4 Key Lessons About Decentralisation in DAOs

Written by White Flamingo, with input and editing from DAOlan, Willy Wonka, Jocelyn Hsu, and Tyler Whittle

The fiery debates around community decentralisation continue to burn in the furnace of the DAO ecosystem.

DAOs aren’t (yet) decentralised. While there are some useful and widely-adopted frameworks and playbooks for community decentralisation, there is no one-size fits all approach. A central reason for this is because DAOs are not fully autonomous: they require people to create decision-making primitives for governance, incentives, and growth. These rails are generally set by ‘leaders’ within DAOs. This has led to a recent debate around whether DAOs are leaderless and/or whether they should have CEOs.

Our view? DAOs are not leaderless organisations, nor should they have CEOs.

DAOs should instead take advantage of their ability to be ‘leader-full’. DAOs need to create functions and space for anyone to be a leader in shaping the culture and future of a DAO. This requires entrusting everyone with the capacity to become a leader, so decentralised communities can become truly resilient.

We therefore believe what is actually needed in DAOs is converging asymmetric influence to avoid design flaws which lead to dictatorships or result in an over-reliance of individual versus collective action.

To learn important lessons on how DAOs might better achieve this end-state we spoke with seasoned DAO operators who have been at the epicentre of their DAO’s decentralisation journey. In the below we examine important topics around:

  • How are DAOs actually decentralized?
  • How is this changing?
  • How does leadership evolve and rotate over time?
  • When and how does this evolution/rotation happen?

The D in DAOs

DAOs are not born decentralized. Vitalik’s well-known 2014 article on DAOs, DAs and DOs, talks about how initial centralisation enables communities to move nimbly and build a purpose, mission and vision. The TL;DR? Centralised decision-making often makes sense at the beginning of a ‘DAO’. Rafa from Mirror puts it best: “A DAO is an organization that builds a DAO.”

Nearly half a century prior, Leopold Kohr wrote in Breakdown of Nations: "Whenever something is wrong, something is too big". The same logic holds true for DAOs. DAOs grow in size and complexity and eventually reach a point of no return where they need to decentralise in order to continue growing. As has been seen with some larger DAOs, they have decentralised decision-making to increase transparency and trust, at the expense of speed.

Despite this recognition, there is still no agreed way on when or how to decentralise. The nitty gritty around leadership transitions, elections, cultural codes and off-boarding varies from DAO to DAO.

To help current and future DAOs in their decentralisation efforts, here are the top four things we learned from our conversations with key DAO operators.

1. There is no agreed definition of decentralisation

“DAO decentralisation is how diffused and spread decision-making is.”Joe, Index Coop 

The first thing we learned from DAO operators is that there is no agreed definition or understanding of decentralisation.

A trusty dictionary will tell you decentralisation occurs “when power is widely dispersed or distributed”. Indeed, many of those with whom we spoke talked about decentralisation in these terms. There was broad consensus that decentralisation occurs when power is dispersed to ensure no single participant can disproportionately influence decision-making.

Power hierarchy—or “network topography” as Tracheopteryx calls it—exists in DAOs just as it does in non-decentralized organisations. And this is not necessarily a bad thing. Leaders will emerge whether they are officially recognised by the organisation or not.

Minimising the ability of one party to capture the decision-making of a DAO sounds great. But how does that work in practice? Through DAO governance and decision-making processes.

DAOs have long-explored different voting models for fairer, more transparent governance. DAO operators mentioned the early, unsophisticated voting like one token (or person), one vote were in vogue until clear vulnerabilities such as plutocracies and governance attacks were identified. Since then DAOs have tested reputation-based weightings, conviction voting, delegated democracies and even a hybrid of some of these models together.

These experiments have often been focused around reimaging power within communities through collective ownership. Fancy from Protein noted their DAO “leaders” (i.e. the core team) have exactly the same voting power as members.

