(2021-07-21) A Prehistory Of DAOs

Kei Kreutler: A Prehistory of DAOs. Cooperatives, gaming guilds, and the networks to come.

One of the first core applications of public blockchains is global digital assets. Global in the sense that they do not rely on institutions to prove they are not being double spent: the mystical cat on the moon NFT is, verifiably, the only mystical cat on the moon NFT corresponding to its token.

the promise of new forms of organizations aided by information technology cannot be separated from the context of the internet’s invention. In 1995, a year before John Perry Barlow’s Declaration of the Independence of Cyberspace, another written work that would impact the political ideology of the early internet appeared: Tribes, Institutions, Markets, Networks (TIMN) by David Ronfeldt.

The TIMN report creates a narrative of societal evolution in which humans have progressed through four distinct organizational forms:

(T) Tribes have the societal organizing principle of kinship, clans, and lineages. (I) Institutions have the societal organizing principle of hierarchy. (M) Markets have the societal organizing principle of competitive exchange. (N) Networks have the societal organizing principle of heterarchic collaborative exchange (Ronfeldt). Heterarchic here denotes "organizations that are non-hierarchical, unranked, or possess the ability to be ranked in multiple ways" (Wikipedia).

The report’s institutional biases are clear, such as equating progress with Western liberal democracy, and its narrative of societal evolution may appear reductive at best. Its argument, however, provides an historical background to the political ideology from which decentralized organizations draw, knowingly or not. This is most apparent in the report’s identification of the newest organizational form: networks.

“facilitating the growth of keiretsus and other distributed, web-like global enterprises and, increasingly, so-called ‘virtual corporations’” (virtual company), Ronfeldt notes (4). Yet multi-organizational networks’ primary domain is neither the public nor private sector, at least as both are traditionally conceived. Instead, they will most transform a third, “autonomous social sector” (5), identified in the report as civil society. Painted in the 1995 landscape to include non-governmental organizations (NGOs), grassroots organizations, and private voluntary organizations, civil society will be strengthened by multi-organizational networks.

The report presents a saccharine political image of networks

With the report’s final emphasis on civil society’s three letter acronyms for organizations, NGOs, NPOs, and PVOs, a future one is naturally missing: DAOs.

In 2021, a DAO could be described as a voluntary association with the operating principles of digital cooperativism.

Members of a DAO can have representative ownership of its digital assets through a token, which often simultaneously acts as a governance right.

In its simplest form, DAO tools have been described as a group chat and a bank account (11). In 2021, this generally takes the form of a Discord server and a Gnosis Safe Multisig, which is a web3 platform for creating multi-signature accounts.

This “minimum viable” DAO, or MVD, tooling shone in the first half of 2021 with initiatives like PleasrDAO. PleasrDAO is a collective that came together to bid on an NFT by the artist pplpleasr. Given escalating NFT digital art auction prices, the idea behind PleasrDAO was simple: a collective of fans using a multi-signature account could pool funds to place bids, and through holding in common, compete with other major bidders to win the auction.

Though a group chat and multi-signature account may be enough to initialize a DAO mission, a token often becomes the next step toward embracing the principles of a digital cooperative. For example, PleasrDAO issued $PEEPS, a token distributed internally to represent members’ stake in the collection (12), which they are considering making public to fractionalize ownership of their collection

Though PleasrDAO and PartyDAO focused on shorter missions initially, they are both evolving toward a longer term vision, as collectors, investors, and incubators that use tokens to represent co-ownership in the spirit of a digital cooperative. Tokenization creates both opportunities and challenges for the networks to come.

Many DAOs today use the lightweight Snapshot platform for governance (13). On Snapshot, DAOs each have a space to create and vote on proposals.

Snapshot weights votes by the amount of DAO-specific tokens an address holds

This essay’s history of DAOs is far from complete, as other projects like Aragon, Colony, and DAOstack continue to develop their platforms for DAOs and modular initiatives like Block Science and Commons Stack arise. These projects offer DAO tools supporting many governance mechanisms. However, a prehistory of DAOs is also incomplete without its less frequently mentioned relation to platform cooperativism.

