DAO organizational model exploration and development forecast

Author: Zhang Qun

Introduction

DAO is an organizational form implemented using blockchain technology. Its core lies in decentralization and code. Principles of law. Unlike traditional organizations, DAO does not have a centralized management structure. Instead, it uses smart contracts to automatically execute rules and realize the governance and operation of the organization. DAO is considered an important part of the infrastructure in the Web3 space. It supports remote collaboration and is particularly suitable for open source projects. DAO provides an open, free, and fair organizational method that encourages cooperation and sharing.  

The concept of DAO was first proposed in 2013, but it really attracted widespread attention in 2016, when a decentralized platform called "The DAO" Autonomous organizations have become a hot topic. The DAO is a decentralized investment fund composed of smart contracts on Ethereum. Its goal is to invest and make decisions through smart contracts without the need for central management.  

There is no consensus on the definition and core elements of DAO, but its concept as a cooperative community is widely accepted. The essence of DAO lies in its "automatic and spontaneous nature without human intervention", although most of the current DAOs are governed by humans. As of the end of 2023, the number of global DAOs has grown rapidly and has penetrated into many fields such as finance, entertainment, real estate, and community governance. Originally popular in parts of North America and Asia, DAO is now gaining attention globally, with many projects and organizations trying to use DAO to establish a more decentralized and democratic organizational structure.  

Key technologies of DAO

In DAO , each member can participate in the decision-making process, and voting weight is usually determined by token holdings. This means that DAO decisions are made through the collective wisdom of community members rather than the will of a few. This transparent and democratic governance mechanism is an important source of its appeal. There are many basic technical supports for the implementation and operation of DAO. Zhang Qun believes that the following are the key: 

1.< strong> Smart contract technology

The core of DAO must be based on smart contracts. Smart contracts play a central role in DAO. DAO uses smart contracts to define the rules of the organization, the rights and responsibilities of members, and the mechanism for voting and decision-making. Smart contracts ensure automatic execution of rules and reduce reliance on central authority. The immutability and transparency of smart contracts ensure that once the rules are set, they will not be changed unilaterally unless changed through community consensus.  

2. Blockchain Technology

Blockchain is the lower-level facility of DAO. Both governance and the economy on DAO need to be realized through blockchain. By running on the blockchain, the DAO's rules and decision-making records are saved on a publicly verifiable ledger, increasing the organization's transparency and trust.  

3. Organization Token 

Members hold DAO tokens, which represent their share of responsibilities and rights in the organization. These tokens can be used for voting, proposals and decisions, and can also be used as a yardstick for sharing results. However, mainland China's legal provisions have strict restrictions on this, and many tokens are issued in the name of equity certificates.

Fund management is also one of the core elements of DAO. Unlike traditional organizations, DAO funds are usually managed through smart contracts. This approach increases transparency and security in the use of funds, while also reducing the risk of fraud and abuse.  

4. Governance Model 

DAO's governance model defines how organizational members participate in decision-making and management affairs, and how they receive rewards. This may include voting mechanisms, proposal procedures, membership verification, task execution and financial allocation, etc. An effective governance model is key to ensuring the effective operation of the DAO. The success of a DAO also depends on the active participation and consensus building of members, who need to remain enthusiastic in the organization's decisions and affairs.

All in all, the core elements of DAO are a decentralized governance structure, a consensus-based decision-making system, automatic execution of smart contracts, and a transparent and secure fund management mechanism. . These factors work together to make DAO a new and potential organizational form.  

The core of DAO is the governance model

The goal of DAO is to complete specific work or realize a long-term vision. Zhang Qun believes that the governance model includes two cores: decision-making governance and task governance. Many DAOs have done a lot of exploration in decision-making governance, and decision-making models are constantly evolving. The original governance model mostly relied on token holdings to determine voting rights, but later practices began to introduce more complex and fair governance mechanisms such as reputation systems, prediction markets, and quadratic voting.  

Reputation system

Reputation system is a A mechanism used to measure and express a member's influence or contribution within an organization. It is usually allocated based on the member's behavior, level of participation, contribution to the project, etc. Its purpose is to encourage and reward members who contribute to the DAO, while ensuring that decision-making power is in the hands of experienced and trustworthy members. This improves the quality of decisions and promotes the long-term health of the organization.   

