The Tao of DAO

Introduction: 

DAO!, it stands for Decentralized Autonomous Organization, a term you might hear out of the pages of anarchist science fiction novel. A group of individuals convene over the internet, discuss a communal goal over a Discord server, then pool their funds for collective action of unprecedented scale. DAO’s have been used to acquire rare artifacts, manage investment funds, and produce collective art.  The arbiter of this collective? A software managed on the blockchain. Enter the DAO. 

The story of DAOs begins in 2016 with a whitepaper aptly named, The DAO. In the whitepaper the writers describe a system of governance maintained by a series of smart contracts to manage an underlying pool of crypto assets that exist on blockchains, such as Bitcoin, WBTC, and Ethereum. Members could trade in their cryptoassets, adding them to a treasury in exchange for native tokens. These tokens were equivalent in value to a portion of The DAO’s treasury and could be cashed out in a process called “burning”. Decision making was delegated to a sub-group of leagues whose members could make a proposal that included deliverables, permissions, a timeline, and outcomes for a mandated action on the DAO. Once a mandate was approved by a majority vote, the smart contract would process the action and the coded instructions would be deployed.

This process worked exceptionally well for cryptocurrency investment whose underlying structure was built on the same blockchain codes used in the smart contracts. In it’s first year, the DAO raised $150 million in assets from 11,000 participants. However, the system was far from perfect. Later that year, an unknown bandit exploited a vulnerability in the DAO’s redemption model, redeeming about 1/3 of the investment pool’s capital. Ultimately, the DAO shutdown, and the managers of the Ethereum Blockchain create a hard fork in the protocol that created two blockchains and restored the original funds to the DAO’s investors. Despite the early failures and risks realized, this experiment in asset management built the foundation of Web 3.0’s participation in collective governance.  Further DAOs such as the Maker Protocol iterated on the DAO’s model to create a cryptocurrency called DAI, one of the first “stablecoins” that automatically buys and sells assets to create a treasury where one DAI is valued at approximately 1$. 

The New Tao: DAOs’ Domain Expands to Real-World Decisions

The early DAO systems were designed to excel in Web 3.0 decision making where the entire system existed on a blockchain managed through code. However, shortly after this technology’s introduction, DAOs expanded to the management of real world assets. The Constitution DAO was developed in 2021 and raised $47 million over social media networks to place a bid on an original copy of the Constitution. Constitution DAO failed, but the effort set a new precedent.  That year, the PleasrDAO raised $4 million to purchase the Wu Tang Clan’s one-of-a-kind album Once Upon A Time in Shaolin.

The expansion of DAO’s applications continues to grow. DAOs like aGENDA DAO, Herstory DAO, and Friends with Benefits offer members of the public the chance to buy-into membership clubs and vote on projects. Protean DAO was developed to be a platform for crypto-art scholarship and NFT media art conservation with museum level standards. Plantoid and Terra0 Forest go even one step further to create automated systems that “own” themselves and self-perpetuate. Because DAO technology is more of a method than actually a product, the applications of DAOs extend just about any kind of organization that relies on collective governance. Anshika Balla, in her essay, A brief study of Decentrailized Autonomous Organization (DAO) in Blockchain suggests that DAOs can be used for charitable organizations as a method to approve memberships and decide spending, freelancer businesses where contractors combine funds for collective space, materials rentals, and other forms of capital acquisition, and pool investment as a venture fund with redistributions of assets, to name just of few of a DAO’s applications. 

How to DAO: 

Now that we’ve learned the essential elements of DAOs and their applications. You may be asking, how to DAO? There are two ways to get involved with DAOs. Join one or make one! In this next section, we will walk through both processes. 

1. How to Join a DAO

Joining a DAO is easy depends on the DAO you would like to join. Some DAOs are closed from the public, while others have membership tokens that are traded on open markets. Before you join any DAO, you will need to prepare the following: 

1. A Discord Profile ID– Discord is a massive online discussion board platform that hosts live-streaming and text-based conversation channels. This is the popular location of most DAO forums. 
2. A CryptoWallet– This is your address on the Blockchain and the location where cryptoassets are designated and stored. We recommend making a wallet with MetaMask as this appears to be the most commonly used one across platforms, but different DAO platforms may work on different blockchains , so you will first need to double check which wallets are compatible with your DAO of choice. 
3. At least $100 worth of ETH uploaded to your wallet- ETH is one of the fundamental currencies used for Web 3.0 transactions. You will likely need to exchange this currency to either purchase membership tokens for the DAO or exchange it for a currency that you can deposit into it. You can join a DAO without depositing funds, but buying in is the most common way to participate and acquire shares/voting rights.

Now that you have set up your basic infrastructure, you are ready to begin searching for the DAO you would like to join. While it is not the only platform for joining a DAO, we recommend starting on DAOHaus, an app that hosts over 700 different DAOs whose purposes range from accelerating venture products, to Decentralized Financial Management, to building smart contracts, to service guilds, managing arts projects and more. 

Once you’ve scanned around and looked at some of the DAOs to see what members are doing, it’s time to define your purpose. What kind of DAO would you like to join? As this article pertains to Arts Managers, we can narrow our search using the filter tabs on DAOHaus to hone in on clubs, guilds and nonprofit projects. 

Once you’ve found a DAO that you would like to join, you should first join the Discord Server or forum where the conversations of the DAOs are managed. Introduce yourself to the group (you can use a pseudonym) and tell them how you would like to get involved in the project. Most small project DAOs, while operating on decentralized governance, don’t just blindly accept new members, so you will need to first join the conversations before shares can be issued. 

