Correct Answer on SubDAO Do Your Own DAO Event #2

14 min readAug 11, 2021

Dear SubDAO community,

The SubDAO official team is glad to see there are so many participants in our “Do Your Own DAO” event. All participants have shown a rich knowledge about the DAO and submitted a good answer on our test. Here is the answer to the doubt when you answer our question. Search for the correct answer right now!

1. How to define DAO from the perspective of sociology？

A Decentralized Autonomous Organization (DAO) is an organization whose essential operations are automated, agreeing to rules and principles assigned in code without human involvement.

A DAO is a novel, scalable, self-organizing coordination on the blockchain, controlled by smart contracts”. In short, a DAO can be defined as people with common goals that join under a blockchain infrastructure that enforces a set of shared rules. DAO activity is recorded in the blockchain and, as a result, implies a cost. Validating and confirming transactions on the Ethereum blockchain requires a certain amount of work, called gas (paid in crypto-currency). This work is performed by blockchain miners in order to include transactions in a block. Gas ultimately translates into money and the amount of gas depends on the size and type of each transaction. As a result, it is expected that DAO activity is conditioned by this since users are required to pay small amounts of cryptocurrency if they want their operation to be executed.

We can consider two kinds of DAOs, those built from scratch, and those created from a template provided by a DAO platform, i.e. DAOs as a service. In the first type, the members are usually developers who have specialized knowledge to create and manage them. Both types are described below. DAO is not only a sociological concept, but also a paradigm of organizational relations, even becoming a buzzword when breaking the circle in the encrypted world. Bitcoin itself can be understood as the earliest DAO.

After 12 years of growth, DAO, like all collaborations, will produce the division of labor and development of participants, and it is necessary to follow the context of DAO to look at its future.

2. What is the roadmap of DAO development?

The development of DAO and the development of the crypto market are following each other. In the pre-Ethereum era, DAO is embodied as Bitcoin’s on-chain consensus and community governance. With the diversification of the underlying public chain, here is the first differentiation of DAO implementation methods.

The formulaic negotiation model of off-chain proposals represented by BIP provides continuous support for network upgrades, but there are still disputes over development efficiency and on-chain execution. Some communities believe that more events should occur on the chain, and Decred has appeared. And Tezos and other chains automatically execute the upgraded governance logic.

In Dash, DashDAO, a node specifically responsible for governance, was created. After Ethereum went online, there was a watershed event “The DAO”, the earliest financing DAO project, which culminated in the successful raising of US$150 million and ended with the theft of funds. Although the project fell quickly, the model of “creative projects obtained financing from the community, DAO token holders and future benefits” remained and became the basic logic of the current popular venture DAO.

Moloch, the prototype of the financing DAO, inherits this logic in its concise functional design. The development decisions of the underlying technology may be more concentrated among crypto enthusiasts and geeks, and the scope of participation in governance cannot be expanded, so governance can only be the self-entertainment of a few people. Encrypted users start to participate in governance extensively and personally, often starting from the application layer.

MakerDAO is not only the originator of DeFi but also the beginning of the practicality of DAO. This kind of application layer protocol directly facing end-users makes people truly feel the rights they enjoy as currency holders. Before DeFi formed a prairie fire in 2019, due to the relatively concentrated economic distribution of tokens for most projects, and the limited capital and user scale, voting governance had not yet become a normal operation for crypto players. And some visionary practitioners recognize that DAO, as the prerequisite for the organization of the crypto world, is an essential requirement for any community-based organization.

The DAO service platform represented by Aragon (2016) and DAOstack (2018) has provided DAO tools for thousands of community projects and has deposited hundreds of millions of dollars in governance. According to incomplete statistics, the number of DAO participants has exceeded 60,000 addresses, which has increased more than 60 times from 10,000 at the beginning of last year.

With the rapid development of the scale of the encryption industry and the refinement of services, DAO is also evolving rapidly. While Ehereum’s ecosystem of competitors is developing rapidly, its organizational paradigm is also seeking innovation. Polkadot adopts the mode of the timely upgrade of on-chain governance at the protocol layer, and the multi-chain architecture also provides new development soil for DAO.