Prediction Markets

Prediction markets are A manifestation of collective intelligence that allows members to place bets or predictions on specific future events or outcomes. Leveraging prediction markets can help evaluate the potential impact and chances of success of different decision alternatives. Members can express their views on the probability of a certain outcome by voting on future events.  

Quadratic voting

Quadratic voting Voting is a voting mechanism designed to reduce the disproportionate influence of big capital in voting while increasing the fairness and representativeness of voting. In this mechanism, the cost of voting increases superlinearly with the number of votes cast, and they pay a cost proportional to the square of the number of votes cast. This mechanism is designed to balance power so that smaller investors can have an influence on issues that matter to them.   

If decision-making governance is a democratic decision-making mechanism for the strategic direction of the DAO, then task governance is the key method to ensure that the strategy can be effectively implemented.

The original intention of DAO was to accomplish certain project goals through innovative collaboration, so ensuring that every task and specific work can be successfully executed should be the focus of DAO. The rule making, tool use, collaborative culture and processes of DAO should all revolve around this core. Therefore, although DAO is a new organizational form, its organizational goals are no different from traditional organizations. It is particularly important to realize this.  

Zhang Qun observed that many DAO organizations have fallen into the situation of DAO for DAO's sake, only emphasizing technology and concept innovation, and building luxurious and complex user platforms. This It has no practical significance. In business practice, we have explored four key elements to establish a task governance model, which we call the TTAM four-element model. This model can cover almost all task management and labor collaboration, and effectively conduct task evaluation and acceptance. The so-called four elements are the four dimensions of a job: Task, time, results, and remuneration. Tasks, time and results are process elements; while remuneration is the result element and participates in the final value exchange. The TTAM model is applicable to all task-based jobs.  

1. Time (TIME)

Time, that is, delivery date, is one of the key elements of any job. It is generated with the task and stipulates the time limit for task completion. The time element is not a one-time evaluation element, but a process element. Implementing time management can help ensure that work is completed on time, improve efficiency, and ensure that resources are fully utilized.   

2. Task (TASK) 

< p style="text-align: left;">Task formulation is a science. The tasks themselves involve identifying work content, assigning tasks, setting priorities, and tracking progress. Task formulation must comply with SMART goal management principles, and descriptions must be specific, clear, detailed, and accurate; the terms listed in task requirements must be able to be tested and verified. Each requirement should have a unique number so that it can be traced during subsequent validation and testing.  

3. Outcome evaluation (APPRAISAL) 

Outcome evaluation needs Provide specific and measurable evaluation of the output of the task. Assessment should not be a one-off event but should occur throughout the mission, with regular reviews and assessments of mission performance to identify issues, improve processes, and ensure goals are met. The final mission review marks the closure and end of the mission.

To effectively manage and leverage the diversity of members, governance models need to consider diversity and inclusion management. We recommend grading task outcomes: S+ for excellence, S for success, and F for failure.

The evaluation of results is distributed at each milestone node of the task, and is ultimately formed using weighting. Conduct at least three evaluations during the planning period, execution period, and delivery period. You can use the CAQ step-by-step evaluation method from the following three dimensions: 

1) Direction (Correct direction):Work in the right direction. The direction is right, consistent with the mission intention, and the output is carried out in this correct direction.

2) Acceptable:The output (may be a design plan, middleware, physical product or a set of indicators ) is acceptable, and the evaluation criteria are "can be used", "is what you want", "can be barely accepted". Marginal acceptance represents "acceptability," which is the minimum standard for a work product that can be tolerated.

3) Quality level:Rating the quality of the output on an acceptable basis. The CAQ method adopts step-by-step evaluation. If C fails, the AQ evaluation stops, and if A fails, the Q evaluation stops.

CAQ evaluations are respectively associated with F and S in the achievement grading, C corresponds to F, and S corresponds to A and Q.

TTAM and CAQ diagram 

4. Lao Remuneration (MONEY) 

Remuneration is the reward given to workers for completing specified tasks, which may be money, material or  ;honor. After the performance review and grading, the remuneration is directly related to the performance. S+-level results may receive an additional X% reward, S-level results receive 70%-100% labor remuneration, while F-level tasks only receive basic labor remuneration, and the specific values ​​can be defined by different organizations.

