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The development course and prospect of DAO

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DAOs, like all collaborations, will lead to division of labor and differentiation of development. It is necessary to follow the context of DAO to look into its future.

The Development and Prospects of DAO

Original source: Paka Labs

Preface: DAO, Sociology on the Chain

In his book The Great Fracture, Francis Fukuyama reveals the essential source of order in modern civilization: "It is no longer regarded as the top-down giving and receiving of political or religious hierarchical authority, but as the result of self-organization on the basis of scattered individuals." In the world of blockchain without authority, force, self-organization and single game, the exploration and construction of order may be one of the most interesting and important intellectual developments.

Since the first day of blockchain, all contributors have been contributing ideas to a fundamental question that the world is asking of crypto organizations: "How can individuals in a vacuum of information form a common goal and work together to achieve it?" . In the real world, the impact of social norms is so low that an entirely new discipline, sociology, has emerged. In the crypto world, organizational relationships are defined by code as consensus, and this unique product born of the blockchain has also been given a name full of Oriental Zen flavor: DAO.

DAO is not only a sociological idea, but also a paradigm of organizational relations. It even became a buzz word when the crypto world broke. Bitcoin itself can be understood as the earliest DAO. After 12 years of growth, DAO, like all collaborations, will produce division of labor and development differentiation, and it is necessary to follow the context of DAO in order to look into its future. So, Let Dao It!

An overview of on-chain self-organization development

The DAO concept is logically differentiated

As an organizational governance paradigm of collective decision-making, DAO corresponds to the Blockchain Tech Stack in three forms: protocol consensus, application decision and middleware service.

Protocol layer governance

1. Starting with out-of-chain governance, Bitcoin Ethereum BIP EIP is a non-formulaic negotiation model

2. On-chain governance Decred, Tezos, and Polkadot automatically perform upgrades

Application layer governance

Financing: The Dao → Molon Dao

Business decision type: MakerDAO→ Dapps DAO Modules

Management middle layer

With the specialization of governance, a tool-like product such as Aragon for creating and managing DAOs emerged in the market. And Snapshot and other proposal integration platforms.

Aragon, DAOstack - SubDAO

The evolution of the DAO and the development of the crypto market have been in lockstep with each other. In the pre-Ethereum era, DAO was embodied in the on-chain consensus and community governance of Bitcoin. With the diversification of the underlying public chain, the first differentiation of DAO implementation mode appears here. The formalized negotiation mode of off-chain proposals represented by BIP provides continuous support for network upgrade, but there are still disputes in terms of development efficiency and on-chain implementation. Some communities believe that more events should occur on the chain, and the governance logic of automatic on-chain upgrade such as Decred and Tezos has appeared. In Dash, DashDao, a node dedicated to governance, was created.

After Ethereum went online, there appeared a watershed event "The DAO". The earliest financing DAO project culminated in The successful raising of $150 million and ended up with The stolen funds. Although the project quickly fell away, the "creative project gets funding from the community, DAO token holders pay for it and enjoy future revenue" model it created remained and became the basis logic for the current popular Venture DAO. The Moloch, The prototype of The financing DAO, fully inherits this logic in its concise functional design.

However, 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 entertained by a few people. It is often from the application layer that crypto users begin to participate in governance in a wide range. MakerDAO is not only the ancestor project of DEFI, but also the beginning of the real usefulness of DAO. This application-level protocol, which is directed to the end user, gives people a real sense of the rights they enjoy as coin-holders.

Prior to 2019, voting governance had not yet become a normal operation for crypto players, due to the centralised economic allocation of tokens for most projects, as well as limited funding and user size. Some visionary practitioners recognize that the DAO, as an organizational prerequisite for the crypto world, is essential for any community-based organization. The DAO service platform represented by Aragon (2016) and DaoStack (2018) provides DAO tools for thousands of community-based projects, and has deposited hundreds of millions of dollars in governance. According to incomplete statistics, the number of DAO participants exceeded 60,000 addresses, an increase of more than 60 times from 10,000 at the beginning of last year.

