After I've helped dozens of DAOs to grow, I feel like there are still some significant misunderstandings about what exactly DAOs are. This essay aims to clarify some of those misunderstandings. There won't be any sections, nor specific logic between the ideas, just random thoughts that I think are worth sharing with those who might want to create a DAO someday.
So what exactly are DAOs?
I think the most important clarification that needs to be made is on what exactly DAOs are. DAOs are virtual places where people passionate about the same things decide to join forces to hang out and achieve high-ambition goals. Basically, a DAO is a group that leverages many of the new Web3 tools at their disposal and has decided to collaborate in a decentralized way, meaning with no proper hierarchy or top-down management.
Culture is centric in DAOs. It's not about work. It's first and foremost about culture, about vibing together and creating, with others, what members have always wished to create. In DAOs, culture comes first, products and projects come second.
A DAO can be compared to a startup. Many people are trying to create a DAO but with no idea of the DAO's mission and don't have a clear vision on why a DAO would be best for their project. It's like if someone would come to you and say, "I'm going to create a startup and need help about the treasury, but I haven't found a startup idea yet." It doesn't make much sense.
Asking "when do have I a DAO?" is like asking "when do have I a Startup?". What differentiates an entrepreneurial or side-project from a startup? Is that the legal status? Is that when you make your first dollar? In a startup, you usually create a great product and then create a company around it, and there's a thin line between building a project and saying you're the founder of a startup. The same thing goes for DAOs. In DAOs, you first create a strong culture and build products that appeal to the community. But I’m not sure there's one moment you can say, "Ok, now I have a DAO."
In my opinion, it's under this more decentralized structure that the next big companies will be built because DAOs, allow a much more efficient way to collaborate and align incentives.
DAOs are often using Social Tokens. Put simply, social tokens are a way to incentivize anyone to work toward joint projects and share the upside in exchange for a digital currency. In a sense, you could compare Social Tokens with equities. In the beginning, it's worth $0, but people truly believing in the project will be keen to work in exchange for those equities, hoping that it will be worth much more later. We could compare social tokens to micro-shares of the company (1 token = 0.00000000001%, for example).
In traditional companies, when the company is doing its IPO, meaning the shares are publicly tradable, some early employees decide to sell their shares and make a bunch of money. The same thing goes with Social Tokens. Everyone is working hard to make the community grow by building a good culture and great products, until DAO leaders decide to create a Liquidity Pool, making the Social Token publicly tradable and giving a financial value to the Token.
Put simply, creating a Liquidity pool means providing Liquidity for potential buyers. When DAO leaders are creating a social Token, this Token has no inherent value. Creating a liquidity pool (LP) allows anyone to buy the Token in exchange for other cryptocurrencies with value in USD.
For example, DAO leaders will put $50k worth of ETH in a Liquidity pool with 50k of their Token. Every time someone wants the community token, they will go to this pool and provide, let's say, $100 worth of ETH in exchange for $100 worth of the community Token.
It's the same concept for every crypto. If I've rewarded you with 100 $ELIOT Token and want to swap them for ETH, you can go to the Liquidity Pool ($ELIOT-$ETH) and exchange your Token there because I've previously put Liquidity in this pool. You can then go to the LP ($ETH-$USDC) to exchange your ETH for some USD.
Once the Token has value, it has the same value in the whole crypto ecosystem.
But compared to equities, Tokens already come with a lot of advantages when contributors receive them.
They are directly on your wallet, meaning you see their values every day. It's more tangible than equities.
You can use them daily to vote on proposals as they come with voting power.
You can sell a tiny bit of those, which allows more flexibility than with equities.
They come with a Social value.
You can earn a decent amount of tokens even though you are not early in the DAO. It's fairly rewarding the people who are helping the DAO grow, not those who were there early.
Tokens give you access to special content, token-gated channel, or early access to NFTs.
You can sell some tokens easily just by exchanging them with other cryptocurrencies.
A big mistake made by people who want to create a DAO is to think too much about governance and the price of their Token. Similar that founders of traditional companies do not think about IPO when they're creating their startup, DAO's founder shouldn't put too much time into thinking about governance and treasury. They should first create a strong community with solid foundations, leveraging the Web3 tools ecosystem to accelerate this growth and see how it evolves.
It's important to clarify that it's not because someone creates a Social token for their DAO that everything will work easily. A DAO is not a magical thing. What, in the end, motivates people to work for a DAO is their value alignment with the community, ownership over the decisions, and if they feel part of a potentially billion-dollar project. It is a lie to think that everyone will be responsible, motivated, and know what to do simply because it's a DAO.
It's crucial, as a DAO leader, to make the difference between bounty hunters, Core Contributors, staff members, and regular members.
Bounty Hunters are members that may not be involved in daily DAO operations or planning but actively seek and complete interesting bounties. Core contributors are members that actively attend DAO meetings, consistently work on larger DAO priorities, and potentially lead projects with other DAO members. Lastly, Staff members are responsible for the survival and vision of the DAO, treasury management, and other high-level priorities such as Seasonal community guidance. Regular members are those using the product or service.
For example, "joining Facebook" has two different meanings. Lots of people joined as "members" and developed groups, communities, etc., on the network of Facebook. Then some engineers joined the company Facebook to build the product facebook. In a DAO, we could say core contributors are the "founding engineers," whereas regular users are those who use the service. It's just that there is much more granularity in a DAO, as anyone can become a bounty hunter without asking permission from anyone and without needing any credentials. Anyone can start contributing and earn social tokens (aka equities), even though they are not part of the founding team and are coming late.
Creating a DAO for an existing community means wanting to leverage the power of this community to build projects together and giving them upside and ownership over the future of the platform.
There are different types of DAOs. People sometimes feel confused about whether DAOs are these membership clubs (where the community itself is the end product) or open-source projects where the goal is some kind of product. For example, Friends With Benefits seems like a classical social network or like a membership club that you pay to be part of, so what would a social token collaboration be needed to incentivize? But in the case of FWB, the Token serves to incentivize people in the community to participate. Each season, the price to access (or stay) in the community increase, incentivizing members to participate, create value, earn token and stay. Plus, FWB is also developing products, organizing events, growing media, organizing events, etc..
There exist many types of DAOs such as Social DAO, Protocol DAO, Investment DAO, Media DAO, Service DAO, or Creator DAO, all building different products and different ways to organize their work.
Even though, down the line, the goal of DAOs is to be completely decentralized organizations, most communities today still have very centralized power. Thriving communities have strong leaders who can lead contributors and give them specific tasks.
More than the Token in itself, it's the ecosystem around it that is valuable. Indeed, new solutions are created every day to power this revolution and make the life of those Web3 communities easier.
In the end, the most important thing is to create something that people want to be part of and can see it becoming a billion-dollar community.
It's not because you create a Social token that everything is going to work easily, similar that it is not because you're paying a salary to someone that he's going to work harder than ever.
The social capital of being part of a thriving community is often way more significant than the financial capital. To create a thriving community, you have to build a project that people are proud to be part of.
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