How DAOs win and lose

While we’re excited about the ways DAOs may spark a revolution in collective action, we should remember: they won’t be the first, and they won’t be the last.

Our current world is primarily designed around large centralized structures such as national governments, universities and corporations. But this was not always the case – cycles of decentralization and centralization defined the ebb and flow of major periods in human history.

We seem to be in the late stages of the modern era, where the power of central institutions is failing . So it’s natural to run in the other direction, swinging the pendulum towards decentralized minimalism. Minimalism is the strategy of cancer cells, and successful complex systems are diverse, permeable, and inherently diverse.

If we’re going to cry out from centralism, we need to know where we’re running and what we’re running from. Movements to abandon centralized structures without suitable replacements often end in apathetic collective action failure, or worse, mob rule. If we are to avoid the proverbial guillotine we should learn from what has worked and failed in other decentralized organizations, we need to ask ourselves:

In what ways can a decentralized organization outperform a centralized one ?

Ideologies don’t win by the advantage of lip service—they win by proving they can solve real problems more effectively than other options. Therefore, it is necessary to gain a deep understanding of what makes a decentralized organization better (or worse) than the existing alternatives.

Principles of a successful DAO

Here are four distinct organizations that can teach us about building a DAO:

  • Valve (Steam’s parent company)
  • United States Marine Corps
  • intentional living commune
  • Amazon

Each of these organizations operates as a decentralized organization, producing better results than more centralized organizations. They create flexible, adaptable, creative, and capable evolutionary systems that can transcend tighter hierarchies in rapidly changing environments.

This broad range of organizational types shows the ways in which decentralization can manifest itself as a force. By looking at the commonalities in their principles, we can understand what makes a decentralized organization successful. Here are some principles they have in common:

1. Recruit the best talent.
2. Help members organize themselves.
3.  Empower mission-driven leaders.
4. Prejudice against actions.

5. Play unlimited games.

Note that none of these principles are about decentralization absolutism. They’re about finding the right balance between decentralized autonomous organizations and flexible leadership structures that create a focal point for collective action, allowing us to focus on every detail.

Recruit the best talent

Every successful organization seems to agree on one principle: great organizations are made up of great people, and no amount of organizational design can make up for those who lack the skills, ambition, and passion to accomplish great things. One of the most successful passages in Valve’s employee handbook is:

If you have the ability, it will give you the green light, and you have the power to improve the quality of the product. A flat work structure allows you to enjoy your work and removes organizational barriers to that work.

If you’re thinking, “Wow, that sounds like a lot of responsibility”, you’re right. That’s why recruiting is the most important thing you do at Valve. Any time you’re interviewing a potential employee, you need to ask yourself not only if they’re talented or cooperative, but if they’re capable of actually running the company.

How DAOs win and lose

Diagram from the Valve Employee Handbook

Companies like Valve and Amazon, elite military units like the U.S. Marine Corps, and co-living environments like the Intentional Living Commune all draw boundaries around themselves and carefully assess who they allow in. By continually trying to raise the bar, they can keep expanding to learn more structures and rules when they don’t need to. Again from Valve:

It seems counterintuitive that we believe that jobs will get better if we are careful, but it is a direct result of hiring great, accomplished, and capable people. However, getting everything to run smoothly is a difficult one, and a lot depends on our constant vigilance when hiring/recruiting. Much of what is discussed in this article will be ineffective if we start adding people who are less capable than us to become powerful, self-directed senior decision makers.

DAOs often try to be permissionless, allowing anyone to join the community. Maintaining an open, permeable, and inclusive approach to newcomers allows DAOs to grow rapidly, increase diversity, and gradually decentralize. But there is a clear tension between bringing in the best talent and maintaining an open and permissionless community:

How DAOs win and lose

I think the best solution we have to solve for this balance is Contributor Proof of Work. In this context, proof-of-work refers to the ability of new community members to demonstrate their competence and expand the scope of their work as they build trust within the community. By creating systems for autonomous organization teams to publicly achieve the organization’s goals, DAOs can build feedback loops for strong contributors to succeed and actively strengthen the organization’s culture, capabilities, and scalability.

Help members organize themselves

Once you are surrounded by good people, you can work together to build an effective system of collective action. In order to self-organize, one needs:

1. Clear goals

2. Small teams executing at the edge

3. Accessibility of information

4. Minimum viable autonomy

clear goal

Just as slime mold grows toward an available food source, or an oak tree grows toward sunlight, the first thing an autonomous organization system needs is a goal.