With the rapid development of the crypto industry and the refinement of the business, DAOs are also evolving rapidly. While Ehereum's competitor ecology is rapidly evolving, its organizational paradigm is also looking for innovation. Polkadot adopts the on-chain governance timely upgrade mode at the protocol layer, and the multi-chain architecture also provides new development soil for DAO. Unlike Etetherem's "strong application and weak protocol" status, up-and-comers like Polkadot rely on powerful tool-class support to provide a smooth development experience for projects that can be implemented with low cost and efficiency. In this environment, strong infrastructure is the necessary guarantee of late-mover advantage, DAO as a necessary component, the value of its service platform is particularly precious. SubDAO was born to help POKA ecological project to create and manage DAO nimbly, and become a solid middle platform for the whole ecology to further realize the value capture of DAO.

Application layer DAO specific scenarios

The actual use cases are more widespread across all projects: according to Deep DAO, Aragon is now the largest DAO platform, supporting more than 1,300 decentralized projects of various types. Similar platforms Daostack and Colony have relatively few decentralized communities. Interestingly, there are dozens of fork communities based on Moloch, which is the most common DAO model in financing.

Based on the classification of scenarios in the application layer, we discuss the mechanisms of the DAO in the following environments.

The DAO applies scenario classification

1\ Financing scenarios

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

Moloch Dao, DuckDao,Marketing Dao, Daosquare, Daox, Depo

Initial Dao Offering

Let's take Moloch as an example to understand the principles of the Financing DAO and its original scenario as a financial business.

Moloch

Moloch DAO, which emerged in 2018, was created to manage grants for Ethereum 2.0, the ongoing Ethereum capacity expansion plan. The design of V1 provides a classic paradigm for on-chain DAO investment, which transforms the supply-demand negotiation mode of early investment into on-chain specification through simple and elegant code. a Minimally Viable DAO.

Moloch can be described as two major smart contracts:

1. Moloch. Sol - Responsible for managing membership, voting rights, submission of proposals, voting and handling voting results

2. Guildbank.sol (Union Bank) - Responsible for managing the assets of the Union

Financing occurs when new members join

Share native assets are cast and allocated to new members, who are introduced by proposal of the original members. Share is not transferable, but the corresponding ETH can then be withdrawn from the union bank. What new members join the club actually realizes is that the old members invest in it. The old member saves 10ETH and initiates a proposal. The proposal specifies the number of shares to be allocated to the new member, and the share holders vote for or against. If they pass the vote, the allocation will be realized, and if they do not pass the vote, the status quo will be maintained. Members who are not satisfied with the results of the vote can quit the organization using the "rage quit" function.

Forks of Moloch

In 2019, developers in the Ethereum community forked their code, this time to modify smart contracts in order to develop more complex DAOs. Examples are Metacartel Ventures and Marketing DAO, which have the ability to allocate and transfer shares and other assets among members. Since then, for-profit DAO Metacartel Ventures, which focuses on early stage investments in Ethereum projects, has raised nearly $24 million from its 64 members.

Other DAOs, such as DuckDAO and DAO Maker, also operate token offerings. Dao Maker's RSHO has even received regulatory approval in Malta. The program uses on-chain address analysis to look for historical transactions to identify potential long-term token holders and train them to become valuable community members.

2 \ DeFi scenario

In the governance of each project in the application layer, due to the different business models, the governance content is different. The representative scenarios are as follows:

The DAO module in DeFi

Primarily used to make decisions on key parameters in the DEFI business in a decentralized manner, starting with MakerDao, governance to Uniswap has become an iconic transaction for on-chain activity and is widely tagged as the criteria for selecting eligible users for projects (such as for airdrops)

Cross-chain fluidity DAOs

Represented by BadgerDAO,BoringDAO and LidoDAO, it aims to solve the problem of centralization in the process of cross-chain assets.

