DAO Organization and Structure

Bitcoin created a decentralized form of money that could not be manipulated or minted at the whim of a leader. Instead, it was backed by mathematical proofs, making it impossible for anyone to create more of it or fool the system. One of the main differences between the Ethereum and Bitcoin blockchains is that Ethereum made it easier to program anything, not just money, on top of it. This enabled the emergence of organizations built on top of blockchain, as envisioned in the Ethereum Whitepaper. At the most basic level, that's all a DAO is: a group that uses the blockchain to make decisions. The whitepaper also proposes a model for decentralized corporations, where tokens represent shares in the organization and could even entitle the holder to revenues or dividends.

The organizational structure of a DAO determines who can make decisions and how. The fewer people needed to make decisions, the faster things will go, but the more prone to abuse and corruption the system will be. Every DAO has its own voting power distribution, influentials, and rules that determine how things get done. It's important to think deeply in this initial stage and design the system in a way that encourages a core team to build while ensuring incentives remain available for future participants. The exact organization structure and ownership distribution will depend on the purpose of the organization. If the goal of the DAO is value creation, for example building a new protocol, a smaller more centralized team is appropriate. If the organization is primarily focused on value protection, consider a larger, more decentralized structure. For example, to take a new product to market, a small team should be incentives to do that. To vote on how to spend a large amount of money or democratically control how a protocol works, a larger base of community members should be responsible.

The dramatic saga of Sushiswap serves as a cautionary tale of how decentralizing an organization can be a double-edged sword. After launching its automated-market-making protocol, Sushiswap won over users in droves from its more centralized competitor Uniswap by airdropping them governance tokens that effectively decentralized ownership of the protocol. The decentralization created enthusiasm that won over the community and soon after Sushiswap surpassed Uniswap's trading volume. But soon after, its founders Chef Nomi and 0xMaki stepped down and many speculate that governing the community-run organization was a thankless job that made it hard to get anything done while lacking incentives for the team building the protocol.

Today, many DAOs are realizing that coordinating large groups to make decisions is hard, so they are delegating authority to sub-DAOs or teams that have specific mandates and budgets and can be more nimble. DAOs work best as superstructures around which contributors can organize and bring ideas to life. Some DAOs are financial flash mobs that come together for a singular purpose and don't need a complex organization structure. Another approach is gradual decentralization, where a team that operates much like a startup builds out the initial protocol and decentralizes it gradually to the community as it matures. Overall, it's important to base the organization design on the propose of the organization and balance incentives with community ownership.

Teams

While DAOs are novel way to work together, teams are a time-tested way to get things done. From sports to business, there is something magical about a group of people coming together on a shared mission and collaborating on something larger than themselves. Decentralizing responsibilities into small, nimble teams enables a DAO to move faster and develop internal expertise and competencies. Many DAOs think of their teams as sub-DAOs, where each team manages a budget collectively in a shared wallet and works towards specific goals for the organization. Teams that work well together as cohesive units are critical to a thriving DAO, since a team working together can accomplish much more than an individual working alone. Ray Dalio, founder of the multi-billion-dollar hedge fund Bridgewater, claims that a team of five to seven people that gets along well can often have the impact of 20 people working individually.

A team usually requests a budget to execute on a project. One way to think of Teams is a rollup of proposals - instead of asking members to vote ten different times, they give a mandate to a team to do something bigger in scope. For example, instead of voting on if the DAO should swap Ethereum for USDC, the DAO can grant authority to a Treasury Management team. Giving smaller teams ownership empowers people to make decisions and move faster. It's important that these teams have a sense of ownership over their project and not be subject to too much outside interference. Since DAOs have no top-down management, teams should not created in perpetuity since no one is constantly evaluating performance. Instead, a team should be engaged for a period of time, after which the DAO can vote to renew the arrangement quarterly.

Another approach is to organize members into Guilds, which aim to be more inclusive and open to anyone joining and are usually functional instead of project based (for example, a designer joins the Design Guild, and may separately choose to work on individual projects). Guilds are a great way to create talent pools that project leads and the core team can tap into. There are usually different levels and tiers of contributors to create a sense of merit-based reputation. However, the guild model has some drawbacks - often, people will only hang around for so long before moving on if they don't find opportunities. Plus, the open nature of guilds makes it hard to vet talent. At CityDAO, we transitioned from using guilds to project-based teams and found it to be a more effective way to work, since it enables people who are aligned towards a goal to work together.