Different from Etetherem’s “strong application and weak protocol” status, rising stars like Polkadot rely on powerful tool support to provide a silky development experience for the project to help the application to be implemented at a low cost and efficiency. In this environment, a strong infrastructure is a necessary guarantee for latecomer advantages.

DAO is an essential component, and the value of its service platform is particularly precious. SubDAO came into being. It helps the Polkadot ecological project to create and manage DAO agilely and can become a solid middle platform for the entire ecosystem, further realizing the value capture of DAO.

3. What is the specific application utility of DAO?

According to actual use cases, it is more widely present in all projects. There are relatively few decentralized communities on similar platforms DAOstack and Colony. What is interesting is that dozens of forked communities have been generated based on Moloch, which is the most common DAO model in financing.

According to the scene classification of the application layer, we discuss the mechanism of DAO in the following environment.

1)Financing scenario

Purpose: To create a decentralized incubator for funding investment or grants to provide support for project development

Moloch Dao, Duckdao, Marketing Dao, DAOSquare, DAOX, DEPO

Extended application: Initial DAO Offering

In 2019, developers in the Ethereum community forked code to modify smart contracts to develop more complex DAO. MetaCartel Ventures and Marketing DAO, for example, are able to distribute and transfer shares and other assets among members. Since then, the for-profit DAO MetaCartel Ventures, which focuses on early investments in Ethereum projects, has raised nearly $24 million from its 64 members.

DAOs like DUCKDAO and DAO Maker also run token public offerings. DAO Maker has even been approved by regulators in Malta. The project uses chain address analysis to find historical transactions to identify potential applicants for long-term token holders and to develop them into valuable community members.

2)DeFi scene

In the governance of each project of the application layer based on its business model, governance content is different, more representative of the following scenarios:

The DAO module in DeFi

Primarily used to decide key parameters in DeFi’s business in a decentralized manner, starting with MakerDAO, governance to Uniswap has become a landmark transaction for chain activities and is widely marked as a criterion for project screening of qualified users (e.g. for airdrops)

Cross-chain liquidity DAO

Represented by BadgerDAO, BoringDAO, and LidoDAO, it is designed to address the centralization of assets across chains.

3)NFT encryption art scene

DAO project focusing on investment and ecological construction of encrypted artworks. With the NFT boom (or bubble) peaking, the DAO that surrounds the NFT has also attracted attention.

4) Service aggregation scenario

The increase in project demand for DAAs, which specialize in providing developers and projects with easy-to-use standardized modules for integrated DAAs, will become standard in any blockchain ecosystem.

4. What kind of governance is decentralized?

Concepts of decentralization have changed rapidly over the past quarter of a century in tandem with the evolution in thinking about governance. Until the early 1980s government and the state were generally perceived interchangeably. The government was seen as the institutional embodiment of state sovereignty and as the dominant source of political and legal decision-making.

The use of blockchain as an infrastructure for governance has confronted two points of view. The ones who have a high degree of techno-determinism, who embed the idea of “market” in the made decisions or the way that an organization has to operate, however, they tend to ignore the complexity of social organizations. On the other side, the critical ones defend the role of traditional central authorities. They consider central authorities necessary to enable democratic governance.

These views usually advocate regulating blockchain markets in order to reinforce the role of the state. Moreover, governance under blockchain is challenging, since it is difficult to steer a decentralized community and promote its development without sacrificing decentralization. The tool that has emerged to enable organizations to operate in the blockchain is DAO.

5. How do we achieve “autonomy” with DAO?

Autonomy is dedicated to dealing with quantifiable transactions in DAO governance, such as development tasks, design work, financial processing accounting work, and so on. These transactions can usually be designed in advance to automate procedures. A good way to do this is Bounty. Bounty’s biggest advantage is standardization. We just need to design a perfect Bounty mechanism to handle different types of work. Bounty’s most important thing is “quantification”. As long as sufficient quantification is achieved, many tasks and tasks of DAO do not need to rely on communication or even communication. Generally speaking, if your DAO is a non-minimum feasible DAO, such as a product development team, or a decentralized company, then autonomy will definitely account for most of the workload of DAO governance.

6. The advantage of DAO should be to reduce the cost of communication between people through automatically executed code, but why does it seem that we did not reduce the cost of communication, but higher?

