DAO ecosystem overview: how it works, deployment framework

DAO

From the laws of the jungle to the laws of man, humans are social animals that depend on and need cooperation to survive and thrive. Therefore, we always organize ourselves into tribes, groups, teams, committees, corporations and other forms of collective action to develop, learn, adapt, coordinate and execute our higher vision, and in all such organizations, a unified vision And goals are prescient for transcending personal achievement.

In traditional companies and business organizations, all employees have employment contracts and internal policies that govern their relationship with the company and with each other. Furthermore, their rights and obligations are governed by legal agreements that are broadly enforced as a social contract by the governing law of the country in which they live, i.e. the law is the code.

On the other hand, DAO exists in a virtual layer above IRL and is an Internet-native organization; collectively managed and owned by its members according to preset rules, automatically executing “smart” contracts and guidelines specified in the code to be executed on the blockchain, Code is law. One of the main benefits of DAOs is that they are more functionally transparent in their operations than traditional organizations, as most operations take place “on-chain” and anyone can verify the authenticity of such “on-chain” transactions made by the DAO nature, although some operations may remain “off-chain”.

The term DAO stands for three elements, although more such elements can describe its true nature:

  1. Decentralized: DAOs are considered decentralized because they are deployed on public blockchains, making them open, permissionless, borderless, and censorship resistant.
  2. Autonomy: A DAO is considered autonomous because its primary infrastructure is open source software and its operations will effectively follow the rules embedded in its code and the governance efforts implemented by its community.
  3. Organization: A DAO is an organization that promotes human cooperation and coordination through purpose-centered collective ownership.

How do DAOs work?

The DAO ecosystem is a unique combination of smart contracts and a fully functioning community. Unlike traditional organizations, DAOs are not governed by a board of directors or managers, but rather by their members who collectively manage decisions within the DAO through token-based voting mechanisms that are enforced according to predefined rules in smart contracts.

Governance

Building legitimacy in decisions made by DAOs often requires governance. These decisions should be made with the DAO’s mission, vision, and goals in mind. Governance is complex and difficult to get right (as the history of traditional corporate governance illustrates). While it is impossible to build a “perfect” system to operate a DAO, it is certainly possible to construct a “playbook” of governance models and DAO structures based on the nature of its operations. To date, the DAO-based community has been experimenting with various systems for managing infrastructure, from informal processes to formal processes, from loosely coupled off-chain systems to tightly coupled on-chain systems. The ideal governance model is one that maximizes the DAO’s meaningful participation, fair use by the community, and fulfillment of its mission.

Over the past few years, we have seen major innovations by leading DAOs in token-based governance models that function like stocks (a basket of rights) but run on an open software system, providing Its holders promote long-term value and growth. It empowers token holders to change system rules when necessary and allocate ecosystem resources through a decision-making process. This is valuable to users as they become the “owners” of the protocol. This creates stronger network effects, as the more useful the protocol is, the more valuable it is to manage it.

DAO ecosystem overview: how it works, deployment framework

entity structure

DAOs can share characteristics with partners, corporations, trusts, and cooperatives, but operational and organizational functions derived from the technology itself are problematic when subsumed into existing entity structures (Wyoming DAO-LLC statutes). In our view, a DAO is the meta-software that supports any underlying legal structure, and the main decision when building a DAO is to determine whether it has a for-profit or not-for-profit purpose.

Non-profit DAOs aggregate funds and fund projects based on member votes, serving the entire community, pursuing education, science, the environment, philanthropy, and more. Here are some interesting examples: DiatomDAO is increasing its support for protecting the ocean; KlimaDAO hopes to accelerate the solution to climate change by increasing the price of carbon assets. LexDAO is a non-profit decentralized guild of web3 lawyers with an educational platform.

Other types of DAOs are organized for profit. Here are some interesting examples of for-profit DAOs: MetaCartel Ventures (Venture DAO) is a for-profit DAO created by the MetaCartel community to invest in early-stage decentralized applications (DApps); StakerDAO is a decentralized, secure and cooperative A platform for managing financial assets in a regulated manner.

Earlier, if DAOs were organized for profit, they encountered securities law issues that limited their application and ability to fund ecosystem development and deploy capital efficiently. Even if DAOs are organized for charitable or social purposes, they can enter a legal gray area where members may be considered partners and thus each member is personally responsible for the organization’s activities. Despite these technical and legal challenges, the DAO’s luster has not diminished. DAOs can now use various forms of legal structures to initiate and enable limited liability structures.

legal structure

There are four main camps of thought on how to deal with the legal structure of a for-profit DAO. The first is the US-based LLC camp, which mainly includes three options:

  • The first option is to register your DAO under DAO-specific Wyoming legislation. The legislation allows DAOs to legally form a limited liability company that can hire employees, expand in size, and grow. The legislation aims to give DAOs the legitimacy they need to better establish themselves and grow in the global marketplace.
  • The second option is to create a “legal wrapper” based on Delaware’s freedom of contract statute, created by structuring the DAO as an LLC to hold the company accountable for contracts, taxes, and violations, not Individually responsible DAOs can also use Ricardian LLC as an NFT-Factory smart contract with embedded Delaware Series LLC protocol functionality and IPFS-hosted documentation as a public product on Ethereum.
  • A final option, a recently explored model, is to register your DAO under other legislation, including the Colorado Cooperative Statute, specifically the Uniform Limited Cooperative Association Act (CULCAA) using the Limited Cooperative Association (LCA) structure. An LCA is a hybrid between a limited liability company (LLC) and a corporation. It is an entity based on unincorporated substantive law. The LCA model has the potential to keep DAOs faithful to their ideals on a secure legal basis.