This is similar to how moloch DAOs are designed. Spencer from WarcampDAO (the DAO of c.30 contributors, including the original moloch smart contract developers, building the DAOHaus platform) explains the moloch design as being focused around enabling every member to have a form of executive power, versus creating any sort of executive of council.

These forms of participatory governance in Protein and WarcampDAO aim to increase the number of agents involved in decision-making.

However, other forms of governance have also been adopted by communities, including appointing councils and/or delegated voting mechanisms. These models aim to decentralise through enabling token holders to nominate and empower a smaller group of individuals to make decisions. Jack at MakerDAO said Maker uses delegated voting for decision-making. They have around 10 delegates who have significant voting power and are entrusted by the wider decentalised community to collectively act in the DAO’s best interests.

Whether DAOs adopt participatory or delegated models, or reimagine governance another way, the key takeaway is DAOs should incorporate involved discussion and agreement around key decisions and enable subsequent execution of that consensus.

2. There are 4 key principles to consider when decentralising your DAO

“We are progressively decentralising and trying to give more decision-making over to the community. For this to happen there has to be a huge level of trust and engagement.”Fancy, Protein

While there have been some experiments like Loot (probably one of the only ‘true’ examples of a fully decentralised project from inception), most DAOs have had to progressively build towards a decentralised future.

While that journey will vary DAO-to-DAO, many DAO operators agreed on a number of best practises DAOs should adopt when decentralising.

The first key principle was to be careful not to over-index on being permissionless. All DAO operators felt there was a heavy ‘over indexing’ on being permissionless and open, relative to decentralisation. They also collectively agreed that it was better to be permissioned and to have truly decentralized power in the DAO than be permissionless with only a handful of admins on the multisig(s).

Second, DAOs must engage the community throughout the process. As Fancy from Protein said, “the key to unlocking value is actively enabling contributors to build their own parts of the DAO and become stewards of them”. This ‘localisation’ as Spencer from WarcampDAO calls it, is a key structural component of a decentralized community. These local areas should not just be identified, but defined clearly.

Third, in addition to engaging community members, DAOs need to ensure they codify core activity. Jack from Maker DAO said this was particularly important for their strategic functions, especially to enable decisions to be made at pace when protocol revenues dropped or efficiencies were needed. DAOs need explicit definition and agreement on roles and scopes of power, in addition to how those can be updated. While it may seem counterintuitive, Julz from Orca argues that the hardening of ecosystem responsibilities, roles and opportunities actually “gives people ownership and autonomy of decision-making”.

Finally, DAOs need to be mindful to balance engagement with delivery. As Fancy from Protein said, “it’s a balance between holding your nerve that things will get done, and jumping in at the end just before the deadline if it isn’t”. Jumping in can include things as simple as nudging people to vote, for example to meet a quorum on an important decision. The balance between letting people work and micromanaging people from the top is tough, but the act of more contributors voting on a proposal actually increases the decentralisation of the decision-making process.

If DAOs adopt these key principles they will stand in good stead for establishing strong, engaged communities committed to decentralised growth.

3. Tools and processes will define effective power transfer in DAOs

“If votes aren’t automatically undelegated or decayed over time, leaders will stay in power forever because it takes work to unelect them. And then they’ll appear as the top choice for others to delegate to.”David, jokedao

Decentralisation in DAOs requires power transfer. To transfer that power, DAOs need the right tools and processes in place.

DAOs want to avoid situations where there are individuals on whom the entire DAO depends. This is essential in DAOs because it not only supports the longevity of a DAO, but also derisks it. As Luke Duncan famously wrote on effective governance, DAOs should create structures that don’t result in inactivity when key individuals are inactive.

Spencer from Warcamp DAO reiterates this point in his “anticapture” framework, which aims to help DAOs identify whether their processes are prone to being ‘captured’ by one or more actors. One particular process Spencer thinks enhances capture-resistance in communities is establishing smaller groups focused on sub-objectives, e.g. subDAOs. Spencer is particularly excited by Orca Pods which said are “a great step in direction to create a protocol of subgroups by maintaining connection between them.” Indeed, Orca’s founder Julz has long been a proponent of “proportionate levels of power and control” and the need to “elevate community contributors” for DAOs to scale and sufficiently decentralised.