These four elements form the basic framework of DAO governance, which can be adjusted and expanded according to specific circumstances. Managers can use these elements to plan, execute, and monitor management activities.

From a business perspective, the TTAM model may include the following steps in the initiation and termination of a work:

1) Set goals:Clear the performance goals and standards of the work, and use specific numbers and indicators to define the goals, such as "increase sales by 10%."

2) Collect data and feedback:Collect data related to goals regularly and provide feedback to members to understand work performance.

3) Evaluation and discussion: Regularly discuss work performance with members, including discussion and feedback on the extent to which goals have been achieved.

4) Provide support and improvement plans:Help members develop improvement plans and provide necessary support and resources to improve work performance.

The TTAM model is designed to support DAO governance and maximize member collaboration results through four basic steps: goal setting, data collection, evaluation and support. The model is easy to understand and implement and can be customized and extended according to organizational needs. Work process data sources may be an issue for DAO organizations to consider. Regarding the detailed architecture and implementation methods of the TTAM governance model, I will continue to explore with you in subsequent articles.  

The key to DAO's success is the "subject matter"

DAO embodies the beautiful vision of the majority of community members. This vision may be beautiful feelings, or it may be a series of keywords such as truth, goodness, beauty, fairness, morality, and transparency. But looking up at the stars and looking back at the earth, it can never stay out of business. Bringing members into the profit channel is the key to DAO, and whether DAO has underlying assets is the key to whether it can continue and maintain long-term stability.

What is the subject matter of DAO? Why is there a subject matter? The subject matter is the output on the DAO. Just like the early people's communes in China, the members planted an apple tree together. This tree produced a lot of apples, and these apples are the subject matter of the DAO. To put it more simply, it is actually a cake. Only with this cake can there be people who want to share the cake. Only with people who want to share the cake can there be real governance. Pure responsibilities and powers have no meaning. A DAO without a subject matter will not last long, and it will be difficult to gather a wide range of members, and community development will definitely face many obstacles.  

The subject matter is the result on the DAO. Generally, this result is the accumulation of funds, or it can also be a successful business model. Uniswap can be regarded as the most original DAO. It forms a huge user community based on cryptocurrency transactions. Users holding UNI can participate in governance decisions. The subject matter of Uniswap is the business model of UNI and exchanges. The long-term development of the world-famous MakerDao is due to its subject matter Dai stable currency, and the other is the business model of decentralized lending; the sustainable development of PermaDAO comes from the support of the Arweave Foundation, and its subject matter is funds; the subject matter of Aragon It is its business model. Everyone can establish a DAO organization through Aragon to make money.

As mentioned before, DAO is also one of the business management models. No matter how ambitious the community is, or how complex the DAO's governance structure is, DAO will definitely There must be the simplest thing, either funds that can be allocated, or a business model that continues to bring in revenue. This is the core criterion for the success of a DAO.   

DAO challenges?

DAO’s challenges are not only external, but also come from itself. There is no single central authority in a decentralized organization. Instead, decentralized network nodes or members jointly participate in decision-making and management. In a DAO, smart contracts and blockchain technology are used to automatically enforce organizational rules, process fund flows, and record decisions. The goal of this model is to increase transparency, prevent single points of failure, and encourage broader community participation. In theory, organizational management can be completely decentralized.

In some cases, the decision-making of most people may be more correct, which embodies the so-called "Wisdom of the Crowd" Phenomenon. Smart crowdfunding believes that the collective wisdom and experience of the group can bring better decision-making results, exceeding the level of individual decision-making.

The decentralization concept of blockchain has been increasingly recognized. We can see that this decentralized structure, which does not entirely rely on a centralized organization to implement control, actually makes data more transparent and secure.

However, this does not mean that decentralization is the future and centralization has no effect at all.  

Smart crowdfunding is not true in all cases, and it has some limitations and conditions. For example, group bias: If most people in a group are affected by the same information or bias, it may lead to group bias and reduce the accuracy of decision-making. At the same time, if there is information transfer or mutual influence among group members, it may lead to consensus within the group rather than truly independent opinions.