How DAOs win and lose

Marine Jim Mattis, a former U.S. Secretary of Defense, helped define the U.S. Army’s Counter-Insurgency (COIN) principles. Counterinsurgency is a method of warfare designed to counter highly decentralized terrorist networks. This military theory of decentralized organizations argues that well-defined missions are the most important prerequisite for allowing organizations to self-organize, since no one can coordinate without a shared understanding of the goals. In Matisse’s memoir, Call Sign Chaos:

Correct execution of independent actions requires a shared understanding of the task and the intent of the task’s intended accomplishment.

This is why the most successful DAOs to date have been organized around powerful memes that give members a shared sense of purpose and purpose. At Cabin, we’re trying to set up a city council to define goals for each season and create budget allocations for those goals.

Small teams executing at the edge

Once the participants have a sense of purpose, they come together and try to accomplish it. Successful teams tend to be small and purposeful. Majority usually doesn’t bring good results because coordination costs grow exponentially. This coordination cost is the flip side of Metcalfe’s law:

If you ask them how many people they like to work with, they will usually tell you a number between 2 and 12. Amazon is known for describing the concept with the popular term Two Piza Team (although at Cabin we prefer one sauna teams). The DAO can be thought of as a constellation of these small teams, sometimes called pods, squares, guilds, or – if you want to call it badly – subDAO.

accessibility of information

Allowing people to self-organize into small teams requires them to have access to information and the ability to perform autonomously. Access to information is probably the most underrated benefit of a DAO. Blockchains are essentially public ledgers. This means that DAOs are inherently highly transparent in terms of resource allocation. This is a particularly important breakthrough for DAOs, as information transparency and accessibility, especially for newbies, are a weakness for decentralized organizations like Valve:

How DAOs win and lose

Even when a formal hierarchy does not exist, companies will eventually develop an implicit hierarchy of information availability. As the saying goes, knowledge is power. If conversations, transactions, and processes are publicly available, anyone can (in theory at least) enter an organization and actively contribute to it.

minimum viable autonomy

Autonomy means that individuals can make executive decisions without bureaucratic procedures constraining their decision-making powers. The problem with rules or procedures is that they can be held by special interest groups that use them to retain power, not for the public good. For example, the United States House Rules and Manual contains hundreds of pages of crap like this:

Repayment of unspent appropriation balances may not be reported in the General Appropriations Act or as an amendment to the General Appropriations Act.

Rules beget more rules, and then the process of making sure the rules are followed. Rules for determining available actions are inherently political tools. It wasn’t long before the rule-making metagame became the dominant force in enforcing the will to power, no matter how useful the outcome of the process was, one of the main concerns of America’s Founding Fathers as they designed the system of governance.

But the rules exist for a reason. Resources are limited, and if anyone can do anything with the collective resources, the collective resources will quickly disappear in a public tragedy, and all that is needed to solve this problem is the minimum viable autonomy. Elinor Ostrom’s design principles for public resource agencies have been the main framework for how humanity has approached this problem in a bottom-up manner for thousands of years.

Empowering mission-driven leaders

Organizations without leaders, when you try to build completely flat organizations, you end up hiding hierarchies in unrecognizable ways, seems to be a problem with Valve. While transparent and accessible information can help with this, the most illegible hierarchies are created when groups pretend they don’t exist.

When we say mission-driven leaders, we mean two things. First, it means that the best leaders are missionaries, not mercenaries, who believe in and are committed to the larger mission of the organization. Second, it means that leadership is a temporary, ephemeral role designed to solve a specific task.

DAOs offer a unique solution to this problem that was previously technically infeasible: giving direct execution to all individuals in the organization. In his anti-capture framework, Spencer Graham (Twitter) identifies direct execution as the key to a successful decentralized organization:

In an anti-capture structure, the separation between decision and executive power is only possible. This is why decentralized decision-making is not strictly required. This is also why decentralized organizations can be fluid and adaptable. When executive power is dispersed, true leadership can emerge from anywhere.

Humanity wants and needs leaders to create bombardment points (targets) for collective action. A DAO should be a leadership organization—a group that supports timely leadership from a variety of capable individuals. A leader is someone who knows what to do next. Effective DAOs provide members with the tools to execute as they become the best leaders of the common cause.

biased against actions

The CIA (Central Intelligence Agency) has written a fascinating manual called The Simple Sabotage Field Manual. In addition to detailed tips and tricks for making fires, targeting warehouses, sabotaging tools, and blocking toilets, the manual includes a full section on sabotaging organizational work. The handbook describes the failure states of organizations with unclear leadership and a lack of action bias:

How DAOs win and lose

Anyone who has tried excessive flattening and consensus in an organization has probably encountered these problems. It was the downfall of the communes of intentional life in the 1960s, and the larger communist experiment of the 1990s. When everyone always has an equal say in everything, teams can say a lot and end up doing nothing.