Teams can have their own budgets that they govern through Utopia Labs or a multisig wallet. One best practice we've seen is funding teams in tranches, i.e. giving teams more funding as they complete milestones. This is a useful norm in DAOs since there is no CEO to do performance reviews and decide if the team is productive. Instead, the DAO voters should evaluate milestones and decide if the next tranche of funding gets unlocked. A team should not need to request funding for every single expense, however, as that places a massive burden on DAO members to vote on dozens of proposals.

Teams should have a a designated leader and clarity around what happens if members disagree or need to be replaced. If a proposal creates a team and is too rigidly written, it can mean an entire project is stalled if one or more team members don't get along. We recommend giving a leader authority to make tough calls like adding and removing team members to make sure the team is performing well together. While some may balk at giving the team lead a high degree of centralized power, if funds are in a multisig, they will still need buy-in to add or remove members from the team. Designating a team lead is also great for assigning responsibility, since without clear ownership, teams can face a "tragedy of the commons" problem where no one takes accountability for shipping a product or meeting a deadline. If the DAO is funding a team, it should understand what it can expect and who is responsible.

Core Team

Whether or not a DAO needs a Core Team depends on its stage and objectives. If the DAO has an ambitious mission and plan to take on a large zero to one project, a Core Team should be incentivized to build towards that outcome. Usually, the DAO's founders and early contributors become the Core Team. Groups of five to nine people are ideal since they can move fast and communicate well.

A Core Team shouldn't have a blank check, but instead a specific budget and mandate to accomplish a goal. That budget is usually approved by the DAO through quarterly proposals. Members can also be added or removed through the quarterly proposals, and the Core Team can also be responsible for the administration of software tools and good governance of the DAO, for example by organizing and curating documentation, hiring server moderators and legal counsel, and listening and responding to community feedback. Once the Core Team has accomplished its mandate, it should be dissolved.

Contributors

In 2021, Brandon Nolte quit his job and vowed never to go back to the nine-to-five grind. He was pondering starting a company or finding a side hustle when he stumbled across a podcast from Bankless DAO, an educational and media organization devoted to helping people access fair financial infrastructure and go "bankless." The podcast explained how DAOs are internet communities that build together and share ownership, and Nolte realized that working for one he "could reap the benefits and support of a big organization and have the autonomy to choose how and when to work." He saw that becoming a DAO contributor could be an opportunity to build his dream job and work on his own terms, sidestepping the nine-to-five grind and its typical top-down bureaucracy. It was an opportunity to explore his passions and best of all to not have a boss.

Contributing to DAOs often appeals to a certain type of person who is self-motivated and thrives in unstructured environments. It can be a fun and low stakes way to jump into a new world and explore novel ideas. Anyone can hop into the group chat, introduce themselves, and find a way to contribute. Becoming a DAO contributor is certainly not for everyone, however, since it can be too unstructured for some people and require foraging through a firehose of Discord messages and finding something to work on and rallying the support of the group to get funding for a project.

Contributors are the heart of a DAO, and attracting the right people to the right roles is crucial. A healthy DAO should attract a robust network of contributors across software development, design, product management, and business. Before focusing on attracting contributors, it's important to write down the goal and what specific skillsets are needed. Then, once there are clear goals and a sense of who is needed to execute on them, the next step is attracting contributors. For most DAOs, this means using social media, news, podcasts, or word of mouth. Once the first curious contributors start joining the chat, it's important to have a good Onboarding experience that helps contributors get acquainted with the lay of the land. They might post an introduction and mention some areas of interests and skills they have. They can also start attending DAO meetings like the Community Call, or listening in to see what people are working on. Then, they might pick up some bounties and earn their first tokens by completing a small task. If the DAO has a community manager, they might give them a warm welcome and mention the DAO is hosting a game night where contributors can meet each other. The new contributor can then join a team and work on projects or if they are up to it, independently For DAO contributors, passing their own proposals and building out their own vision with the DAO. Whether it's feeling less like a cog and more like an owner or working on things you are passionate about, joining a DAO is a way to create your own adventure, explore an outlandish new idea, serendipitously meet new people, and achieve something bigger together.

‍