Components that constitute “Decentralized Autonomous Organizations”
“Decentralized Autonomous Organizations” (DAOs) are everywhere, yet it is unclear what a DAO is (or isn’t), and what design elements constitute a DAO.
Already, DAOs are diverse. DAOs have helped to shift early blockchain community debates from “one blockchain to rule them all” to a “pluriverse” of multiple chains and ecosystems that serve a variety of purposes and interoperate for user choice. As such, DAOs can be designed for any number of organizational functions to serve different objectives.
First, this piece frames “what is a DAO?” by drawing on conceptions of DAOs from different disciplines in an effort to disambiguate DAOs as an amorphous entity. It then explores DAO design patterns according to different ontologies (including law, economics, and cybernetics).
I present the fundamental components that constitute a DAO and determine its design pattern and argue that DAO ontology affects DAO design, including the realities and possibilities of what these organizational forms could be.
What is a DAO? Exploring DAO definitions
The term “DAO” stands for “Decentralized Autonomous Organization”. Although nascent, DAOs have a rich history and are continuing to evolve. How DAOs are defined, and then designed, is contextual depending on the subjective conception of how a DAO is defined and is the purpose a DAO hopes to achieve.
Broadly, DAOs can be defined as a multi-agent system, working towards a clear objective. In these human-machine systems, computational components aid coordination (operational efficiency and/or decision-making, although that latter is less prevalent at this stage). In a blockchain context, public, decentralized blockchains provide an infrastructural foundation to facilitate coordination by reducing transaction costs (the costs of participating in a market). As such, DAOs provide an institutional infrastructure, to enact “a governance model sanctioned by software”.
Where did DAOs come from?
The pre-DAO history of decentralized technologies, encryption technology, and public blockchains is imperative in contextualizing DAOs today. In many ways, DAOs perpetuate early cypherpunk ideologies of political decentralization. Here, autonomy refers to self-governance or independence from external political direction or coercion, and this goal is pursued via technological means.
The precursor concept of “Decentralized Autonomous Corporation” (DAC) emerged in blockchain communities in a post by Ethereum co-founder Vitalik Buterin in 2013 in Bitcoin Magazine exploring how to bootstrap a DAC. It then appeared in the Ethereum whitepaper and a related terminology guide on “DAOs, DACs, DAs and more”.
Rule of First Mention: Cybernetics
The concept of DAOs can be aligned to precedents in the area of cybernetics.
As I’ve previously explored, the phrase “Decentralized Autonomous Organization” was actually first mentioned in the field of cybernetics by German Computer Scientist Werner Dilger.
Dilger referred to an “intelligent” home system that operated like an immune system in “identifying, defining, and maintaining the self” to “cooperate with other agents by sending messages and interpreting incoming messages such that the whole system fulfills the task it is designed for” as a “Decentralized Autonomous Organization”. Dilger understood the concept as a complex, multi-agent information processing system that is autonomous, meaning self-sustaining and self-referential.
As computational organizations, DAOs are comprised of humans and technology.
The cybernetics approach evokes the possibility for DAOs to embody biomimetic organizations of human-machine ensembles that emulate models of symbiosis seen in nature (such as evolution, co-dependence, and augmentation). This ontology is perhaps closer to the idea of DAOs as “regenerative economies”.
Legal definitions have been some of the first to be formally defined in the literature on blockchain-based DAOs. Here, legal scholars have defined DAOs as “a blockchain-based system that enables people to coordinate and govern themselves mediated by a set of self-executing rules deployed on a public blockchain, and whose governance is decentralized (i.e., independent from central control)”.
Other legal scholars have pointed out that DAOs operate according to different legal and business assumptions to other organizations. Aaron Wright states that DAOs “aim to be governed by democratic or highly participatory processes or algorithms”. This view hints at the computational, automated, and algorithmic nature of these organizations, whereby software manages procedural elements of organizing, to allow humans to focus on the more substantive elements.
The “DAO Model Law” guide by COALA researchers outlines 11 technical and governance requirements for DAOs to meet the requirements for legal recognition as an entity, including:
1. Deployed on a blockchain,
2. Provide a unique public address for others to review its operations,
3. Open source software code,
4. Get code audited,
5. Have at least one interface for laypeople to read critical information on DAO smart contracts and tokens,
6. Have by-laws that are comprehensible to lay people,
7. Have governance that is technically decentralized (i.e. not controlled by a single party),
8. Have at least one member at any given time,
9. Have a specific way for people to contact the DAO,
10. Have a binding internal dispute resolution mechanism for participants,
11. Have an external dispute resolution mechanism to resolve disputes with third-parties (e.g. service providers).
These factors and considerations constitute a legal basis for conceptualizing DAOs.
Meanwhile, according to institutional economists, DAOs are digital organizations.
