DAOs [3] • What is a DAO?

👉 Part 1: DAOs • 5 Actionable Insights

👉 Part 2: DAOs • History & Lore

Hopefully the section above has given us a sense for the subject at hand. But still, it is worth spending a moment thinking through this most direct of questions: what is a DAO?

Even after learning about DAO lore, it’s a deceptively tricky query to answer. Or at least, to answer well.

To start, we can return to words from which the acronym is derived: a “decentralized autonomous organization.”

What does that mean?

Well, if true to their name, DAOs should be free of a centralized authority (decentralized), operate independent of governments or private sector actors (autonomous), and be, well, organizations.

Simple enough, right?

Not quite. The matter becomes rather hazy when you realize that very few entities we call “DAOs” today actually fit this definition. True decentralization is rare, especially to begin with since most projects need a degree of centralization to get up and running. The same can be said of autonomy.

Critically, these traits shouldn’t be viewed as binary. Answering whether a DAO is decentralized or not is not a “yes” or “no” question but a matter of degree. Decentralization and autonomy are sliding scales, and “DAOs ”position themselves differently on this spectrum.

Since a literal reading doesn’t get us very far, we need other ways to think about DAOs. The slippery part here is that the act of elaboration raises its own questions. Indeed, every person to define a DAO is likely to give you a subtly or meaningfully different response. For example, one gameful interlocutor might reasonably classify a DAO as a group chat with a shared bank account, a second might categorize it as a community with distributed ownership, and a (dreamy) third might simply call it a “vibe.”

All would be right, in their own way. DAOs are group chats, and communities, and many of them separate themselves through their culture or vibe. But though capacious, something about these depictions sells the idea short.

DAOs are — or can be — a lot more than just a Discord channel with a native token. Rather, they are entities geared towards a shared purpose: the creation of value. That is the common denominator across our stated articulations.

Of course, how value creation is defined varies. Some focus on building tangible digital products, whereas others look to accumulate and compound social capital. Still, this fundamental purpose abides.

This is the most basic description of a DAO, and it is unsatisfying. Could we not say that almost any organization is minded towards the creation of value? Don’t companies seek the same end? What about nations and religions?

“Value” is too subjective to give us sufficient clarity. To get a higher fidelity understanding of DAOs we need to go beyond nomenclature, and look at the characteristics that distinguish this form of entity from others.

Characteristics

To understand how DAOs differ from other organizations, we need only look at how they handle ownership and organization.

Ownership

Rather than concentrating ownership into the hands of founders and investors, DAOs distribute ownership to a variety of stakeholders in an ecosystem, including contributors, users, strategic partners, vendors, and so forth.

Essentially, DAOs are owned by the people who create value in them. This is a radical notion and one with real consequence; by expanding beyond the traditional notion of who should “own” an organization, DAOs empower a broad ecosystem to take action and create value on its behalf.

Organization

As referenced earlier, DAOs seek to be “autonomous.” Initially, this term referenced DAOs desire to act independently at the organizational level — free from interference from state or private sector actors.

While this is true of some DAOs, arguably the more consequential form of autonomy occurs at the individual level. Constituents can join a DAO and choose to contribute in the manner they find most compelling. There may be guidelines, but by and large, stakeholders choose their own labor and self-organize.

Again, this is significant. Traditionally, the relationship between individual contributor and overseeing entity is a subservient one — the worker acts in accordance to a company’s demands. That isn’t the case here. DAO “workers” join in where and when they believe they can add value and wish to do so.

By taking this approach, DAOs create the conditions for emergent behavior. Complex systems are able to form in a manner that no individual or group could have coordinated top-down.

Frameworks

Honing in on characteristics like ownership and organization gives us a clearer picture of DAOs, but it’s still difficult to fully contextualize them.

To better understand how DAOs operate tactically, we can compare them to pre-existing organizational structures. Though fundamentally distinct, there’s a lot we can learn by trying to think of DAOs as companies, coops, and networks.

DAOs as companies

Despite their differences in ownership and organization, companies are nevertheless a useful framework for understanding DAOs.

Indeed, larger DAOs often operate in ways that can look similar to corporations, with explicit “departments” for things like product, marketing, engineering, and community. These divisions usually have a team lead that guides and supports other members, not dissimilar to a manager.

In general, leadership within DAOs tends to be fluid and non-hierarchical, similar to a “Teal organization.” As defined by management theorist Frederic Laloux, Teal organizations are self-governed and naturally evolving. They also encourage employees to bring their full selves to the organization.

DAOs as coops

Of course, the above framing only goes so far given that DAOs differ from companies insignificant aspects, particularly with regard to ownership.

For this reason, cooperatives may be a more apt comparison. Coops are owned and controlled by the workers that contribute to it. This is similar to DAOs in which stakeholders receive tokens which grant governance power and assign ownership. It’s not a million miles away from your neighborhood grocery coop brought into the digital realm.

DAOs as networks

Though the coop framework helps in modeling ownership, DAOs don’t only distribute ownership to contributors — reasonably equivalent to an employee. Rather, they distribute ownership to a range of different stakeholders. That could include users (if the DAO is building a product), strategic partners, vendors, mission-aligned community members, and so on.

The result is something rather different than a pure coop: a network. Members interact with each other in freeform fashion, and roles change frequently and fluidly.

In many respects, this is the most useful framework in which to think of DAOs. While networks aren’t new, of course — organizations in both the private and public sectors rely on them when coordination complexity is large — it’s particularly well-suited to the web3 era. As DAOs grow in size and complexity, a networked-model allows for coordination and alignment in a scalable fashion.

Will these frameworks make sense in two years time? What about five?

Even today, there are probably a dozen or more ways to conceive of this concept.

We think the fundamental goal of shared value creation is likely to remain constant, but given the pace of innovation in the space, we may conceive of DAOs very differently in the years to come. With that in mind, it’s time to dig into the different categories of DAOs.

👈 Previous part: DAOs • History & Lore

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