Cooperative DAOs Shift Management from Hierarchies to Networks

In recent years, the rise of blockchain-based Decentralized Autonomous Organizations (DAOs) has sparked widespread interest, suggesting a significant shift in the landscape of organizational structures. At the same time, cooperatives have long been championed for their emphasis on democratic ownership and member participation. What happens when these two seemingly distinct models intersect? Which DAOs adhere to cooperative principles? Could cooperatives implement a blockchain-based governance structure and operate using a DAO? Let’s explore.

Inextricably linked to controversial cryptocurrencies like Bitcoin, the scandals and scams associated with cryptocurrencies are too numerous to count. Yet, aside from cryptocurrencies, blockchain technology is seen as having great potential in many sectors, such as finance, IoT, and energy. Blockchain has been inextricably linked to the controversial cryptocurrencies, like Bitcoin.

Blockchain technology marks a significant change by creating decentralized systems that don’t rely on a central authority for trust, unlike, for instance, legacy centralized platforms.

A blockchain is a digital ledger (think of it as a book of records) where various types of transactions are recorded. This ledger is distributed across a network of multiple “computers” that each have a copy of the entire blockchain. In addition to decentralization, blockchain offers immutability (once data is recorded on a blockchain, it is extremely difficult to alter or delete), transparency (transactions are transparent and verifiable by anyone with access to the network), and traceability (each transaction is time-stamped and linked to previous transactions), among other properties.

Alongside blockchain technology, there are other peer-to-peer (P2P) technologies, such as IPFS (InterPlanetary File System), that offer decentralized solutions for various purposes. IPFS breaks files into smaller chunks and distributes them across multiple nodes, in contrast to the traditional web where content is stored on specific servers. While blockchain primarily focuses on maintaining a secure and immutable ledger of transactions, IPFS is more geared towards decentralized file storage and sharing. Both technologies contribute to the decentralization of the internet and offer alternatives to traditional centralized systems.

Blockchain enables smart contracts, which are like digital agreements that automatically execute actions when certain conditions are met. They are used to encode rules without a central server – trying to mimic a housing contract between two parties, without being directly dependent on others (indirectly dependent on the legal framework that protects both). It is worth noting that once a smart contract is set up, it can’t be changed.

Blockchain has enabled experimentation with money, as evidenced by the multiple kinds of cryptocurrencies. Blockchain has also enabled experimentation with governance, relying on the aforementioned “smart contracts”, by facilitating the creation of decentralized communities where participants have more direct control over decision-making processes.

One particularly interesting application of blockchain is the emergence of a new form of online community known as Decentralized Autonomous Organization, or DAOs. These allow their members to control their own systems, made possible through the use of apps, dedicated digital assets, and rules they set themselves.

As an online community, like those managing Wikipedia or open source software, where there is not a central authority and thus there isn’t a sole owner of the infrastructure, a DAO can provide services (or resources) to third-parties, or even hire people to perform specific tasks. It also has a structure in which members possess both a voice and a vote in determining the direction of the organization. In this manner, DAOs involve a group of individuals coming together for a common purpose, sharing principles of collaboration and collective decision-making.

DAOs have opened a new box of experimentation with governance models in online communities, typically providing alternatives to traditional command-and-control hierarchies. For instance, there are collective governance models in which the more reputation a user has, the more voting power they have. Other approaches are more similar to shareholders in a company, in which the user with more shares has more voting power. Other models use prediction markets (like Holographic Consensus), or one-person-one-vote, or conviction voting, or allow users to delegate their voting power, or have standard majority voting with quorum requirements – the possibilities are broad. Overall, DAOs aim to provide both a “fair” governance (according to the DAO’s specific values) and a model of economic sustainability for online communities. 