Now that you have joined the forums and began participating in the group discussions, you are half-way there. The next step of joining the DAO is to make a proposal for membership. This proposal will first need to be discussed on the forum and receive informal approval. Once you’ve achieved this informal approval, you can create a proposal on the DAOHaus app. On the proposals page of you DAO of interest, click +NewProposal, request a certain number of shares and offer some cryptoassets as a tribute. When the proposal is submitted, the members of the DAO will be asked to take a vote. If your vote achieves the minimum number of Yes’s then the vote is passed. Yay! You are officially a member of the DAO. Note: You may not be able to directly make a +NewProposal for all DAOs if the DAO is private. In this case, a current member will create a proposal for your membership to issue you shares.

How to Make a DAO: 

Perhaps you are not interested in joining an existing DAO. Perhaps you are already a member of an arts collective, and you are searching for a new management tool that empowers your members to make collective decisions. Well, you’re in luck. A DAO is a perfect solution. For this walkthrough, we are going to assume that you’ve done your homework. You have talked with the members of your arts organization and have decided which elements of it you would like to operate under the DAO model. DAOs do not have to be used for governing the entirety of an organization, but there may be elements that you want to decentralize and democratize. For example, do members of the organization need to access capital for the financing of a small program? Does it have to be micromanaged up a chain of command or can this be operated by those who are taking the initiative? Or perhaps you are a publishing collective having trouble deciding which new product to seed capital investment into or which conventions and conferences to attend for marketing. Why not let the members/volunteers/and customers of your organization decide? By decentralizing certain decision making processes and streamlining the financial resource delegation process under a DAO, your arts organization can free up significant mental space at upper levels of management and expand capacity for more complex projects. Now that you’ve determined the purpose of the DAO you are making, asked constituents the right questions, and built buy-in for your DAO initiative, you are ready to make a DAO. We will use the infrastructure of DAOHaus to complete our process. 

Step 1: Create a Discord-Server/Slack Server or other Communications Management Forum. This will be the home of the communications for your DAO. We recommend using Discord as it’s very easy to scale upwards or keep small and contains many fun management tools within such as polls and video-streaming.

Step 2: Go to DAOHaus and Summon a DAO. At this stage you will want to determine some key information. How many proposals do you want to authorize per day? This will depend on the nature of your DAO’s purpose. How long is a voting period? 1 day? 1 week? What is the grace-period (time between vote approvals and transaction processing) What minimum amounts are deposited and rewarded for proposal seekers? How many wallets/tokens will your DAO manage? DAOHaus has a really good walk-through at this link. (https://daohaus.club/docs/users/summon/)

Step 3: Determine the members of your initial DAO and the number of shares conferred. You will need to have their wallet addresses on file to include them in the initial DAO summoning. 

Step 4: Pay the Summoning Fees

If you are Summoning your DAO on the Ethereum Mainnet Blockchain, it will cost you about 72$ that can be paid in WETH to process the transaction that adds your DAO to the blockchain. Keep in mind that transactions on the Ethereum blockchain have a gas fee. For this reason, you may want to explore other blockchains such as Gnosis or Polygon to host your DAO.

Step 5: Use Your DAO

Congratulations! Once you paid the summoning fees, you are ready to use your DAO. Members and outsiders alike can make proposals according to the rules your DAO has set up, transferring shares and funds from the DAO’s treasury to members wallets. Manage Away! 

Conclusions: DAO’s Potentials and Limits

DAOs present arts organizations with an excellent collective management tool that further increases users participation in Web 3.0 projects. This secondary benefit of including members in Web 3.0 and building fluency within the space empowers members to understand, participate and therefore access capital managed by the users of this space. The global market cap of cryptocurrency is just under $2 trillion, which equates to almost 2% of the world economy. Taken at first glance, 2% may seem insignificant, but when you consider that only 10% of the world population uses cryptocurrency, we can infer that Web 3.0 is still both in its infancy and accesses a significant amount of capital that can be available to those familiar with navigating its waters. 

Lastly, one must consider the risks involved with operating a DAO. It is not a magic panacea that will “run” your organization. As a decentralized process, it requires that at least a quorum of members participate. If you contribute to a treasury but do not vote on decisions made by a DAO, you are essentially handing money over to a group and can lose your voice as a DAO grows in membership. When you exit a DAO, you still must pay a “burn” fee to return your contribution. If a DAO has mismanaged its funds, you stand to lose significantly when you exit and pay the associated exit costs. In this instance, if you did not participate in the decision-making processes of the DAO, then you essentially threw your money away to a group of people who did not represent your interests. A second risk is that a DAO can be gamed. If a DAO lets in members whose intentions are nefarious, they can request a proposal, convince members to approve it, and then walk away with money or shares (voting rights) of the DAO. Therefore it always a good rule of thumb to verify the validity of a member’s claim to work prior to voting yes on a proposal. This dynamic gets murkier when members join a DAO with pseudonyms, don’t actually take the time to get to know each other, and yet scale their DAOs to include more members. 

Finally, the largest risk of participating in a DAO revolves around its legal gray area. DAOs are management tools that represent larger organizations, but not always legally registered ones. Very often the liabilities that members of a DAO are not limited, and debts serviced are passable to the investors in the DAO. In short. Your investment is not protected, so it is best to only participate in DAOs that you wholly trust because you have verified the intentions of its community members. 

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