What Are The Characteristics of a High Performing DAO

December 13, 2021

A self-financed organizational work model eliminates conflicts of interest by not needing investment or donations from any entity that might serve in the future as an obstacle to decentralized consensus. However, a crowdsourced capital model is a separate discussion from a) whether a problem is worth solving in a decentralized manner (eg: self-organizing) and b) what are the trademarks of a self organizing team that performs well.

Here are three things to look for when determining whether a DAO is firing on all cylinders.

1. Decentralized ownership of Key Performance Indicators (KPIs)

Any project has functional needs, be it marketing, community, product development or governance. Each functional need should have a lead, not to dictate the discussion, but to foster an environment of experimentations. When members self organize into their preferred functions, there is buy-in immediately out of the gate for members who move from “lurking” (aka hanging around the discord channels) to participating (ie: dialing into community calls, participating in twitter spaces, responding actively to Discord chats).

This ongoing dialogue between voice and text begets trust. And with a distributed team that not only bought in on the mission of the organization and is pumped about their functional responsibility that moves the milestones forward, there is faster progress than a functional team who’s lead is a task manager (ie: owns the vision & prioritization of a Kanban board).

Check out how Friends With Benefits is evolving the structure of their DAO to facilitate more effective collaboration:

2. Smart Contracts makes the Organization‘s Payouts & Governance Tamper-Proof and Transparent

Let’s set the expectation here: if a DAO doesn’t have a community-run treasury, it is not a DAO. There needs to be an AUTOMATED WAY that the organization runs, and given that no organization can run without liquid economic resources (ie: fiat, cryptocurrency, commodities, stocks, bonds, etc), one way to

Another criterion for Decentralized AUTONOMOUS Organizations is that the direction of the organization should be set based on a voting mechanism that is on-chain. If an organization votes for proposals via alternate methods, there is a material risk for a bad actor to be tampering with the system for their own benefit (ie: miscounting paper votes, skewing voting power to benefit the control for a select few). In web3, ERC-20 governance token are used to vote for proposals on an on-chain governance protocol like Snapshot. Proposals are either open-source or require a minimum number of tokens in order to submit.

As far as allocation of payouts from the DAO’s treasury, the higher the percentage of payouts are based on a governance-protocol that is on-chain AND prioritizes the number of unique voters over the percantage of the total token supply owned, the more web3 the community is. On-chain release of funds that have a public record also keeps the DAO accountable (both within and outside of its member base) on how treasury funds are released.

Over 200+ DAOs have disbursed $35 million across 2,500 payees, according to treasury management tool Parcel an alumni of Consensys Mesh's accelerator program, Tachyon.

3. Community is Engaged & Participating in Governance

When a decentralized community is engaged, the speed of proposals and volume of governance tokens actively being used to cast votes is apparent. More importantly, community involvement demonstrates just how and why member ownership is paramount to a truly web3 product or protocol.

Here are a few examples:

Ethereum Name Service (aka ENS) released ERC-20 governance tokens for it's earliest backers. According to this Dune Analytics report produced by @dobbythereum, 93,061 wallet addresses claimed their governance token as of December 2021. This represents 67% of all total eligible wallet addresses (137,689).

In comparison, 4,690 wallet addresses hold $FWB, Friends With Benefits' ERC-20 governance token. FWB's community is so engaged that its market cap exceeds $84 million. It truly pays to have an active and engaged community -- literally the value of a community's ERC-20 token will increase in value.

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