DAOs help build capacity within communities. Capacity is important because it allows communities to accomplish the goals of themselves and their members. It allows the community to make the world a better place. Without capacity, members in a community can get lost or devolve into status games and identity battles. Communities without capacity can become empty and directionless.
DAOs create new incentives to help build capacity. A DAO, at its most basic form, is a shared wallet (store of value) and governance mechanism for that wallet, both usually involve crypto. In doing so, DAOs create unique ways to deal with money and governance that non-DAO communities don’t have access to. They help deal with the problems caused by adding money to communities.
Many successful communities throughout history have been “paid” (in some capacity). It is familiar to pay membership fees, dues, taxes, and tithes. Internet communities lagged in their adoption of “being paid” compared to other internet-focused businesses and organizations. The paid community has existed for a long time, but people have not figured out how to do it well online. Internet communities struggle to deal with money in general. DAOs create solutions.
Money creates opportunities, but it also causes problems. The world runs on money, it is an interface to interact with people, organizations, and businesses around us. Internet communities avoid involvement of money because it is complicated and corrupting. The innovation of DAOs create solutions that helps them access this capacity, and ideally accomplish their goals.
DAOs help create capacity by providing infrastructure and processes to deal with money in a community. To understand how important this is, first we have to understand the problems internet communities have had when it comes to money.
Internet Community Money Problems
- Internet communities have high competition and low switching costs. Everyone can start a community on whatever they want. For example, there are 62098 public servers tagged “Minecraft” on the Disboard server list. Hopping between communities is as easy as clicking a link or a button (literally one click on Discord). In the internet community world, members are also more likely to “work” for free. This competition drives down costs and makes it difficult to capture value.
- Members are often pseudonymous meaning they aren’t (and don’t want to be) attached to their real names. On Reddit, Discord, and most Forums, the norm is to be pseudonymous. On Disqus (a popular forum platform), 63% of members use a pseudonym. Payments require a real-world persona and personal information someone might not want to share.
- If the community is able to make or receive money, where does the it go? Moderators, owners, a company? Transparency is often lacking. Donations might go towards maintenance, admin, and hosting, but beyond that, they require a motivated and high-character leader trusted by all. Any significant amount of money would require a business and bank account to be set up and maintained, adding to the difficulty.
- Money takes over. There is concern that when money gets involved in a community, it becomes all important. When there is money to be made, members start shilling and advertising. Rules are broken more because the rewards for breaking them are higher. If there is some way for an individual to make money while hurting the community, someone will try it. It becomes a tragedy of the commons. This is why a ban on anything involving money often happens.
How DAOs Ideally Address These Problems
- DAOs have less competition because they require greater investment from both organizers and members. Lots of DAOs can exist (a product like Upstream makes it easy), but fewer can create enough value to receive investment. Investment creates a better incentive for members to stay and contribute. Because the collective investment matters more, the platform matters less. Invested members are more willing to take actions that support the growth of the community (such as being active, helping fellow members, switching platforms, and promoting it).
- DAOs allow payments to remain pseudonymous. Creating a pseudonymous wallet is as easy as creating a pseudonymous account. On Metamask (and many others), it takes two clicks. Once created, a wallet can connect to an alias through your actions. Members can continue to contribute, gain reputation, and get paid, all while remaining pseudonymous.
- Ideally, DAOs are transparent. They have a clear place where the money goes (community wallet or treasury) and a clear mechanism for control (voting, proposals). For example, NounsDAO provides a direct link to its treasury and a list of ongoing proposals on its homepage. Although DAOs aren’t perfect, they simplify and provide more access to funds for communities. They also move power away from owners and moderators towards the community.
- When members have skin in the game (investment), it improves their behaviour. They are less likely to do something extremely negative that hurts the community. They are more likely to maintain the “commons” if they have an incentive to do so. If the community doesn’t like how money-focused they’ve become, DAOs create mechanisms (such as voting or forking) to change the behaviour.
Continuing To Build Community Capacity
DAOs are still early, and the solutions I’ve provided are looking at them ideally. Like everywhere in crypto, you’ll hear ridiculous stories of how people are scammed or tricked into losing their money through DAOs. This doesn’t take away from the fact that DAOs creates new capacities to communities around money, and their ability to create this capacity will continue to improve.
If internet communities want to build the capacity to create massive amounts of impact on their members and the world (for example, becoming a network state), they will have to figure out how to manage and use money as a community. DAOs are, at the very least, experiments in figuring this out. They should be celebrated and studied if we want to maximize community capacity.
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