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What is a DAO and How Do They Work? | Bryan Peters - Sobol
Gm Web3 Academy DOers!
The DAO concept is beginning to gain more and more popularity throughout Web3.
It promises to revolutionize the way we vote and the way companies and even countries are run. But often, ‘experts’ get stuck at explaining the theoretical part of it all. So, what is a DAO
Today we wanted to break down the concept and potential of DAOs as well as give you some practical explanations such as:
How to make money from a DAO
Which tools to use when running / participating in a DAO
And our advice to you prior and after joining a DAO.
For this, we’ve brought on our podcast one of the most qualified individuals to talk about DAOs, Bryan Peters, co-founder of Sobol.
Let’s get into it!
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What Is A DAO?
First of all, let’s break down this widely used acronym: DAO.
D - Decentralized
A - Autonomous
O - Organization
Now, what the hell does that even mean?
Well, a DAO is like a company (LLC). The only difference is that the stakeholders (token holders) of a DAO are the ones deciding everything within that “company” from logos and names to more complex decisions like implementation of new products and features.
And that’s why it’s decentralized. Traditionally, the board / CEO of a company would make all of the decisions concerning the business. Well, when it comes to DAOs, it’s different. Here, anyone with a stake in that organization has the right to vote.
While centralized companies often try to “empower” their team to take ownership and have power, the reality is they can remove that power at any time. In a DAO, this becomes no longer possible.
Moving on, autonomous refers to the fact that a DAO is self run. Not so much like an AI which is coded to do stuff (though it can do this too) but more like an encoded framework which sets some standards (rules) of how the DAO should run. The members within the DAO are able to work autonomously within the DAO framework.
Finally we have the organization aspect of a DAO. Which again is constructed via a token and enables the members access, voting rights and other components in organizing and structuring a group of individuals working on a shared mission.
Think of DAOs like you think of democratic countries – everybody has the right to vote. The difference is rather than using this to run a country it's for a business. Not to mention the tech allows for everything to be done in real time, transparently and offers many additional benefits as well.
DAOs Are Still Early
Now that we’ve established what a DAO is, let’s look at the current stage of DAOs.
According to the a16z State of Crypto Report, there are 657k active voters / proposal makers. But considering that anyone can have multiple wallets, we can assume that the number of unique participants is maybe a couple of hundred thousand people.
To put things into perspective, in the 2020 US election, there were 160 million people who voted (around 50% of all who were eligible). If we assume that there are 200.000 active voters in DAOs, that’s only 0.125% of the US voters.
Yes… We’re early
DAOs are repurposing the way people can participate in companies, communities or even politics. It’s a more inclusive, transparent and fair way to vote and contribute because it gives ownership to the average person.
And to remind you… Web3’s main mission is to provide ownership to the average user. Web3 is a revolution and DAOs are product of this
Compare this new era of ownership with the internet era which completely revolutionized the way we handle information. Whereas before we were dealing with paper, the internet enabled us to do so much more with information (video, podcast, gifs, memes, etc.).
But in the early stages, we simply repurposed the newspaper on the internet (it wasn’t very revolutionary or innovative. It tooks time for the tech to develop to create the information superhighway we have today.
The same is true with DAOs. Currently we are repurposing normal work and companies from the traditional world in Web3. This brings many challenges and many asking if DAOs are even a better alternative. But what people need to realize is the innovative and revolutionary stuff is coming. What we think of DAOs and how they function today will be very different in the coming years.
To summarize this chapter: DAOs are going places and we’re extremely early.
P.S. If you want to go deeper into DAOs, check out our previous DOer Spotlight with Lucas Campbell, discussing DAO Tokenomics.
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Challenges Faced In A DAO
Since we’re so early, there are also many challenges and issues with DAOs. Let’s enumerate them:
The decision making process can be slow if DAOs rely too heavily on voting on everything.
Certain DAOs don’t have a clear path so they waste time voting on silly things like colors and logos.