The second is the UNA camp, which stands for “Unincorporated Non-Profit Associate”. It is created when a group of people wants to form an association without formalizing it through registration. The UNA structure is used for the construction of the digital museum MUSE0, where collectors and artists donate NFT and the community decides whether it should go into LexDAO’s permanent collection and association.

The third is the investment club camp, which can be created in the form of Limited Liability Autonomous Organizations (LAOs), which are legal entities such as LLCs or C-Corps. LAOs can enter into legally binding contracts, hold off-chain assets, and pay dividends. Investors in the LAO must be accredited, but service providers who are paid in LAO shares can earn their shares in the LAO portfolio.

The last is the camp of offshore entities, registering their DAOs in foreign jurisdictions with favorable tax regimes (e.g., Cayman Islands, Panama, Singapore, Ireland, BVI, Bermuda, and Switzerland) and wrapping the DAOs in Simplified limited liability protections formed in that jurisdiction are provided in a foundational entity or entities. DAOs do not have a perfect legal structure. Each option must be made with multiple factors in mind, taking into account its shortcomings, and each is bogged down in regulatory complexity. Ultimately, a decision needs to be made (ideally with legal counsel) taking into account the risks of limited liability and tax structure. The marketplace now offers multiple protocols that support the deployment of DAOs using pre-set governance frameworks (and some with underlying legal entities).

DAO deployment framework

The DAO Deployment Framework is a set of smart contracts developed by the platform that allows for simplified deployment of DAOs using a preset governance model. These platforms serve as a base layer to support the creation and governance of DAOs, including their protocols, funding, ownership, membership management, proposals, and other activities that require coordination. Different DAO framework platforms endow DAOs with different sets of capabilities. Deploying a DAO without a platform is possible, but it may require specific technical and legal skills that are not readily available to most communities. Examples of platforms that provide such frameworks are as follows:

Moloch v2 is an upgraded version of MolochDAO that allows the DAO to acquire and spend multiple different tokens, “guild expulsion” to remove unwanted members, “angry exit” for members wishing to exit the DAO with a portion of the proceeds, and “booty loot” “To issue non-voting shares, but entitled to financial distributions.

KaliDAO is an on-chain organized protocol inspired by the best components of Compound and Moloch DAO governance. Smart contract code is simple, easy to read, protects assets, and customizes through its extensions. The KaliDAO protocol supports the establishment of LLC and UNA legal structures with the DAO, and in a no-code format, founders can easily launch a DAO with limited liability protection.

DAOhaus is a no-code platform for getting DAOs up and running. It is owned and operated by its investors and community. All DAOs on the platform use Moloch’s glorious open source code.

OpenLaw’s Tribute makes DAO development easier by balancing a more modular design and optimistic rollups with Moloch’s security guarantees. Its tech stack includes solutions for canceling proposals, creating non-voting shares, kicking out members, using NFTs for membership, whitelisting tokens, and more.

The DAO Stack is a modular stack that includes a governance protocol and an easy-to-use interface for creating and managing DAOs.

Colony v2 focuses on reputation-based task management, ownership, structure, authority, financial management and dispute resolution

Aragon provides a suite of applications to create, manage and govern DAOs at scale. This includes Aragon Court, Aragon Govern, Aragon Voice and Aragon Client.

Orca is designed around “pods,” another name for workgroups. Pods are considered child DAOs in a sense, with their own membership and governance. Essentially, each pod acts as a mini DAO within a larger DAO structure.

Properties of DAOs

Each DAO is different in terms of decentralization and autonomy, but fundamentally these are the core values ​​that make an organization a DAO. In addition to these core values, building a purpose-driven DAO requires several prerequisites:

DAO ecosystem overview: how it works, deployment framework

contribute

In contrast to traditional companies, individuals can move fluidly between DAOs, often contributing to multiple DAOs simultaneously in a permissionless manner, i.e. DAOs are open source communities. This flexibility attracts many contributors and is one of the factors that enables DAOs to attract new talent like traditional open source. Some contributors thrive when they can flow between projects and contribute where they feel most inspired; they may thrive when others can delve into a project without distraction. Still, others want something in between. Where DAOs really shine compared to traditional organizations is that they can support many contributors at the same time to participate in a model, allowing contributors to choose the model that works for them.

