What even is a DAO? A decentralized autonomous organization (DAO) is a global collaboration tool that allows communities to make decisions in a decentralized, transparent and accountable manner by recording activities on a blockchain.
It’s a general purpose solution that uses general purpose technologies – like those smart contracts you may have heard of – to automate general activities. This form of “decentralized governance” promotes a more inclusive and equitable distribution of power. In other words, DAOs allow for greater collaboration and cooperation among members.
Today, in the crypto industry, DAOs have started to provide incentives for contributors (like a governance token that trades on the open market, or even paychecks) with the idea being to align individual and collective desires. The hope is that better decisions are made at scale.
DAOs also provide a powerful tool for community building. Members of a DAO can share resources, knowledge and skills in a way that benefits the entire organization. DAOs, vehicles for global collaboration, are potent tools when they’re built correctly.
Ecosystem building using DAOs
A Web3 project is only as good as its community and ecosystem. That’s because Web3 projects are open source and thus require global participation in order to evolve and grow.
How do you hack global participation? You go and build a global community.
What happens when you have a large and participative community? This attracts other builders and projects to come and build with you.
Et voila! Now you have built an ecosystem which in terms of participants has users, builders and projects, all of whom are now transacting with each other and thereby creating a healthy economy.
Let’s break down the steps above and try to go a few levels deeper.
Step one in the process is to build a global community of people who believe in your vision and want to contribute and participate in the idea or project. This is a marketing and communication problem that requires the founding team to clearly communicate the value of what it is building and most importantly, why it is building it.
This is where DAOs are especially effective. The ability to bind together a group of people globally within a construct that allows both for decision making and transparent execution is crucial to making this kind of a system work. Furthermore, every DAO member is also incentivized in some sense to make the community larger so that more work can be done and better decisions can be made.
Injecting a token into this construct creates incentives that allows a DAO to prioritize different aspects of its growth, meaning both the community and its product portfolio. It may also attract builders (perhaps interested in both profit and community). As the quality and quantity of projects improves, there is momentum for other builders to join the DAO.
See also: What Are VCs Funding After FTX? More Decentralized Infrastructure / BUIDL Week
Step two is where things really become interesting. When more and more participants enter the fray, DAOs take on a life of their own. At some point, it may be appropriate to call the community and its suite of projects an “ecosystem.”
Running an ecosystem invariably requires a system of incentives to keep everyone aligned – or as aligned as possible. Web3 ecosystems tend to grow horizontally, due to the established ethos that protocols should be “composable.” Composability is the process of when projects build on top of each other, increasing the value and utility they provide to all users.
Similarly, DAO communities can also be said to scale horizontally as its membership grows. The larger the community, the more decentralized its decision making. In a sense, this natural state of growth means DAO members have the responsibility to market the DAO and grow its membership. At scale, this is a powerful force leading to even faster ecosystem growth.
To unleash the full potential of DAOs, more agile governance structures need to be figured out that allow everyone to have their voice heard and participate in equitable decision making that offers equal opportunities to everyone. We will continue to see innovation in this space as newer governance structures are tried out to improve a DAO’s agility and decentralization.
DAOs are rapidly emerging as a powerful tool for Web3 ecosystem building. Further, open source protocols provide the right incentives for collaboration among multiple organizations and communities – increasing collective traction and leading to better decisions at scale.
By combining these two powerful forces of decentralization and ecosystem building, DAOs are well set to become one of the biggest growth engines in the Web3 space.