Building on decades of commons initiatives, the term “platform cooperativism” coined by Trebor Scholz as well as the concept “exit to community” outlined by Nathan Schneider have intersected with the crypto space through essays like Jesse Walden’s The Ownership Economy.

Exit to community grew in practice through initiatives such as DXdao, which launched with the aim to give community ownership, governance, and value to software protocols.

A key moment in the history of cooperatives was the establishment of the Rochdale Principles, formulated by a society of weavers in 1844

DAOs could set more thoughtful norms around democratic member control, which cooperatives typically define as one member, one vote. Most DAOs employ token voting, that is, one token, one vote.

In certain cases this may feel apt, but as some DAOs evolve toward maintaining basic infrastructure such inequality becomes undesirable.

Projects such as Tornado Cash privacy protocol have approached this distribution problem by retroactively sending tokens to prior users, in a step toward making users stakeholders of the protocol (16). The Regen Network project, a public blockchain for ecosystem services, takes another approach to this distribution problem. They have set aside 30% of their tokens for land stewards, climate scientists, and other stakeholders in regenerative land management to form community DAOs that participate in network governance.

web3 applications could aim to introduce value in relations which have been historically denied it, such as labor and environment, rather than creating new financialized relations. In this context, for DAOs with the mission of economic value creation, a token becomes a useful mechanism on three fronts:
Bootstrapping Funding
Distributing Governance Rights
Aligning Ecosystem of DAOs

Tokens may be one key to unlock the ownership economy, but to reach a more equitable version of this future, we must participate in crafting the culture around token distribution, mediation, and governance now.

unlike shares in cooperatives, many tokens that double as governance rights can be sold on secondary markets

DAOs could introduce more forms of decentralized governance into cooperatives.

As much as DAOs may accidentally embrace the operating principles of cooperatives preceding them, they also slyly resemble enclaves from other online cultures. They have the most to learn from gaming guilds in massively multiplayer online games (MMOs).

players form groups to accomplish common goals (shared goal) out of the reach of single players. Referred to broadly as guilds, clans, or alliances, these groups can range from 40 to 1000 participants, and their goals could include defeating difficult enemies or constructing useful tools.

To accomplish these goals, cultural patterns emerge in guilds, and there can sometimes be a mismatch between the tools game world developers release for guilds and their actual needs.

A parallel between gaming guilds and DAOs could be drawn here, as the current wave of DAOs tend to use a combination of composable tools, such as bridging the Snapshot voting platform to a Gnosis Safe multi-signature account, rather than platforms which overly anticipate use cases for participants.

The vast importance of MMO marketplaces, from Varrock to gold farming, for decentralized finance will be the subject of a later essay, but one economic practice may be keenly relevant for DAOs: Dragon-kill points (DKP)

Complex, sustained missions undertaken by guilds, such as killing a dragon, are usually referred to as raids, and can range in length from several hours to several days. At the end of a raid, the slain enemy drops in-game items called loot, and guilds must decide how to distribute it.

“It matters that the same people work together again” (20) and the perceived fairness of often-scarce loot distribution is critical for this.

often evolve different systems of loot distribution, for example beginning with random distribution, moving toward random distribution weighted by participation, and commonly arriving at distribution through an informal scoring system such as DKP. (cf GruntFund)

and Joshua Fairfield detailed one example in Dragon Kill Points: A Summary Whitepaper: the Leftovers DKP system

“Indeed, this organization is effectively the highest allocative body in the population. If there is an emergent government on [the World of Warcraft server] Silver Hand, it is The Leftovers.”

This DKP system precedes the mechanics of DAO platforms in development today, such as Aragon, Colony, and DAOstack, which all offer mechanisms to distribute reputational tokens based on the participation of members, rewarded for successful proposals, bounties, or campaigns: what might be called raids in other game worlds

Often used as an alternative model to the plutocratic one token, one vote model, reputational tokens, earned through participation rather than purchasing power, provide greater voting power in DAOs that amasses over time. (trust metric)

DKP system holds another significance for DAOs: generally all guilds resolve disputes independently from traditional court systems

DAO tooling often tries to technically solve problems that gaming guilds have already culturally refined for several decades , and it may be time for DAOs and gaming guilds to merge their practical knowledge more closely

many DKP systems resemble a form of market socialism, in which goods are publicly owned but allocated by markets

Shadow economics may be an apt term for when a group operates through an economic form it would not label itself as: DAOs as cooperative protocols and gaming guilds as market socialism.

