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Most decentralized autonomous organizations (DAOs) are “terribly broken,” says Rune Christensen.
During an early morning interview on the third day of Solana’s four-day Breakpoint conference, the co-founder of MakerDAO, one of the cryptocurrency industry’s longest-running decentralized organizations, is tasked with explaining “Endgame” — his plan to re-architect the decentralized organization to make it more robust.
The multi-year plan was heavily criticized as being too complex, but it didn’t stop the MakerDAO community from advancing with the proposal last year. The spotlight returned to Christensen’s “Endgame” proposal in September when he floated the idea that MakerDAO should hard fork Solana as the basis for its new application-specific blockchain. Though his proclamation stirred up celebrations and outages, dependent on the blockchain camp, nothing is set in stone.
Tucked within “Endgame” is a vision for the future of DAOs, which are self-organizing groups typically managed using blockchain technology. He thinks DAOs can be made more sustainable and fun by splitting them into organizations with specific focuses, or subDAOs.
Make DAOs fun again
“The main objective is it should be fun and it should stay fun,” said Christensen. “It shouldn’t be that experience [where] you get excited about the idea and then when you get into it, it’s chaos and politics and drama and nothing gets done.”
“This feeling of fun very quickly becomes a major disappointment,” he added.
Many DAOs launch to celebration and excitement, only to crash and burn from governance challenges. Synthetify, a DAO on Solana, recently lost US$230,000 in crypto when a hacker voted and passed their own proposal to steal from the organization. Meanwhile SuperDAO, an all-in-one DAO builder that raised US$10.5 million in 2021, recently shut down due to the business model being unsustainable. The organization said it had supported over 2,000 DAO launches, but most had a short lifespan.
MakerDAO, a lending platform that powers the largest decentralized stablecoin DAI, is one of the industry’s biggest success stories but it has struggled to make decisions and manage political infighting as it has grown in size. The creation of subDAOs aims to enable faster innovation and experimentation going forward while cutting scope creep in Maker Core.
Voting with your feet (or stablecoins)…
The problem with DAOs, as Christensen sees it, is that most people don’t vote. Controversially he thinks most people shouldn’t vote.
MakerDAO has two tokens DAI, a decentralized stablecoin, and MKR, its governance token. Anyone who holds an MKR token can vote in any Maker governance proposal.
Under Christensen’s proposal, two new tokens will launch, which currently have code names NewStableToken and NewGovToken. While DAI and MKR will still be preserved, those who decide to upgrade to the new tokens will be given the option to participate in the governance of the subDAOs.
Holders of MKR and NewGovenToken will be able to participate in the governance of Maker Core, while holders of the NewStableToken will have the option to either stake the token for a savings yield, which is something DAI holders can already do via the DAI Savings Rate, or farm the tokens for a specific subDAO and earn yield in the form governance tokens for that DAO. Farming the tokens acts as votes of confidence for that subDAO.
“As a user, if that’s all you do then that’s enough, you’ve now done your part [in] participating meaningfully in creating value for a DAO,” Christensen said. “Going beyond that in any way should be entirely optional. It should be possible for those who are interested but the vast majority of people don’t want to.”
This makes subDAOs similar to corporate skunkwork projects. They will live and die based on the allocation of resources.
“On one hand you are choosing this subDAO should be getting more resources,” Christensen said. “And on the other hand, you’re also being put in the position where if the subDAO does well, and with my increased resources does even better, I get part of the upside because I’m farming tokens now.”
SubDAOs can just as quickly fall into the same old governance traps if there isn’t a focus on permissionless funding and innovation, said Pet3rpan, a partner at investment firm 1kx who helped pioneer one of the first investment DAOs, MetaCartel Ventures.
“Governance minimization is one way to achieve greater permissionless innovation,” he said.
Pet3rpan believes a move to an outcomes-based resource allocation (OBRA) model can help
minimize governance by reducing the amount of time spent allocating resources through using quarterly KPIs that provide a check and balance on whether initiatives are delivering. It’s a model DAOs are increasingly gravitating towards, he said.
Changing the face of DAOs
Solana-based decentralized finance platform PsyFi struggled with governance engagement in its DAO. The DAO, which is governed by the PSY token and has 29 members, uses a “hybrid” model and is considering a further move to subDAOs.
“If someone wants to get involved, they have to definitely show a lot of initiative to stand out
and so they need to clearly understand what we’re doing and where we’re going,” said Tommy Johnson, co-founder of PsyFi.
The lack of engagement and challenges with governance and tokenomics inspired PsyFi to collaborate with Hxro to launch Armada, a software solution that helps DAOs on Solana bootstrap and activate their communities through token distribution.
Like most sub-sectors of the crypto industry, infrastructure tooling isn’t quite there yet. Christensen’s plan is to build more user-friendly interfaces for interacting with DAOs, which he expects will benefit from the rise of artificial intelligence (AI).
“You can do a lot of work in developing this funnel of what information [should] a newcomer see first, and what should you shield them from because it’s too complicated and it’s gonna give them information overload,” Christensen said. “There’s nothing like that happening today and that’s something we will focus really heavily on.”
Few governance and DAO tools have taken off because most have constrained organizations rather than aided them, said Pet3rpan. It’s still very early for most DAOs, they need to learn how to work and then build tools around that, he added.