Proposals

Proposals are how things get done in a DAO. Most proposals allocate funding to a team or individual in pursuit of a goal that is aligned with the DAO. In a typical scenario, a sponsor writes a proposal, shares it on a forum for feedback, revises it accounting for feedback, and proposes the final version to the DAO for a vote. One best practice is having an initial discussion period of 7 days or so where the proposal is constructively debated on a forum, then a voting window of 7 days or so. Another best practice is to increase the time and difficulty needed to pass a proposal based on the amount of resources requested so that it's easier to request smaller amounts of money for prototypes and harder to request large amounts of money without widespread agreement.

Every DAO should publish a clear proposal guide and template. Proposals should be written as clearly as possible to avoid conflict arising from debate over proposal terms after passage. If a proposal is unclear, the sponsor should go back the the DAO for a clarification vote, which is cumbersome for the sponsor and the DAO. That's why proposals should clearly define the exact amount of funding required, what smart contract address the funds will be sent to, how the funds will be used, who is involved in the project, the success and failure case, and any risks this proposal introduces. Good proposals often explicitly make contingency plans for when something goes wrong or is unclear. Proposals should never tangle DAOs in large financial burdens, initiate infinitely recurring transactions, or introduce new tax or legal risks without consultation from a tax professional or a lawyer.

Many DAOs choose to gate the ability to author proposals to those with a significant supply of tokens. The merit to this approach is that those with the significant skin in the game are the most economically aligned and will be most likely to be impacted by the result of a proposal. However, some DAOs set the bar so high that only whales who hold millions of dollars worth of tokens can author proposals (which is usually just the founders or investment firms). Projects certainly have the right to a high proposal threshold, but at a certain point the organization is no longer a DAO, it is an on-chain oligarchy.

To make a proposal to the Uniswap protocol, one needs 2.5m UNI tokens, gating proposals to about 37 people. While a large group still has a voice in what proposals pass, making big changes to the project is still in the hands of a fairly small group. For another example, ShapeShift is a trading protocol that started a DAO to allow its community to collectively allocate revenue from the protocol via a token called FOX. Their initial governance parameters are as follows

• 100 FOX required to submit a proposal ($2 as of this writing)
• 0.4% of FOX supply required to vote to reach quorum (4,000,000 FOX)
• 72-hour minimum voting period
  

The status quo of action through proposals presents challenges unique to DAOs. A cumbersome proposal process can scare away builders, entrepreneurs, and creative people who don't want to write and politic proposals. A core team can help shepherd people through the proposal process and ensure the proposal process well-documented and easy to find and follow. Another consideration is DAOs are the "market takers" of proposals, meaning they often end up in a position of choosing from a limited selection of offers. Choosing from a small, finite set of options is not a recipe for getting a good deal. Some ways to avoid this are setting a clear Mission that proposals can be evaluated against. Another great strategy to avoid being the "taker" is to put up RFPs (Request for Proposals) on the forum, chat server, and Twitter to attract teams who are interested in achieving the DAO's goals.

Proposal Template

CIP-1 (CIP stands for CityDAO Improvement Proposal)

Proposal TLDR

Describe your proposal, how much money it allocates and to whom, and the expected outcome.

Proposal Summary

Describe your proposal, how much money it allocates and to whom, and the expected outcome.

Project Team

Please describe who will be working on this proposal and their qualifications. Who can appoint or hire new members? Who has the final say if team members disagree?

Proposal Budget

Please include how much money will be allocated to the project and what types of assets are requested (for example, ETH, USDC, other tokens). Describe and justify how the funds will be spent. Describe what portion of the budget is comp for team members and how that comp is distributed (for example hourly, upon completion, etc).

Timeline and Deliverables

How long until the project is complete? What are some milestones along the way?

Risks

What could go wrong? Are there any regulatory, tax, or other legal issues to be aware of?

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