DAO technology could help improve the agency relationship, but also proposed the potential of blockchain technology as an emerging technology of governance design, in which many ideal models and theoretical evaluations were limited by the real world. First of all, the blockchain is a fundamental technology, and its transformative impact will take decades rather than years to establish and reform the system. In the corporate governance environment, the application of blockchain technology may develop in the existing centralized structure or decentralized environment.

The former requires consensus on how and when to implement such technologies for governance use cases. For the latter, only when a true decentralized common blockchain emerges, with scalability and full security, can the proxy relationships be truly removed to overhaul them? With the complexity of the agency relationship, human behavior in the agency relationship needs a backstop, namely the continuous support of the human code. Without decentralized human support for code, the immutability of the blockchain and its cryptography security systems may not create true transactional guarantees and trust between principals and agents to maintain the integrity of their contractual relationships.

The blockchain-based corporate governance solution in DAO requires an incremental blockchain governance protocol. Thus, the socially optimal hard fork rule may not be applicable. Today, many companies are investing resources to develop and implement blockchain-based programs. In traditional contract governance, the effectiveness of contract management cooperation depends on the quality of the national legal system to a large extent.

Conversely, DAO governance does not directly depend on the enforceability of external legal systems. Enforcement in a blockchain is achieved through prescribed code and algorithms, such as smart contracts. Even more, in governance, direct connections between collaborators are not required in a blockchain. Thus, blockchain may be considered the first form of governance that truly leverages digital technology’s computational- and data-based capabilities, well beyond traditional forms of social governance. DAO, like other governance mechanisms, does not govern all types of transactions equally well. DAO governance can reduce searching, monitoring, and enforcement costs but tends, but often means relatively high design costs.

7. I want to use DAO to complete the development of a product, how do I manage the project?

This is the aim SubDAO wants to realize. SubDAO is primarily a tool for creating and managing DAOs for DeFi and NFT applications, helping applications to create and manage DAOs more quickly.

Today, the governance approach of DAO has evolved into the organizational framework of DeFi projects today. As we progress further, we expect more projects to use governance like DAO. There are now some DAOs on the blockchain, and most DAOs have their own governance scenarios and systems, such as MakerDAO, TheLAO, etc., that develop their own systems for governance. Other organizations have developed basic chains of DAO governance tools, such as Aragon.

As more and more applications become available, we will find that the development of DAO governance tools is not convenient for every application, only those organizations with sufficient research and development strength or sufficient initial capital reserves can afford the cost of building a DAO, but it is impossible for small organizations or organizations without capital reserves of their own research and development governance tools. In addition, current application requirements have the common needs of DAO, such as voting and money management, as a combination of multiple forms of decision-making, automated implementation of governance behavior, community day-to-day governance communications, etc. These demands are difficult to meet, while only some systems have open interfaces to customize personalized needs, and high requirements for personalized technical are very common. These conditions are almost impossible to achieve for small and medium-sized organizations.

Enriching and refining the DAO governance toolchain as much as possible is the foundation for the DAO’s sustainable development, and allowing users to participate in the governance and expansion of the DAO as easily as possible is the way to enable the DAO to present a variety of approaches. SubDAO was born for this purpose as Polkadot’s DAO infrastructure to provide all DAO users with the tools they need for governance, while SubDAO also owns cross-chain capabilities to enable multi-asset management, enabling DAO organizations to manage and precipitate funds to maximize returns.

8. Is the DAO the final governance model?

DAOs are particularly conditioned by the idiosyncrasies of the blockchain technology, which is decentralized and serverless, with immutable records, and where operations imply a cost. Furthermore, despite being in their infancy, these sociotechnical systems are already facing problems that may relate to those that affect other socio-technical systems and are already studied in the literature.

Thus, we believe DAOs deserve interdisciplinary research attention to ascertain whether their problems are similar or not to those from other online and offline alternatives. Furthermore, to determine whether they provide an effective means for running a decentralized organization, or they only work under certain conditions, for example, when voters are known and the topics are limited in scope.

