DAO Tooling in Solana Ecosystem: A deep dive
You might have seen a lot of posts in web3 spaces that claim,
Bitcoin replaced Banking systems
ENS and Bonfida will replace domains
DAOs will replace organizations
Web3 and DAOs are becoming the new trendy and awesome words just like once NFTs dominated the social media space! But, do you know what’s crazier than that? At its peak, all DAOs held about 180 Billion Dollars in TVL(Total Value locked). If this was a company, it would be ranked in the Top 50 companies in the world, overtaking major oil and automobile conglomerates!
This sparks the question! Why do DAOs have so much money and how the hell do they have that? Also, what are DAOs in the first place? Is it just a passing fad like Shiba and Doge? Or something that might have a real utility in the future just like how people think about NFTs might!
Let’s take it slow and step by step! We’ll discuss everything in the order:
What are DAOs?
Challenges with DAOs?
Current tools in DAOs
Conclusion and Opportunities
Without wasting any time, let’s dive into this!
What are DAOs?
DAO is an acronym for Decentralized Autonomous organization. As the name suggests, a form of organization that is
- Decentralized
- Autonomous
But what does it mean to be decentralized?
Decentralized means the organization is not operated by a central group or a person. Any decisions and fundamental changes within the organization will be taken by all the people involved in the organization! So, an idea of an organization without a leader and people working towards a common goal is presented here.
What does it mean to be autonomous?
According to Oxford, Autonomous means “the quality or state of being independent, free, and self-directing”. In simpler language, on an organizational level, it means a self-governing body that doesn’t need outside help to run governance. A self-sustaining organization that is essentially not dependent on anyone for direction or leadership.
Let’s combine both of the above and we get an organization that is run by its people and is self-sufficient! This eventually creates an environment that enables people to work in a direction that they actually believe in! A company that is transparent and actually benefits everyone in a singular direction rather than benefiting the people at the top of the pyramid.
This concept is also more free and transparent than a company. People involved are motivated by a similar set of rules and ideals. DAOs also use blockchain to monitor their financial activities! This enables more transparency and avoids corruption and censorship. Entering DAOs is easier and isn’t difficult as joining any company of any scale!
To join a DAO, sometimes you’ll have to buy a token, perform a task, or perform some sort of eligibility test. But, this too is done in very few DAOs. To join most of DAOs, it’s as easy as joining a discord server, joining in conversations, and learning more about the ‘vibe’ of the place. That’s it! You don’t need to pass a complicated test, a DAO can be easily global as different members from around the globe join in, it is trustless as everything is on the blockchain and is open and inclusive of everyone as long as you are interested in the common mission of the DAO. Also, with time, members can change the direction of DAOs with consensus and not a limited number of people on the top of the hierarchy.
DAOs need not be only a bunch of people discussing ideas and scribbling things on the internet. DAOs can actually replace traditional companies.
Maker is an organization that built a stablecoin called DAI. The treasury for this organization is actually controlled by MakerDAO. People holding the MKR token can vote on changes in the organization. This is a great example of a DAO can actually replace a centralized team.
Another great example of a DAO is CurveDAO, the governing body of Curve Finance, an Automatic Market Maker on the Ethereum blockchain. It works in favor of members as the members who lock their Curve tokens in the treasury are rewarded with greater voting power and rewards. This means a member is rewarded more for the time he is actually invested in the organization unlike in many companies where the profits are paid out at a fixed rate.
If you think DAOs are limited to governing, then there are different DAOs that aren’t focused on governance but on the overall growth of members that are part of the DAO. Take an example of Superteam DAO where a collective of talented people is uplifted with the help of each other hailing from different professions. Another great example here would be Raid Guild which is a collective of builders and designers that make products in the crypto space.
There is also a DAO called FlamingDAO which is a collective of NFT collectors who come together and buy different NFTs that they feel will profit them! They even bought a CryptoPunk NFT for $762K in Eth!
These are all great examples.