In this paradigm, people have coordinated via organizations for hundreds of years and DAOs are just the next instantiation of that. Given the emergence of computers and the internet age, we find ourselves in the “digital economy” and thus, a new type of economy demands new types of organizations, where principles of corporate governance apply.
The “intangibles”: cultures, norms, historical influences, and more
Ethnographic practices (a qualitative research method of observation, interviews, and tracing people and component things, events, crisis, discourse, etc.) help us to recognize DAOs as a cultural phenomenon.
DAOs are infrastructure, composed of human and machine elements, technical and governance processes, rituals, standards, and more. At this relational nexus between human-technology encounters, cultural dynamics begin to emerge. This includes the social influences, practices, ideologies and politics that influence DAO formation, maintenance, collapse, and regeneration, playing into the lifecycle and identity of DAO.
This practice of observation as the emergence and development of DAOs is unfolding has helped myself and others to draw analogies and continue to explore DAOs as clubs, cooperative organizations, legal trusts, or commons.
Emerging research and implementation on “DAO to DAO” relations and mechanisms analogises DAOs to political economic entities like cities and countries. Numerous DAOs now describe themselves as “crypto cities”, decentralized polities of “network states”, and “crypto states”.
Increasingly, and certainly with regards to blockchain systems, technology acts as a legislative force in society. Thus, DAOs aren’t just an organization but embody the institutional possibilities for new political expressions, such as “crypto democracy”.
From this exploration, we see that a DAO is not a DAO. There are in fact a variety of DAOs, DAO interpretations, and DAO objectives. The disciplinary distinctions and design attributes of DAOs explored in this article form a basis to begin to recognise DAOs as relational, co-constructive entities, composed of human and machine components, functioning towards a shared objective.
DAO Design Patterns
How a DAO is designed in terms of organizational function, technical mechanisms, and whether its design is pre-determined at all, depends on its purpose. In other words, form follows function.
DAOs fulfill a diverse array of organizational functions, such as a vehicle for capital investment (e.g. The LAO), building decentralized software (e.g. 1Hive), or creating social clubs (e.g. Friends With Benefits).
Some obvious but useful DAO design or analysis questions are:
1. What is being decentralized? (technically, economically, or politically),
2. Who or what is being made autonomous, and from who or what?
3. What is being automated?
4. What is being organized?
From here, subjective goals, beliefs and values can be articulated to determine design choices.
The emergent dynamics of DAO design choices:
So, what essential elements constitute a DAO in practice? In my research as an ethnographer, some of the common components or design patterns across DAOs include the following:
- A clear objective or common reason they exist, often enshrined in a manifesto, “constitution”, or product / service Terms & Conditions. This can be both implicit and explicit, although it is often articulated by communities. For example, see KONG Land manifesto, 1Hive constitution, and Gitcoin T&C’s, all of which act as purposeful, guiding documents. In some DAOs, this pattern of an enforceable group statement has been referred to as the “constitutional archetype”.
- Formation: Determining token allocation and capital expenditure towards a “DAO first” approach or a community “exit to DAO”. This can be automated or dynamic e.g. 1Hive.
- Participation: Labor, accountability of labor, and compensation (paid, social, or other). This can be by humans and/or algorithms in the context of a multi-agent system. Labor can be volunteer based, paid compensation e.g. DxDAO, or a combination of both e.g. GitcoinDAO.
- Dispute resolution / arbitration mechanisms. E.g. 1Hive Celeste, Kleros, or nation-state law, such as the Wyoming Limited Liability Company (LLC) DAO legal framework.
- Communication / coordination processes e.g. a chat application and governance proposal making processes, such as Discord, a Discourse forum, and Snapshot voting in numerous DAOs.
These components are fundamental building blocks in DAO design patterns that provide a framework for the questions that communities need to consider.
Conclusion and Next Steps
This piece is focused on definitional subjectivity and design patterns in the conceptualization and practices of “Decentralized Autonomous Organizations” across different scholarly disciplines and communities. It has not focused on the question of “do you need a DAO?” and it is not aimed at exploring the limitations and risks of DAOs (although, this is important and I do this in other works).
The articulation of these DAO ontologies is a means to establish a clearer vernacular towards being able to explore the relationship between DAO designs, DAO governance and decision making settings, and DAO political economies. As a site of algorithmic policy making, DAOs are an important means to better understanding the implications and outcomes of human-machine assemblages at the individual, organizational, and societal levels.
Further analysis is warranted to explore how these DAO design pattern building blocks are constituted in different DAOs, how design choices in organization structure relates to organizational purpose or function, how DAOs evolve, and institutional comparative analysis across different DAOs.
Thank you to the team at BlockScience for ongoing research conversations, especially Zargham and Burrrata for review, as well as the team at RMIT Blockchain Innovation Hub for feedback.
Photo credit: “Tools”. @barnimages via Unsplash
The post first appeared on Kelsie Nabben’s Substack