DAO ecosystem overview: how it works, deployment framework

compensation

DAOs currently benefit from the flexibility they can offer their contributors. This flexibility attracts many contributors, but it often lets contributors navigate multiple compensation structures. DAOs must ensure that compensation is commensurate with the value created, and its non-hierarchical nature presents challenges to measure that value, especially as contributors learn and grow. However, designing a compensation plan that promotes contributor selection while remaining fair, transparent, and manageable is critical for DAOs. According to DAOhaus, there is a set of principles that create an adaptable contributor compensation plan:

  1. Contributors should participate flexibly in the DAO based on their level of participation.
  2. The contributor engagement and compensation model should be interoperable with other DAOs.
  3. Contributor value should be assessed in both a bottom-up and a top-down manner.
  4. Contribution to the DAO should be a transparent activity, preferably an on-chain mechanism.
  5. Ideally, contributions to a DAO should be documented in its terms of operation.

Some examples of compensation and contribution tools for DAOs in web3 are:

Coordinape is a reciprocity-based compensation tool on the premise that the contributors to the workgroup know best who creates the most value.

SourceCred uses an algorithm to determine how much value a contribution or contributor adds to the project as a whole.

Govrn has created a “movement model” where the community assigns weights to different types of contributions based on their priorities.

Opolis was one of the first digital employment cooperatives for independent workers, offering HR benefits in web3.

Sablier is a real-time financial protocol that leverages smart contracts to provide continuous, autonomous, trustless payments.

Superfluid is a protocol for processing subscriptions, wages, rewards and any composable value stream with continuous settlement and netting per second for extreme capital efficiency.

Roll provides hosted Ethereum wallets capable of sending and receiving social funds from the Ethereum blockchain and the Roll network.

collective ownership

The idea of ​​collective ownership is at the heart of DAOs. The DAO is not meant to be owned by a handful of founders and investors, but by the community that makes up its essence. This concept of collective ownership works because everyone is a stakeholder (through tokens) and no one is the custodian of funds and decision makers (except Treasury Multisig itself). Ownership determines incentives and incentivizes users to contribute to the product in more profound ways, be it ideas, development, design, law, or community building. Over the past decade, we have lived in a period where ownership is concentrated in a few centralized organizations that dictate end-user relationships. DAOs represent a new framework for organizational culture where ownership is taken back and redistributed into the hands of the communities that built it. Examples such as PleasrDAO’s segmenting of the Doge meme, ConstitutionDAO raising over $40 million to buy a copy of the US Constitution, or AssangeDAO raising funds to liberate Julian Assange provide templates for new ownership models. More examples of how next-generation platforms are driving the economy of ownership:

Gitcoin is a platform that enables developers to get paid for working on open source projects.

Seed Club is a social token incubator focused on helping creators launch and grow social tokens.

Friends with Benefits is a social DAO and community 100% owned and managed by participants.

SuperRare, an NFT marketplace that distributes tokens to its artists and collectors, who will manage curation, DAO vaults, and future product direction.

ObscuraDAO offers photographers commissions to produce their envisioned projects, communities, funding opportunities, and educational resources to help them explore NFT photography.

DeveloperDAO exists to accelerate the education and influence of a new wave of web3 builders.

cooperate

We need a fully interactive and collaborative DAO ecosystem for DAOs to truly revolutionize the way we work and coordinate. Many DAOs share common goals, but they currently operate in isolation and lack tools for collaboration. Building and improving the tools and platforms where the DAO community works together will have a huge impact and create powerful interactions between DAOs. Many DAOs are emerging that provide DAOs with the tools to communicate and coordinate like Prime DAOs. But we are still in the early stages of this revolution. There are many good examples of D2D collaboration:

DAO ecosystem overview: how it works, deployment framework

coordination

Coordination failure occurs when a group of people can cooperate to achieve a desired outcome, but fail to do so because they do not coordinate their decisions. But with the advent of blockchain technology, we can now program our values ​​into our systems through the use of smart contracts trustlessly, allowing us to coordinate with multiple actors, thus solving the problem of coordination failures. DAOs are horizontal organizations with few command and control structures. Members rely on smart contracts as the primary glue that facilitates economic transactions and social interactions. Defined values ​​must be embedded in smart contracts, especially in governance, finance, onboarding, etc., for good coordination among members, in order to simplify the coordination process.

DAO ecosystem overview: how it works, deployment framework

finally

DAOs are in many ways a paradigm shift to traditional companies, as they are global from the start, no need to join or contribute, and go well with many processes such as community building, onboarding, and real-time compensation. While there are many issues with this process today, there are good reasons to believe that they will be resolved over time. Ultimately, the success of the DAO lies in the unique synergy and harmony between its smart contracts and the community. We still have a long way to go before these DAOs are fully efficient and truly decentralized. As with all technological advancements, DAOs will continue to grow larger, more powerful, and more diverse.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/honduras-denies-rumors-of-making-bitcoin-legal-tender-2/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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