Index Coop achieves this, albeit through a slightly different approach. Index’s DAO has a group of leaders—the Index Council—who set an overarching strategy for the DAO and support it through resource allocation. The Council also deals with decisions that lack a clear owner. The Council supports decentralisation by effectively delegating real responsibility to the teams and individuals who make up the DAO. In doing so, they ensure that decisions are not just made de facto by those in leadership positions but instead can be driven by DAO contributors with the most to offer in a given area.

These governance processes are even more effective when ritualised, systemised and facilitated. Joe from Index Coop noted they have GovReps who “are responsible for fielding requests for snapshot votes, reviewing and editing proposals, carrying out announcements for votes, and informing the community of any votes that might be short of quorum”. These ceremonial duties ensure that the community takes accountability for their role in participating in the everyday decisions the DAO needs to make in order to function. Procedural and discussion-based decision-making processes offer the added benefit of increased transparency, which enables that inclusivity in decision-making.

Establishing clear groups, and roles within those groups, as well as ritualising their usage offer clear lessons to DAOs when selecting the processes to support them in decentralising.

4. DAOs should not underestimate leadership accountability, continuity, and offboarding

“It is less about ‘how do you rotate’ and more about ‘how do you create space for people to take leadership roles that make most sense for them’, therein creating more local parallel leaders.” — Spencer, WarcampDAO

One surprising lesson learned from the DAO operators with whom we spoke was around the importance of ensuring leadership accountability, continuity, and offboarding.

First and foremost all operators said DAOs need accountability functions. These can be values agreed upon, a bond community members sign up to, or a more formal mechanism. In short, formal or informal codes by which leaders live by. For example, the Index Council members are elected by Index members, have a six-month term, and are accountable to both contributors and token holders, who can effectively vote them out. This is a similar delegated democratic model currently used by Synthetix, although they are soon moving to a more direct on-chain access mode called which will also enable token holders to veto decisions made.

Second, DAOs need to create space for new leaders to emerge. Leadership transition is something WarcampDAO is only now really beginning to grapple with as yet, but Spencer was particularly complementary about the space the original three founders (all of whom are still with the project) had created for new leaders to emerge alongside/with them, including Spencer.

Third, many DAO operators noted the clear links between leadership and reputation in DAOs. It’s therefore critical to ensure hierarchy is replaced with aligned meritocratic contributor promotions. And “ideally through a proper handover period for consistency”, as Fancy from Protein said.

Fourth, DAOs should seek to support continuity in DAOs when leadership changes through institutional history. DAOs have members, old and new, some of whom will have been around since its inception, others who’ve only recently joined. Fancy talked about the importance of creating culture in DAOs and incentivising the preservation of that culture.

A culture of open debate about leadership election practices and rotation where appropriate is likely to yield the healthiest and most effective decentralized organizational structure.

A call to action for DAOs that are decentralising

DAO decentralisation knows many disguises. By seeing how those DAOs before ours have done with battle with decentralising will enable us all to better spot the organisations that are DINOs (Decentralised In Name Only).

This is a call to action from us at DAO Masters to encourage DAOs embarking on the decentralisation journey to: clearly agree roles and scopes of power; define and strengthen their culture; ensure accountability functions; and create spaces to maximise new leadership voices. In doing so, existing and future communities will better set themselves up to ensure resilience and buy-in throughout their progressive decentralisation.

Decentralising in your DAO?

DAO Masters is a big proponent of exchanging best practices on how to summon, grow, and govern DAOs. We believe this is the only way to achieve more innovation around how to coordinate humans, both technically and socially. If you have questions or want advice on how to further decentralise your community, come and say hi in our Discord!

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