TL:DR: DAOs provide an egalitarian environment for growth, tech and operations contributors, where performance is directly rewarded in liquid tokens vs restricted stock. 

Web 2.0 companies have achieved global scale. Trillions of dollars of market cap and revenue have been built by millions of talented employees. What incentives drove this?

As a COO / CFO of growth stage technology companies, I have built, designed, and optimized compensation packages for my companies. Generally, the simplified structure is:

A new compensation structure in Web 3.0

Web 2.0 employers optimize for time of service. Employees receive more cash and equity compensation the longer they stay at the company. Talent migration in the Great Resignation demonstrates otherwise.

Enter Web 3.0.

DAOs (decentralized autonomous organizations) optimize for contribution vs tenure. Contributors are paid transparently in public forums in native DAO tokens. 

There are hundreds of DAOs, with the 32 largest DAOs representing $19B in total treasury value (OpenOrgs). $8.4B of this (44%) is liquid. 90%+ of this value is held in native tokens (see Hasu’s post on A New Mental Model for Defi Treasuries).

The biggest misconception is that Web 3.0 contributors are paid in “funny-money” tokens that can’t be used like good ole greenbacks. For context, total crypto market cap has increased by ~5x in the last 3 years to almost $3 trillion. For comparison, the NASDAQ has appreciated by 2x in the same period.

If a contributor is seeking liquidity, tokens can be swapped on decentralized exchanges faster than adhering to stock trading windows (Harvard Law: Employee Trading Windows), or even levered on decentralized finance protocols.

New models for contributor incentives

https://twitter.com/cdixon/status/1440026954086944775?s=20

To build DAOs, length of service windows would be a skeuomorphic construct.  

DAOs incentivize contributors through performance based rewards, where compensation is earned based on task completion and subsequent results. 

Incentives are aligned: DAOs clearly state what they need, Contributors complete tasks and document findings. 

High growth private company employees built generational wealth by taking a bet on joining the pre-IPO Facebooks, Airbnbs, and Coinbases of their day.  

These employees withheld cash or liquid stock compensation in exchange for private company stock options, which required time-based vesting windows and large outlays of personal cash to exercise options. 

If an employee left, they would need to come up with hundreds of thousands of dollars cash within 90 days (Rishi Gupta from Stanford CS) from their last day of employment to participate in the upside they built.

DAO Contributor Compensation Roadmap

I’m starting to see Web 3.0 native compensation structures emerging. 

The DAO raises the bar on “job descriptions” and defines micro-tasks. Contributors knock it out of the park and gain 20x multipliers based on their performance. 

A marketer creates more content, a business development rep closes more deals, an engineer deploys more accepted code. 

Products get built faster, adoption increases, and contributors see upside quicker. Decentralization > an old-school HR department. 

Compensation packages in Web 2.0 are rigorous labor-intensive annual procedures, but Web 3.0 protocols enable customization at scale. Platforms like UMA provide KPI options to build custom synthetic tokens that pay out additional rewards if the KPI meets predetermined targets before the preset expiry date like releasing engineering commits, achieving product adoption, or growing engagement count. 

Thus, every KPI token holder is aligned in the sense that they would stand to earn more by collaborating to ensure the KPI is reached, rewarding DAO contributors based on growing the underlying fundamentals of the protocol.

New questions will emerge: what will cross-DAO contributor benchmarks look like? Will contributors need to be retained over time? Will there be any exclusivity?

My opinion: in a positive-sum world, talent is inherently mobile, free to deploy their skills to projects they want to support, devoid of arcane non-competes and IP lockup. And the best DAOs will attract the best contributors.

About author:

@kishandao has 15 years of experience building growth stage technology companies. A veteran of big-tech and scaleups, Kishan has served in multiple COO/CFO roles and was previously a growth equity investor at Goldman Sachs.