then come together, organizing in their own way, to rally behind or around their leader. Each expecting they have a voice in this chorus.

This brings about the primary leadership challenge – how to align motivations and resources to cultivate value.

This is a very difficult thing in DAO-land. There new tools (cryptocurrencies, smart contracts) and new expectations (DAO members and democratized decision-making). It’s not an easy thing.

Deep Thoughts

There’s this technique I apply to evaluation of new things. It’s basically three questions:

• What can a DAO help me accomplish?
• Do we need DAOs to do X?
• Does using a DAO get in the way of Y?

Here’s the thing – I don’t have a stake in public opinion as to whether DAOs are good or bad. Or if they’re gmi or ngmi. For you Web 3.0 folk, that’s web3 talk for “gonna make it” and “not gonna make it”. Welcome to the inner circle.

My stake is not in the general success of DAO concept. My stake is in businesses that I’m involved with and my stake is in the human condition. If I can make those two things better with a DAO, I will. If I can’t, I won’t.

“What does a DAO help me accomplish?” We know there are some things it can do, including set the tone of a powerful collective vision. And more experiments are constantly under way. This is like asking, “what kind of tool is this?”.

“Do we need DAOs to do X”? We ask this question in order to assess the DAO concept and its application. For example, it codified operations into code. Can I do that without a DAO? Probably. Maybe there’s some nuance though, I don’t know. Can I utilize a cryptographically secure token to organize voting on important decisions without a DAO? Not really, because you basically are a do. This is like asking, “Do I have to use this tool, my hammer, to get that task done?”

“Does using a DAO get in the way of Y?” There is SO MUCH we want to get done. One of the ways to get those things done is to avoid doing something that gets in the way. When we explore if a DAO will get in our way, we also create the opportunity to do find synergies and avoid conflicts. This like asking, “Does having a hammer around prevent me doing that task? Or can I just put it over there out of the way?”

Effects on Commerce

There’s absolutely no doubt that DAOs have already proven to have an effect on commerce in a big way. Whether these ways are sustainable or not, I don’t yet know.

The first effect is on fund-raising. Billions of dollars have been raised in DAOs. With government regulation ambiguous, it was damn easy for DAOs to do. In a crypto bull market, with euphoria and fomo escalating, it wasn’t uncommon to see massive fundraises succeed in very short windows of time.

• LinksDAO raised $10m in 48 hours to buy golf courses
• ConstitutionDAO raised $47m to buy the United States Constitution
• OlympusDAO even raised $60m to create a new decentralized reserve currency

ConsitutionDAO failed to buy the constitution and OlympusDAO is still trying to figure stuff out. Raising capital doesn’t mean they work. DAOs aren’t anointed entities by any means. If anything, in their early stage of maturity, they are more difficult to make successful than a traditional start-up.

With that much capital, however, a second effect clearly expedites innovation. While OlympusDAO is still working to build the future they see, hundreds of innovative ideas spun out of it. OlympusDAO themselves tried new things. And other projects looked at OlympusDAO and saw things they liked and innovated on their own. From these innovations, very real and enduring solutions will take hold. In reality, you and I won’t even know about most of them until they are very far along. We don’t hear about things until they get to us – and they get us once they mature and become popular.

DAOs effects on commerce are going to look a bit like startups. Startups ultimately produce a public-facing product or service that you and I or our businesses interact with. That’s all we see, unless something about how the sausage is being made makes the headlines.

There’s a fundamental difference though, between a traditional startup and a DAO. A DAO, in a sense, is a glass office building with doors that never lock unless there’s an internal room with trade secrets.

Anyone can kinda see anything anytime. And if you like what you see, you can participate in any of many ways:

• click a button to invest by buying tokens
• click a button to divest by selling tokens (hard to do that in a traditional start-up)
• volunteer your time and resources to build the product or ecosystem
• negotiate compensation for your time and energy – probably in a way that’s visible to the public
• integrate another system into the DAOs system
• investigate the system to find ways to improve it
• investigate the system to find ways to destroy it
• investigate ways to hold members accountable

There’s no doubt that DAOs have a bright future. The path to get there needs to be paved with standardized models and tools that work.

The result will be both web3 versions of successful Web 2.0 business models as well as brand new products and services that couldn’t possibly exist before blockchain. It’ll be a true level-up for commerce businesses.

In my opinion, the difference between the real winners and the rest will be linked to how well they intrinsically master how to interact with DAOs. Any two people can (try to) captain a ship across the Atlantic. The one who knows how it works will actually make it.

Ready to set sail?