DAOs and Their Two Operating Systems
A decentralized autonomous organization (DAO) is an organization that makes decisions either automatically by computers based on pre-written, public code or by a member vote.
One way to understand that definition is that a DAO needs two Operating Systems.
The first Operating System is the cool, new, autonomous, blockchain-based Operating System that runs on computers and tells the computers what to do. This Computer OS makes any decisions that the computer is programmed to make. You do nothing, it does everything. It’s like a perfectly written law that requires no interpretation and enforces itself. As we know from our legislative and judicial systems, it’s difficult if not impossible to write a law that requires no interpretation. (And it’s even harder to write a law that enforces itself, which the blockchain makes more possible than ever.)
The second Operating System is the boring, old-fashioned, off-chain Operating System that runs on people and gives the people their rules and guidelines. This People OS is a set of materials that defines what your organization is trying to do and how you’re going to do it. You can read more about the People OS here. If the Computer OS is a perfectly written law, then your People OS is your constitution. It gives a foundation to build on, but takes a lot of interpretation and work to run.
By definition, a DAO reduces the need, in part, for that People OS.
But, unless your DAO is completely autonomous on the blockchain and requires no human intervention ever, your DAO still needs some version of an old-fashioned, people Operating System.
What parts of the People OS does your DAO need?
It depends on the DAO. You can read through the various parts of an Operating System to decide what you need. In deciding what you need, think about what questions and problems may arise in the future.
For example, what if your mission and the short-term (or even long-term) value of the token are in conflict for a certain decision?
Or what if you’re choosing to invest in one of two projects, the first will help achieve the mission more directly, the second will help achieve the mission less so, but will enrich the community more immediately?
In each situation, which option should the community choose? Which will the community choose?
If your Operating System and Foundational Materials were clear when you launched, and made clear that your project was prioritizing the mission over the token value, then you’re more likely to have attracted the right community, your community can point to those foundational materials when debating the issue, you’re more likely to pick the first option, and you’re more likely to achieve your mission.
So, what parts of a People OS should you consider having?
1. Foundational Materials
You need Foundational Materials.
With Foundational Materials, you’re more likely to have the right people, pushing in the same direction on a common goal. You’re less likely to have people join just to earn a quick bitcoin and sell as soon as they can.
Without Foundational Materials serving as common goals, values, priorities, and principles, on what basis would people make their decisions? How would they decide whether to join your DAO? How would you recruit the right people? What projects are more important and less important? Whose priorities matter? The answer to those questions is we have no way to know. The members will end up arguing based on their own sense of justice and fairness combined with their own self-interest. Not a great way to find the right solution to problems. Not a great way to achieve your mission. You’ll end up with a group of people who weren’t clear about what they signed up for, don’t all believe in the same goals, and don’t want to work together towards the same outcomes.
Planning is how you turn your foundational materials into measurable goals and a prioritized to do list to maximize your likelihood of success. You’re probably going to want some kind of Planning system. But nowhere near as much as a centralized organization would. Still, if you’re going to be doing things, you’ll have to agree on what those things are that you want to do.
The Execution part of your Operating System has many parts. Some common parts are project management, people management, decision making, and communication. You’re probably not going to need every part, but you’re going to need at least the basics around communication and decision making. What tools do people use to communicate? How does the DAO make decisions? Is there a voting system? Do you use a new DAO-specific system, such as DAOstack, Aragon, Colony, Moloch? Or generic tools like Discourse, Discord, Telegram, Notion?
4. DAO-Specific Questions
Some questions that a non-DAOs organizations might not have to answer but a DAO should answer: How important is maximizing token value? How important is it for the members to earn income from the DAO? What are the other goals of the DAO? How do those goals rank relative to each other and the DAO’s mission? If your values do not include maximizing the value of the governance token, then make sure you tell every potential member that before they join.
The equivalent of these questions in the non-DAO world are things like: What legal entity should we be? For-profit? Non-profit? C-Corp? Public Benefit Corp? Something else? And depending on what legal entity we choose, how do we rank the goal of maximizing shareholder value against our other goals, especially if we’re a Public Benefit Corporation?
5. How DAO are you?
By claiming to be a DAO, you’re representing certain facts to the world, mainly that you’re run by your community of members, and no one person or entity controls the DAO. To help make that clear, you may want to disclose your ownership structure. Is your ownership this: Founding Team of 10 People = 60%, Early Venture Capital Investors = 25%, Regular Old Community Members = 15%? If so, is that a DAO? When you talk about your “community” making decisions, who’s really making the decisions? Whose interests will be served by the governance token if that’s the ownership distribution?
Let’s look at some DAOs
Lots of DAOs have a mission, but some also go further. And you almost definitely need an Operating System that has more than just a mission.
MakerDAO is one of the oldest crypto and DAO projects, started in 2015. The early materials focus on the Computer OS with nothing about the People OS. But MakerDAO has had a long time to learn, and in late 2020 and early 2021, the MakerDAO community worked on their Foundational Materials, when they debated and voted on their 2021 mission and objectives. They also have execution tools, such as their forum and voting system.
Is a mission statement and member forum sufficient for an Operating System? Gitcoin thinks so. Maybe they’re right for their product and community. Maybe they’ll learn and build out more pieces of their Operating System and Foundational Materials over time.
BanklessDAO has the Foundation and Execution parts of an Operating System covered with their founding announcement, website, Foundational Materials, wiki, quarterly planning process, FAQ, Discourse Forum, and Discord. They even took no tokens for themselves, instead making a case for their grant and asking the community to approve it: “At launch the bankless community will have 100% ownership over the DAO. Bankless LLC will own 0 BANK.” Bravo, BanklessDAO, bravo.
The Fei Stablecoin project is a good example of what can happen without Foundational Materials, aligned interests, and managed expectations. The FEI whitepaper and founding blog post define the Computer OS, but not the People OS. The absence of a People OS becomes most obvious and problematic when something goes wrong (just like at non-DAOs organizations). After the project launched, it had trouble holding its peg to the dollar, which is the main goal of the project. The members debated various solutions. Some of the points are well-reasoned and focus on the long-term mission of the project. But, because the project had no clear, common foundation from which to start, many members claimed that their interests were most important based on their own sense of personal justice and injustice. So, you had many members arguing some version of this:
- Fei Stablecoin Owners: “We’re the customer. We bought a defective product from you. You owe us a refund.”
- Tribe Governance Token Owners: “We’re the owners. The company is failing. Let’s declare bankruptcy, save ourselves, and liquidate the ETH to pay ourselves.”
If the project had more detailed Foundational Materials (maybe it does, I haven’t seen it, and I doubt these members have based on their arguments in the forums), then the debates could have been built on a foundation of common values, by members who joined an organization they understood. While the project may still succeed, it has a lot of angry current and former members who feel misled.
DAOs are growing and evolving quickly. Before you launch your own, or if you have a live one without a People OS, stand on the shoulders of the projects that came before you and learn from their successes and mistakes.
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