There are 8 types of DAOs according to Alchemy. A must-read piece on how different kinds of DAOs can actually impact different types of organizations. Find it here.
As amazing as DAOs sound, there is an underlying problem with DAOs as it is with any organization that gets bigger. Decentralization is great, but it is also a little chaotic where everything moves at a slower pace than in a traditional organization. If a company wants to take a quick decision and experiment with a fundamental strategy for its sales function, it can implement it within a week. But, if a Media DAO wants to do the same the process will at least take a month to be executed!
Along with this, there is also a lack of tools that would help people in DAO operations. There are different issues with this unique type of organization that has a low barrier for people to join in and a scope for constant miscommunications and difficulties in operations.
Let’s dive into some of the biggest problems that a DAO can run into.
Challenges in DAOs
DAOs are great as an alternative to different centralized organizations and companies, but as every great idea and solution comes with its share of problems, they also tend to be difficult and present new challenges and opportunities. With DAOs, we feel there are 4 problems that are affecting the widespread adoption of DAOs.
Remember, these are some problems that we think are currently dominating DAOs as there is little infrastructure that helps DAOs with the following problems:
Onboarding:
It’s a simple problem but doesn’t seem to have a simple solution! Onboarding is difficult as many DAOs try to scale and maintain the ‘vibe’ of the community. The problem is observed as a DAO gets popular and many people want to join in on the amazing community that actually does something that matters!
As this interest is shared by many people at once, it becomes for a DAO to actually open up. As mentioned earlier, DAOs work towards a common goal and shared interests, if people don’t actually share the same beliefs, it becomes difficult to move towards the goal.
Also, a lot of people which lack a certain skillset or won’t be able to contribute in any way also become baggage in the community as they also ruin the vibe of DAO.
There are said to be 4 C’s that a DAO needs to clarify for their onboarding process so that many people who join in get a clear idea about what they are getting into. These are compliance, clarification, culture, and connection. Each plays a vital role in the onboarding process! There is a scope for developers and builders to make a tool that can effectively act as a filter and an onboarding guide for newcomers in the DAO.
Governance
A DAO needs to actually work towards how it would operate in a truly decentralized way. A DAO without fool-proof governance is open to attacks.
You might wonder, but isn’t having a governance token for a DAO help it? Like the examples above?
The answer is Yes and No! If you have a single token for governance, you might get a lot of people who hold a huge amount of tokens overshadowing people who have a small number of tokens. A central authority is faster, reliable, and quick to respond to external factors as a small number of people have the actual power.
In a DAO, everything works at a slow pace because it might take months to get your proposal in light along with a number of proposals submitted at the same time as you. Along with this, things tend to move a little slower as the proposal usually has stages that it requires to Pass through.
It is a necessary step towards decentralizing power and decisions but it is slower and sometimes less effective for urgent matters. We see an opportunity as some proposals can be fast-tracked in tools so that there can be quick voting and decisions where the whole governance can take quick time-sensitive decisions. Pair this with a tool that helps DAO figure out their Tokenomics for governance and you are golden!
Communication
Before getting into this specific problem, let me share a concept with you called as Dunbar number.
Dunbar number essentially means that a person can maintain only about 150 connections/ relationships at a time.
This means, that if the total number of people in a DAO exceeds 150, the process gets slower and a need for a specific Community Manager who can cater to communications in the DAO is required!
Also, DAOs are chaotic because there is a hierarchy so everyone is held to the same position, whether you contribute or not. As the DAO grows, it becomes difficult to know the new people coming in and maintain communications for old and new people alike!
We can definitely come up with a tool that helps with communications in DAOs. This would effectively put everyone on the same page rather than scrolling through some crazy long threads either on Slack or Discord. The tool can act as a two-way communication for a specific issue or innovation for members to work together with looping new people on what’s happening and how they can jump in to contribute!
Discoverability
DAOs are awesome! But where do I find my type of DAO?
Currently, the web3 space is dominated by developers, so other professions find it difficult to find their ideal DAO. The space being extremely early, there are very less tools that cater to this problem.
