What Do DAOs Actually Do?

“Decentralized autonomous organizations” support communities, fund projects and incentivize engagement. But maybe they do too much.

AccessTimeIconSep 27, 2021 at 4:47 p.m. UTC
Updated May 11, 2023 at 5:48 p.m. UTC
AccessTimeIconSep 27, 2021 at 4:47 p.m. UTCUpdated May 11, 2023 at 5:48 p.m. UTC
AccessTimeIconSep 27, 2021 at 4:47 p.m. UTCUpdated May 11, 2023 at 5:48 p.m. UTC

Crypto, like any speculative asset, is driven by hype: Elon Musk tweets and the market responds; China cracks down and investors run for cover. Big ideas become bite-sized initialisms – think ICOs and NFTs.

The latest three-letter code word favored by crypto utopians is “DAO,” short for “decentralized autonomous organization.” A DAO is essentially a corporate governance structure built around crypto – an exclusive club, where the price of admission is paid in tokens. Holding a certain amount of tokens or NFTs makes you a member of the club, which usually gives you access to a paywalled channel in a Discord server.

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DAOs are also meant to incentivize engagement. Because DAO tokens can trade on exchanges, they can have real-world monetary value. (One prominent “social DAO,” Friends With Benefits, has a token worth about $110; 75 tokens are required for admission.) The idea is that the more a community works to improve itself, the more people want in and the more valuable its tokens become.

This can be an effective mode of organizing. And Friends With Benefits, in particular, has found a way to make it extremely lucrative. But most DAOs are also pretty limited in terms of what they actually do, once everyone is all together in those private Discord channels.

Read More: What Is a DAO?

Most DAOs treat tokens like voting stock in a company: token holders, rather than majority shareholders, get to decide how to spend the group’s collective crypto.

“DAOs are basically like if you started a business that went public on day one, and held shareholder votes way more often,” says the writer Nathan Baschez. There’s a program called Snapshot that facilitates this voting process, allowing DAO members to use tokens as votes in a group poll. The more tokens you have, the more votes you get.

The result is that most big DAOs end up as investment collectives, putting money into NFTs that they eventually hope to unload on the secondary market. PleasrDAO, SharkDAO and FlamingoDAO all work this way.

There are other ways to orient a DAO: Seed Club is a DAO that runs a kind of boot camp for the crypto-curious; MetaCartel’s Venture DAO works a little like a VC firm; and PartyDAO built a program for bidding on fractionalized NFTs. Decrypt, my old employer, is taking a stab at a media DAO.

I’m excited about the potential of rallying a community around shared financial interests without the need to actually incorporate anything (time will tell whether the U.S. Securities and Exchange Commission shares this view), but I remain skeptical about the current wave of hype in and around DAOs.

That’s largely because DAOs, in their current form, have an almost impossibly broad ambit. It’s worth making sense of the chaos: What should a DAO actually do once everyone has found their way to the paywalled Discord channel? Crypto utopians say DAOs are the new companies, but, for now, many just operate like social clubs; a list of DAOs in a Twitter bio has become a status symbol in certain corners of crypto.

Successful DAOs, like PleasrDAO and SharkDAO, have kept their scope relatively narrow. But it’s the smaller ones, like the aforementioned PartyDAO, I’m most interested in keeping an eye on.

As with traditional companies, DAOs need coherent roadmaps if they’re going to grow and change over time. None of the DAOs I’ve mentioned so far have existed for much longer than a year, and the effectively leaderless shareholder model could lead to power struggles and coordination problems down the line.

It’s a new paradigm – something that’s clearly still in its infancy. But if DAOs are going to succeed in the long term, they’ll need to get serious about how – and if – they plan to capitalize on their increasingly broad ambitions.

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Will Gottsegen was CoinDesk's media and culture reporter.

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