3\NFT Encryption Art Scene

DAO project focusing on crypto art investment and ecological construction. As the NFT boom (or bubble) reached its peak, the DAO around NFT also attracted people's attention. Founded with the explicit purpose of winning PPLPleasr Artwork, the DAO group has since purchased three more works by artists and plans to continue to invest.

However, it is not the first DAO dedicated to NFT. Flamingo DAO is a project that Lao launched in October 2020. According to Wright, the company already has 40 members, a $10 million fund, and has acquired about 6-700 NFTs, including NBA Top Shot cards and the rare Cryptopunk.

4\ Service aggregation scenarios

With the increasing demand for DAOs coming with the addition of projects, DaaS(Dao-as-a-Service), which specialises in providing developers and projects with easy to use standardized modules that integrate DAOs, will become a standard feature in any blockchain ecosystem.

DAO ecological overview

The scale of asset management is the top one in the crypto ecosystem, with more than $700 million of assets deposited in the dozens of above projects counted by Deep Dao alone. In Ethereum's standalone ecosystem, for example, the cost of capital for organizing synergy is only 0.07% of market value in an economy currently valued at around $1 trillion. On the one hand, we can understand that in the crypto world, people can collaborate at a very low cost, and on the other hand, the whole DAO market still has great potential.

Data source: DeepDAO Data acquired: May 19, 2021

With the development and prosperity of Poka, which is directly following the state ecology, the demand for DAAS is also strong. SubDAO plans to become a parallel chain of Poca, a decentralized, high customization, low development cost and multi-asset support DAO platform service platform. In addition, the project is also actively exploring diversified use scenarios to attract more partners, which will eventually become a booster for ecological development, provide a complete and easy-to-use governance module for the project, promote the refinement of governance, specialization of labor division and efficiency improvement of decision-making.

Value capture for DAAS

In the traditional world, infrastructure is difficult to precipitate and capture the value it carries, which is often used as a public good to export positive externalities. In the crypto world, where the value of the protocol layer has been proven, middleware and tool-based projects can also precipitate value through the proper use of scenarios and tools.

Aragon has established a good example of value capture for a general-purpose governance infrastructure, and the project Ant token combines the dual values of management value and utility token. First we need to understand that Aragon establishes a non-legal governance jurisdiction on the chain, within which governance is distributed as an economic activity. Since Aragon-based projects fall under its jurisdiction, the Aragon Courts were established to establish the rules of its jurisdiction and resolve conflicts within and outside the organization in the event of a disagreement among participants. The project token ANT, as the incentive jury and the basic transaction, has the overall supervision right. See (Source: Placeholder Blog)

Management properties:

With planned future economy, enhance its stored value status in Aragon's jurisdiction

Pledge by the Court:

By casting an ANJ mortgage to the court system, jurors need lockdown security

Verification pledge:

Ara is cast for pledge and payment of the Aragon Chain

In the SubDAO system, Project Token Gov contains the dual value of the parallel chain's utility token and governance incentive interest. First, Gov will be used to pay network fees for node maintainers, as well as to elect voting rights to the Subdao Council. In the SubDAO network, the establishment of governance pool by organizations will produce a certain capital opportunity cost, and these organizations can obtain Gov income through mining, while the governance pool asset certificate and Gov can be combined to obtain higher income.

SubDAO based on the DAO infrastructure of Poca ecology, provides Poca developers with a complete set of convenient and easy to use DAO development tools and management system, and plans to implement intelligent asset management, reputation system and IM application scenarios, in the future exploration and use will also realize more use cases of GoV.

It's still not the "ultimate form of governance."

In The real world, Fukuyama declared in "The End of History" that democracy would "become The ultimate form of governance for The world." Obviously the DAO hasn't appeared yet. DAO is a new attempt to organize human beings in a way that makes the whole process of governance efficient and credible through blockchain. The current DAO, however, is far from being asserted as a final state. Security and legal risks to code are inherent issues that cannot be ignored, and The DAO lesson is a vivid one. Beyond that, there are still a lot of things that can be improved mechanically.