DAOs are no gatherings of smart contracts, but socio-technical ecosystems consisting of mutually dependent parties. Organizational processes are thereby increasingly ingrained and enacted on-chain, blurring the division between systems and organizations.
Even though motivated by strong enthusiasm, funds, and beliefs, DAOs face several inhibitors to decentralization and autonomy; it remains interesting, why these projects have not originated generativity, yet. One could argue that these DAOs may become the victims of their financial successes where, instead of experimenting freely on a large scale, legal issues or public feuds take center stage.
Human intervention in DAOs is being displaced, transformed, but not marginalized. Instead of achieving autonomy, our DAOs showed the reliance on several central actors acting as gatekeepers, administrate funds, or accumulating expertise, which reintroduces trust into a system, which was repeatedly considered trust-free.
Shortcomings of “Code is law” are met with “Code is Constitution”, where our studied DAOs show mechanisms to change fundamental processes when the need arises. As a consequence, blockchain’s immutability, one of its core characteristics, is questioned.
DAOs need to invest heavily up-front in governance structures, while their infrastructures find limited use, which draws similarities from studies on the Internet and their bootstrap problem. Without considering infrastructure in practice, these upfront costs pass unseen, while only promises of more efficient transactions through smart contracts are highly applied.

9. How will DAO develop in the future?

DAOs are coordinated by consensus mechanisms. Thus, DAOs are different from markets coordinated by the price mechanism, hierarchies coordinated by fiat, or networks coordinated by social relations. How should one make sense of DAOs? DAOs are not governed by principal-agent relationships, since they do not have shareholders or managers. Because they do not rely on fiat or hierarchies and operate transparently using public blockchains and open-source software, they are, to some extent, immune to the issues of opportunism and information asymmetry. And because they operate with little human coordination and do not incur costs for monitoring employees, they may behave in ways that traditional perspectives in organizational economics are ill-equipped to capture.

In particular, the growth of DAOs is likely not bound by increases in the marginal cost of organizing (because DAOs are not hierarchies), and the cost of conducting additional transactions within DAOs can theoretically decrease with size owing to positive network externalities. Thus, at this stage, the scholarly community may lack the theoretical tools needed to understand either the growth of DAOs or, more generally speaking, what determines the boundaries of such organizations. The present study only begins to tackle this problem.

10. Is DAO An Alternative to the Public Corporation?

There are fewer than half as many public corporations today as there were fifteen years ago. The public corporation in the US is now unnecessary for production. Meanwhile, over the last few months, over 150 DAOs have gone public through initial coin offerings, a public sale through which the general public can acquire, early on, cryptocurrency tokens to support the development of the organization. While the number of public corporations is dwindling — there are 37 percent fewer today than there were in 1997 — DAOs are on the rise.

Outside the payments sector, DAOs are providing new solutions for supply-chain management in the luxury goods industry, record-keeping in trade finance, trusted-identity provision in online environments, and patient-history management in the healthcare sector. What these industries have in common is that their business activities are prone to moral hazards and behavioral uncertainty. As a result, expensive intermediaries are heavily relied upon to provide trust to the interacting parties. Going forward, DAOs may be able to provide competitive alternatives for organizing in those sectors.

More than 30 years ago, Rothschild and Whitt identified factors that should lead to the development of “collective organizations.” These included the demystification of knowledge, defined as the process whereby “formerly exclusive, obscure, or esoteric bodies of knowledge are simplified, explicated, and made available to the membership at large”. By publishing all software related to the blockchain, protocol, and peer-to-network in an open-source format, DAOs are well on track to achieve this demystification.

At a theoretical level, the shift from the public corporation to the DAO may be a radical one, and this research represents a first attempt at exploring its implications from the viewpoint of organizational scholarship. The organizational and management scholars will pay attention to these developments that are currently changing the face of the heavily intermediated form of capitalism that has prevailed in our economies since the seventeenth century.

About SubDAO

SubDAO is a DAO infrastructure based on Polkadot, where any decentralized organization is allowed to conveniently create and manage a DAO. SubDAO does not only connect DAO with DApps to realize DAO’s cross-chain management but also bridges Web 2.0 and Web 3.0.

The founding team of SubDAO is composed of the former Technical Team leader of the IBM Group and many early well-known developers from Polkadot. All team members own rich experiences in Internet companies such as IBM, Tencent, and Alibaba. Jack Platts, former Director of External Cooperation of the Web3 Foundation and Partner of Hypersphere Ventures, serves as a strategic contributor to SubDAO. So far SubDAO has completed multi-million dollar financing including Hypersphere, Huobi Ventures, and other institutions.