The knowledge barrier in understanding this modern space of decentralization and owning data is a new concept. The resources are growing, but this also limits DAOs to find talented people to join in their mission. If only early members work their asses off in creating a revolutionary product, they need members for decentralizing the company around it.
The issue isn’t that there are fewer DAOs, the real issue is most of the DAOs aren’t discoverable to folks. If DAOs can have a platform for discoverability, they’d have more members that would actually help a DAO achieve its goals.
Imagine a Product suite that helps DAO with the above issues and refers to new DAOs that are in a similar domain for the user. If you can add a discoverability layer to DAOs, it would eventually help in onboarding the next generation of users to web3.
Truts, for example, is a DAO discovery tool.
It’s 100% on-chain.
600+ verified communities listed with 350+ reviews.
To incentivize members to review communities, it offers tips for genuine reviews.
Current Tools
Now, let’s look at some projects that are helping DAOs with the above challenges.
Squads
Squads Protocol is an open-source, secure, and modular architecture built on Solana that provides a full suite of tools for web3 teams to manage their on-chain assets and programs.
Multi-signature wallets have quickly risen to the top of the workflow stack for web3 teams. They provide teams with the safest, most practical, and censorship-resistant means of democratically managing their on-chain assets and initiatives.
Squads Protocol is building the tools necessary for web3 teams to manage their treasuries and program upgrades all inside one easy-to-use interface; or as we like to say, all inside their Squad.
After launching their v3 of the protocol, in just 4 weeks Squads went from 0 Squads deployed on mainnet to more than a 1000.
Katana
The Katana protocol is a set of smart contracts on the Solana blockchain and offers the best suite of packaged yield products, enabling users to passively access the best risk-adjusted yields in the ecosystem.
By fully automating the procedure of entering and departing positions at predetermined intervals and restrictions, the platform makes the technical aspects of investment strategies easier to understand. The platform already has the best possible implementation of these tactics, and there are no fees associated with these services at the moment.
The platform provides a ready-to-go platform for DAOs looking to generate yield on their crypto assets. Each product includes information on the strategy being used, key performance indicators, and risk.
Fireblocks
Fireblocks was founded by Michael Shaulov in 2018.
With the help of Fireblocks, DAOs can remove the complexity of working with digital assets.
The tool provides DAOs with a platform to manage treasury operations, access DeFi, mint & burn tokens, and manage their digital asset operations.
DAOLens
With DAOLens, DAOs can make user onboarding frictionless and delightful.
DAOs can:
- Tailor their onboarding flows for individual contributors
- Make first-time contributions frictionless
- Integrate it seamlessly with their stack
- Manage their contributors and projects easily
As mentioned in their thesis to build DAOLens, the founders said, “DAOLens aims to solve problems around onboarding, contribution, discovery, and scalable DAO operations.”
Streamflow
Streamflow is token vesting, payroll platform built on top of its multi-sig wallet for teams on Solana.
At the core, Streamflow is a protocol for streaming payments, that acts like a time-lock escrow service for funds.
With streamflow, DAOs can implement token vesting and member payroll from one place.
Conclusion and Opportunities
DAOs’ primary goal and value are to promote trustless and permissionless partnerships.
To do this, communities are strengthened, the effort is tokenized, and rewards are given immediately, transparently, and with greater ownership.
The goal of the technologies that make these things possible should be to maximize productivity and minimize interruptions/inefficiencies.
While a lot of projects have emerged in the DAO Tooling segment, there are still a lot of gaps to fill. For example, truly multi-chain tools are still some distance away. With truly multi-chain tools, DAOs can become more exuberant with on-chain collaboration between different chain communities.
The future is exciting in this space. Tools that solve for the challenges that DAOs are facing well, stand to introduce changes in the way organizations function.
A big thanks to SuperteamDAO and MeshaClub for this great opportunity.
This article wouldn’t have been possible without Yash Chandak, my friend and co-author.