1. A series of deficiencies caused by insufficient incentives:

Still, low voter turnout is a drawback. Governance pledge rates are far lower than the overall industry pledge rates (Governance vs. Defi TVL is still several orders of magnitude different). With limited participation, limited funding, and insufficient support for new projects, there's a vicious cycle.

2. The uneven development of ecological DAO:

At present, the main DAO organization and tool chain platform are concentrated in the Ethereum ecology, but Ethereum has attracted the main resources in the whole crypto market. For the related ecology and heterogeneous ecology outside Ethereum, the lack of development of DAO will reduce the vitality of the community and the diversity of market players.

3. Fragmentation of function and mobility:

The liquidity of the financing DAO is separated and the functions of the governance platform are isolated.

4. The contradiction between efficiency and decentralization:

Coordinated and agile action is far inferior to centralized decision making, which can easily lead to project fragmentation or miss strategic development opportunities in decision making swing.

5. Chain performance problems:

Scalability and high gas costs are problems for Ethereum and obstacles to the development of DAO. In response, projects such as Metis are building so-called Layer2 solutions, while others see the need to keep transactions on the chain. This leads to another argument that Layer2 is not decentralized enough.

To sum up, the development of DAO is still a long road. In the emerging ecosystem, we expect projects such as SubDAO to break new ground with DAO by solving incentive problems, implementing cross-chain asset management and interaction, and extending application cases.

The development trend

0. Integration of DAO and corporate governance

In April of this year, DORG became the first DAO to gain legal recognition in the United States, when the Wyoming Senate passed its first committee to grant legal status to the decentralized autonomous organization DAO and give them limited liability company (LLC) capabilities. As a result, virtual digital management jurisdictions on the chain are also given the status of off-chain jurisdictions, and we can expect the accompanying DID to gain a place in the evolution of contemporary Techreg. On-chain sociology will influence the structure of organizations and society in the real world, which may be another exciting paradigm shift in modern society.

1.DAO will also become the traffic entry point of the crypto world

Each public chain ecosystem will form a complete set of financing DAO, governance DAO and DAO tool platform system, developers only need to invest the minimum cost of the adoption of DAO, users will also be more simple to join. The refined development of the DAO tool platform will eventually make the DAO easy to adopt and become the same infrastructure as the wallet, browser, and Oracle. Take the lead in providing more abundant public chain ecological expansion, more complete SDK tools, more sound modular function of the DAO platform will also become the encrypted world traffic entrance.

2. Combinability with more tracks

Decentralized identity systems:

An identity reputation system based on DAO generates valuable data for user behavior that participates in DAO, and provides tools for credit rating, on-chain identity verification, and diversified scenarios. It is a key link in the building blocks that can be composed

Normalization of governance incentives:

The inflation incentives involved in governance will become the base gauge of yields in the DEFI

Integration with other modes:

Such as NFT + DAO

So far, we've seen a number of projects exploring possibilities for extensibility of DAOs. Particularly in the financial direction, Automata bought and sold governance votes to create such lending systems. Subdao plans to provide a personal reputation system based on on-chain governance behavior and support for on-chain financial transactions.

3. Capital absorption capacity will become the key index to evaluate the DAO platform

The development and struggle of DAO are mainly reflected in the optimization of voter turnout incentive and governance pledge mechanism, especially DAAS, whose scale of funds under management (AUM) is a key index to evaluate the competitiveness of the platform. In the period of traffic competition similar to DEFI, attracting the amount of governance funds with innovative mode will make the project a front-runner of the race track. Subdao's governance mining model has been a demonstration.

4. Establishment of industry-oriented key indicators

After the maturity of the DAO track is improved, the tracking indicator service tool is formed to provide more valuable decision-making basis for the whole DAO market. We believe there will be a vertical ecosystem of data and other tool-based services for the DAO module.

5.DAO Venture may be the true form of VC in the crypto world

DAO will assume a stronger function of early value discovery. With the improvement of platform function and network effect, DAO will precipitate more excellent projects, collect a larger scale of basic funds and unite the most enthusiastic practices and promoters for ecological development.