Some participants are only in it for the speculation since each DAO usually has a token.
Other participants are simply not educated enough to make the best decisions for the future of the DAO.
Lastly, and perhaps most importantly, DAOs have no hierarchy (since everyone’s equal) and that’s not necessarily a good thing.
Having a leader who comes with initiatives and pushes innovation is vital in order to perform well. Otherwise, you are left with a bunch of people coming together voting on silly and unimportant stuff.
In the traditional world, it’s not that having a hierarchy in an organization is an issue. We need leaders, managers and those who take action and implement things. The issue is more in the centralization of power, equity and financials.
In DAOs, hierarchies in terms of how we work and organize will and should form (many DAOs still need to learn this lesson). What needs to remain decentralized is how we handle the power, the big decisions, the equity and the finances of the organization.
That’s the key unlock here with DAOs.
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Let’s Get Practical - How To Make Money From DAOs, Advice and Tools To Use
Now that we’ve established what a DAO is, how it works and its challenges, let’s get practical! How can you participate in a DAO, which tools should you use and how can you make money?
1. How Do You Make Money From a DAO?
First of all, let’s make it clear that you’re not required to get stuck within a singular DAO. You can participate in as many DAOs as you’d like. But how do you get paid?
You can speculate on the DAO token
You can participate in voting / proposals and earn tokens based on your contributions
You can partake in bounties offered by the DAO where you basically are asked to achieve a certain thing. Once you do, you’re paid a certain amount of tokens
Sometimes, the core team of a DAO looks to hire people so you can get a job in a DAO and earn a salary (or the native tokens)
There are a lot of ways you can earn money from DAOs. The most important thing however is to get yourself into it and start participating!
A good place to start is Web3 Academy DAO. Join our Discord and start contributing!
2. Tools To Use In A DAO
Bryan has highlighted a bunch of tools that are fit to be used in a DAO so at some point we stopped him and asked him to summarize the tools he thinks are most fitting to use. Here they are:
Snapshots to determine the distribution towards each user
Gnosis Safe to create a multi-sig wallet which enables the DAO to have ownership over the treasury
Gnosis guild zodiac to automate the distribution of snapshots
Coordinape to enable even distribution for rewarding participants
3. Advice To People Getting Started In A DAO
1. Be A DOER
Working in a DAO is kind of like being an entrepreneur or freelancer. You have no one to keep you accountable. DAOs reward those that DO (the way business should be!), not those that DON’T. It means that you need to get out of your comfort zone, you need to contribute, you need to ask and you need to have ownership and responsibility for yourself and the work that you do. Those that take on this initiative will do extremely well here.
2. Persist through the bumpy road of onboarding
There is usually a high barrier of entry into a DAO. You need to join a Discord, then you need to participate a bunch and then you might also have to buy some tokens. This is a long lasting onboarding process and people usually quit after joining the Discord. But you have to pull through at the best of your ability. To help with that, find a DAO which you really believe in.
3. Watch out for addiction
This may sound like a cliché but the truth is that once you’re in a DAO, there is nothing and nobody stopping you from continuing to participate / contribute. This leads to an unhealthy work-life balance which can cause mental health issues and stress. A DAO (and everything in Web3) works 24/7 but that doesn’t mean you have to as well!
DAOs are basically decentralized LLC that are run by its users who come together under a token. While there are many challenges with running a DAO, there are also as many benefits, if not more. The key is to find and use the right tools and have a dedicated and educated community who put the wellbeing of the DAO in front of their personal benefit.
We keep a long-term perspective and therefore predict that most communities and even companies will convert into being DAOs to enable the hard core supporters to partake in the building of the brand.
Finally, we've also established that DAOs are super early and getting involved right now can only benefit you in the long-term.
Happy learning, frens ✌️
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👉 Want to learn more about DAOs? Check our our convo with Lucas Campbell where we discussed DAO Tokenomics.