DAOs are the biggest misnomer of web3. They don’t work, and no one seems to know how to make it work. Here, I present a view to challenge the way we look at DAOs to begin with.

The take-away for me from 2 days of DAO discussions in Amsterdam is nobody has figured out how to manage the chaos to get anything useful done in a DAO.

DAOs are today just a glorified Discord channel with no clear route to be either Decentralized (what does that even mean?) or Autonomous. “DAO” is a marketing gimmick.

https://twitter.com/balajis/status/1494244523983081475

Hierarchy

DAOs tend to reject hierarchy. DAOs optimize for consensus over conviction. For any real innovation, you need zero to ones. Zero to ones are by definition anti-consensus (“What do you know that no one else agrees on?” adage by Peter Thiel).

DAOs that want anything meaningful done should have hierarchy. If there is hierarchy, how is it any different from a centralized organization?

Permissionless leadership

There is always a hierarchy at any meaningful organization, DAO or not.

I think the ethos that DAOs stand for isn’t leaderlessness. It is meritocratic leadership. It is that anyone can rise to the ranks of the leader as long as they have the competence, motivation and discipline.

Organizations need to be able to swap out the leaders of the hierarchy when the leadership isn’t delivering.

Forking

One option to change leadership is making a clone and asking people to port over. I think that was a good option for L1s, but doesn’t apply for Dapps especially once they’ve amassed wealth in treasuries.

Code defined leadership swapping

The DAO should clearly define the rules of leadership change. How will the leader be changed and how the rules of the change of leadership can be changed? These are the bare minimum for a DAO to qualify to be called a DAO. A discord channel is neither sufficient nor necessary for classifying as a DAO.

Example : Futarchy as leadership swapping

Futarchy has been written about here here and refuted here.

Disclaimer : This model will work only for DAOs that have a token and a treasury

• The leader of the DAO has authority to distribute capital from the treasury.
• People who’ve staked their Governance tokens can veto the capital allocation for a duration of 7 days.
• At any point in time, if the community loses trust in the leader, they can start a swap voting at any time.
• People who have staked their Governance token can vote on the swapping of leader (whom to replace with).

But - the way to vote is not by using a one token one vote. It is by futarchy voting. Meaning, the way to vote is by saying “I promise to buy $100 worth of Governance token, if the leader of the DAO is replaced by X”. When the voting is complete, the buy order is automatically executed if X becomes the leader.

Why

You want someone making the zero to one bets at the Organization.

You want people to be participating in the votes with incentives to vote in the best interest of the DAO.