One way to address this comes from co-living communities, often organized around a principle called “do-ocracy.” This principle states that, generally speaking, whoever actually does something makes the rules. Phil Levin, one of the Cabin City Council members and founder of several successful co-living communities, gave a great talk titled “What DAOs Can Learn from Co-living Communities . ” Phil’s community began to flourish under self-styled dogmatic leadership principles:

How DAOs win and lose

The goal is to minimize governance and consensus decisions by empowering individuals to make autonomous actions, as long as those actions are reversible and inexpensive. Another great example of this kind of decentralized leadership comes from Build Weeks at Cabin, an offline cabin living space created by creators on a mission to create a decentralized city.

How DAOs win and lose

Build Weeks are primarily organized by build leaders themselves, but also provide space for other creators to take on authoritative side quests and contribute to the build environment of Cabin Zero. Here’s how a recent Build Week participant described effective do-ocracy:

There are no strict roles and responsibilities, but everything is done, we are able to use our unique skills and interests without any conflict, and most importantly, everyone is at the wheel.

Valve also emphasizes a canonical approach to product development, whereby anyone can “come up with a great idea, tell a colleague, work on it together, and ship it”:

How DAOs win and lose

Jim Mattis explains: “To do this, you need to design organizational processes that explicitly reward people who try new things. The instillation of personal initiative and risk-taking doesn’t come spontaneously. It has to be built into the organizational culture. Nurture and reward, and tolerate their mistakes. If risk-takers are punished, then you will only keep those who are risk-averse.”

When things are not going well, ask yourself: Did the experiment fail because someone took a strong initiative, or did they fail to take the initiative in the first place?

Play unlimited games

Rewarding action-biased leaders is the key to a successful decentralized organization. But execution is a finite game—convergent actions taken to achieve a specific goal. The ultimate principle of an effective decentralized organization is inherently divergent: play infinite games.

Resonance, reciprocity and trust are infinite games. They don’t play to win, they play to keep playing. Infinite play is for intrinsic rewards:

How DAOs win and lose

The co-living communities Phil helped start to revolve around the principle of intrinsic reward. Phil’s partner Kristin, a behavioral scientist, knows that intrinsic rewards are more powerful and fulfilling than extrinsic rewards. As such, their co-living community basically provides no direct compensation for any work within the community. This policy ultimately makes the community stronger and more productive than everyone playing a game of limited resource allocation.

Intrinsic community building means valuing the value of community members, going beyond the work they do for the organization, allowing people to contribute to the community without expecting external rewards. While the work of a DAO should reward good executors with more responsibility and financial benefits, the entire community does not need to be held to the same standards as the incentives to participate differ. Community is about empathy and relationships — both driven by intrinsic motivation and infinite play.

Infinite Games will take the DAO to interesting places, and Amazon is playing an infinite game. Note what’s missing from Amazon’s flywheel – the arrow leaving the chart:

How DAOs win and lose

Amazon is one of the most powerful self-perpetuating economic feedback loops in the world. It’s a mechanism that feeds back its own growth, creating exponential revenue growth without sacrificing profits:

How DAOs win and lose

The most powerful DAOs will follow a similar path — they will create intrinsically motivated communities, allow memes and cultures to perpetuate themselves, while developing protocol superstructures that exist indefinitely and create value without sacrificing profits.

This is the end state of a fully decentralized organization, and it points us to a future where companies are not designed to produce. Organizations of the future can be collectively owned and organized by a token that provides utility to those who hold or stake it and never attempt to generate dividends or profits drawn from the system, while still providing network participants with a huge value. Like ecosystems, economies, and other forms of complex adaptive systems, DAOs can become structures that play infinite self-actualization games, rewarding participants with meaning and purpose.

DAO playbook

No two DAOs can follow the exact same playbook because of their different purposes, communities, and resources. But, just like a company, a diversity of products, business models, and cultures develops in DAOs—if organizations treat DAOs as a verb, there are replicable patterns of success.

Ultimately, by integrating the ways that centralized hierarchies create efficiency and decentralized networks create resilience, we can chart a path to more efficient organization. Mapping this path requires a deep understanding of historical precedent and constant experimentation. Regardless of what these future organizations ultimately look like, successful organizations are likely to do these things: a) recruit the best talent, b) help members self-organize, c) empower mission-driven leaders, d) be biased toward action, e) Unlimited games.

Posted by:CoinYuppie,Reprinted with attribution to:
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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