A Constellation is Born

many proponents of DAOs have a core belief about their impact on the future: DAOs could out-compete by out-cooperating the modern firm.

why companies arose when services priced by the market should, in theory, be more efficient. Ronald Coase explored the answer to this question in The Nature of the Firm, coming to the conclusion that markets create unaccounted for transaction costs.

the promise of DAOs can be positioned in relation to it: DAOs aspire to become more efficient as they scale (25). While in practice this aspiration has been far from proven, in some respects the promise of DAOs lies in using technical governance protocols to reduce transaction costs.

While DAO tooling like Gnosis Safe enables this today, overall, the promise of infinitely scalable organizations still has a long way to go

Often even the promise of DAOs can obscure their utility in practice. In The Dissensus Protocol: Governing Differences in Online Peer Communities, Jaya Klara Brekke, Kate Beecroft, and Francesca Pick focus on a case study of the Genesis DAO, a collective centered around the DAOstack platform

trait common to many DAOs, namely, that they comprise highly motivated groups that have formed around a set of ideas about governance, rather than governance being a means in order to achieve some shared mission.

DAOs will not be the uniformly non-hierarchical networks some imagine. Instead, DAOs coordinate across different levels of coherence and trust. In Ownership in Cryptonetworks, Patrick Rawson argues that for DAOs, “distributing ownership to squadlike entities with more specialized objectives is the key long-term problem to solve” in order to enable meaningful work.

At a closer look, effective DAOs start behaving much more like networks of teams, like the Mondragon Cooperatives network with 100 affiliated cooperatives.

Inspired by Rawson’s analysis, we can roughly sketch three layers of a DAO:
Token: Multi-organizational networks aligned by token ownership
Teams: Teams, guilds, and squads represented by token ownership
Missions: Missions, milestones, and raids financed by token ownership

From these layers, a heterarchical network emerges, meaning an organization that possesses the ability to be ranked in multiple ways.

In ecosystems that prioritize distributing ownership, tokens encourage DAO networks to be managed by their members. Tokens, teams, and missions are not confined to the quasi-institutional boundaries of a single DAO but can and, in order to meaningfully decentralize the control network, should be represented by token ownership in multiple DAOs.

Funded by PrimeDAO, DAO-to-DAO (D2D) collaboration mechanisms appear the most forward thinking work along these lines

A new squadlike entity emerging from stealth mode, the Gnosis Guild team embraces a similar emphasis on DAO-to-DAO tools, with a new constellation of DAO tools launching in early August.

When we view DAOs as constellations of teams, not monoliths, DAOs become networks to allow collective memory to flow freely. (Collective Intelligence)

The Networks to Come

The TIMN RAND report this essay began with closes on a curious note. It reads:

Production organizations remain a crucial part of the organizational ecology. However, we should also be thinking about “sensory organizations.”

This closing sentiment echoes the popularity in that era of the twentieth century media theorist Marshall McLuhan, who emphasized how digital media impacts our sensory nervous systems.

Just as markets did not make states obsolete, but diminished some of their operations while strengthening others, DAOs introduce new forms into traditional political participation that emerge from the autonomous social sector: the network union. ((2021-05-11) The Network Union)

the “A” in DAO does not live up to its autonomous reference

Even though the term DAO remains poetically correct, we could propose an occasional replacement: decentralized avatar organizations. Such organizations would take their political stakes both lightly and heavily

Decentralized avatar organizations will have collectively developed, interoperable game worlds, engines, or virtual being mascots at their core, which co-creates the culture around which their members organize. (metaverse)

To escape the tendency to fetishize technical protocols for governance, decentralized avatar organizations must cultivate compelling environments players want to inhabit, recognizing narratives, aesthetics, and goals held in common are key to their success. Making the internet a place not only for transactions but for relationships and thought itself, as Barlow wrote, relies on the depth of these narratives. (world building)

We should aim for rough consensus and running worlds.