The reality is that there are many situations where individual decisions may be more accurate, especially when the problem involves specialized areas or requires specific skills and knowledge. In a centralized system, power is concentrated in a single subject, which is beneficial in many situations. For example, centralization will be a more effective choice for scenarios where quick decisions must be made or where a unified decision-making body is needed to ensure the rigid implementation of a certain policy.  

Although DAO advocates decentralized autonomy, which brings more innovative mechanisms and imagination space for people's production collaboration, we have to ask: does it really Is it our future? Does DAO have to go the centralized route?

In the real world, completely decentralized organizational management also faces some challenges and questions:

1. Governance Efficiency < /p>

Decentralized decision-making may result in slower decision-making due to the need to obtain consensus from a majority of members. In some cases, this may be detrimental to an organization's flexibility and need to respond quickly to changing needs.  

2. Security and Smart Contract Vulnerabilities: < /strong>

Smart contracts may have loopholes, leading to potential risks and financial security issues. Some decentralized autonomous organizations have experienced attacks in the past, which has raised concerns about security and smart contract quality.  

3. Community Disagreement: < /p>

In a fully decentralized environment, community members may have different views and interests, which may lead to decision-making difficulties and community disagreements.  

3. Compliance issues: 

Some countries pose regulatory and compliance challenges for decentralized organizations, and it may be necessary to find suitable solutions to comply with local regulations.  

Zhang Qun believes that a mature DAO must be a fusion of centralization and decentralization. Where DAO cannot be fully decentralized, it can adopt a partially centralized model. It can introduce decentralized elements in situations where it is necessary to rely on the wisdom of the crowd without causing confusion or distorted results, and record and verify information through the blockchain. to increase transparency and security.

Despite these challenges, the development of decentralized organizations continues, and there are many projects and communities exploring how to solve these problems to achieve a more rational decentralization. Centralized organization.  

Where is the DAO going?

1. Increased member engagement and influence.

The DAO model gives community members greater participation and influence through its unique governance structure. According to DeFi Pulse data, MakerDAO’s total value locked (TVL) has exceeded $5 billion as of 2023, reflecting its massive participation and market influence.  

In the future, with the development of blockchain technology, we expect that more similar DAOs will appear, in which direct participation of members will become the norm, thus Promote organizational democratization and efficiency improvements.  

2. Legal status and regulatory framework are clarified.

Currently, the legal status of DAO is still unclear, but as its influence grows, it is expected that laws and regulations specifically targeting DAO will emerge. regulatory framework. In 2023, Wyoming in the United States passed a series of bills on DAO, aiming to provide a clear legal framework and operational guidelines for DAO. It is expected that more jurisdictions will adopt similar legislative initiatives in the future, thereby providing a more stable and reliable legal environment for the operation of DAOs.  

3. Diversification of application scenarios.

DAO’s future application areas will no longer be limited to blockchain and cryptocurrency project management. For example, DAOs in the art field are gradually emerging, represented by PleasrDAO. PleasrDAO, an organization that collects and curates digital art, has demonstrated its influence in the world of art collection and curation by purchasing and owning important digital art pieces, such as the New York Times NFT. As of 2023, PleasrDAO has successfully acquired a number of important digital art works, demonstrating the application potential of DAO in the art field. We predict that in the next five years, more industries such as education, charity, environmental protection, etc. will gradually adopt the DAO model.  

4. The integration of DAO and traditional enterprise structures.

DAO will not only exist as an independent organizational model, but may also be integrated with traditional corporate structures. We have already seen some traditional enterprises begin to explore the introduction of DAO elements. For example, Reddit has introduced blockchain technology in its community points system, allowing users to directly participate in community governance through tokens, which reflects the application of DAO elements in traditional enterprises. In the future, more enterprises may try to partially or completely transform into a DAO model to improve transparency, efficiency, and user engagement.  

Summary

In the future, with the further maturity of blockchain technology and the improvement of the legal framework, the development of DAO The potential is huge. As an integral part of the blockchain and Web3.0 ecosystem, DAO may realize innovative applications in multiple fields, such as business management, community governance, philanthropy, etc. We also look forward to the emergence of more experimental projects and innovative solutions to address current challenges and promote the development of the DAO model towards more mature and widespread applications. DAO represents a possible future for an organization, and its evolution will be an important symbol of the impact of blockchain technology on social structure. With the emergence of more innovations and practices, DAO will show its unique charm and bright future in various fields.