Decentralized Autonomous Organizations (DAOs) and cooperatives represent distinct but potentially complementary approaches to organizing economic activities. Understanding the convergence between DAOs and cooperative principles holds significant implications for cooperation-based organizations and institutions. By leveraging the potential synergies between these models, we can pave the way for more innovative and sustainable business operations. This exploration is not just about theoretical concepts; it’s about examining how cooperatives can use DAOs for organizing and managing themselves. With this in mind, we will explore co-op-like DAOs as case studies for research.

An initial candidate for analysis is Indie LCA, “a cooperative of designers, devs, and builders who continuously launch world-class products and projects for bold clients”. It also has its own DAO, IndieDAO, where they make decisions using on-chain governance. This means that decisions are made directly within the blockchain network, using smart contracts or other decentralized protocols.

Based on this case study, we want to examine how this cooperative uses the DAO to follow the principles of cooperatives. Specifically, we will pay special attention to member participation, governance structure, and economic performance to evaluate how the principles of decentralization, autonomy, and collaboration embodied by the DAO benefit the cooperative organization.

The study of real-world examples is crucial to understanding how these models work in practice, which is why we will be using real world case studies, like IndieDAO. We will use a mixed methods approach, combining qualitative and quantitative research methods to examine the organization’s structure, governance mechanisms, economic performance, and how the DAO helps the organization align with cooperative principles.

For the quantitative analysis, we will analyze data retrieved from Snapshot, a widely used tool for conducting voting and polling within DAOs, allowing members to participate in governance decisions by staking tokens and casting votes.

We will obtain information about governance proposals and voting results.  This will provide information on the topics of proposals, the number of tokens staked by each voter, the option elected by each voter, and the general voting results, including cohesion and discrepancies within the community. We will also analyze participation by examining each voter’s level of participation (how many times they have participated in decision making), check if proposal creation is evenly distributed, and whether any voter has disproportionate influence in the proposal’s outcome by possessing a greater number of tokens. If it is determined that decision-making power is concentrated in the hands of a few or that certain voters hold significant influence, social network analysis will be employed to identify any potential voter coalitions. Any findings will be discussed with qualitative research.

We will use qualitative methodologies to evaluate whether IndieDAO follows cooperative principles. This evaluation may involve secondary analysis of documents, including information on IndieDAO’s website, official communication channels (if any), and published community standards or guidelines. The data sources listed will then be used to assess the DAO’s practices and compare them with established cooperative principles

To gather information from those directly involved, we will reach out to the members (e.g. Indie LCA members) using questionnaires and/or interviews. This qualitative data will provide valuable insights into how members perceive the cooperative principles being met, their views on using a DAO, and the operational benefits and challenges of using a DAO versus traditional governance models. Questionnaire/Interview responses will be collected and analyzed using appropriate software to identify trends, correlations, and patterns among respondents. We will also conduct demographic analyses to understand how factors such as age, education, and industry affiliation influence attitudes towards blockchain governance in cooperatives.

Hopefully, this will allow us to address how DAOs may be employed within organizations or aid with their self-organization.

Exploring DAOs in Cooperative Governance and Management
The relationship between DAOs and cooperatives holds the potential for groundbreaking advances in the digital landscape. DAOs offer innovative alternatives to traditional hierarchical models, allowing organizations to operate with greater transparency and autonomy. For this reason, I believe they have the potential to support cooperatives in their self-governance and decision-making.

The analysis described above aims to explore the utilization of DAOs within organizations, with a particular focus on cooperatives, and their role in facilitating self-organization. Through a combination of quantitative and qualitative methods,our objective is to uncover insights into how DAOs can be used to manage cooperatives. Integrating DAOs into cooperative operations using blockchain technology and smart contracts could be an important step forward in the evolution of collaborative efforts, as it can improve decision-making and transparency.

  • Are you interested in the intersection of DAOs and cooperative principles?
  • Do you have any experiences to share? Do you know of any other cooperatives that use DAOs?
  • Or on the contrary, do you know of DAOs that try to mimic co-operative organizations?

I would be happy to discover new interesting case studies for this exciting research. Feel free to contact me, join the conversation and contribute to this research.