DAO Has its Way: How Autonomous it has to be to govern by non-interference

Abstract：DAO, short for Decentralized Autonomous Organization, is a very popular topic now. The DAO, the first project calling itself a DAO appeared in 2016, about six years ago. Since then, various DAOs have emerged and many have categorized DAOs according to their functions. There are investment DAOs, guild DAOs, project governance DAOs, DAO tools, and more. In such a long period of evolution, the definition of DAO varies. In the narrow sense, DAO should be a decentralized and autonomous governance organization. In particular, it emphasizes the part of “A” in the DAO: the organization can still operate independently in the absence of management by leaders. In the broad sense, DAO covers all the community governance organizations today. The organization does not need to pursue autonomous governance. As long as it is managed by the community consensus, it can be identified as a DAO even if it is fully governed by the community and not self-governed.

There are numerous discussions and studies on DAOs in the market, but most of them are about the historical development, definition, and role of DAOs. There is no classification of DAOs according to their degrees of autonomous (A) governance. Therefore, this paper classifies certain representative DAOs in the market in accordance with the degree of autonomous governance, and presenting relevant cases and introductions.

Observation dimensions:

1. Proposal

2. Voting

3. Execution

The classification mechanism:

The benchmark is level A: all actions are carried out off-chain, decisions are made by means of fair voting, and funds are secured by multiple signatures. The basic score is zero. In the three dimensions of proposal, voting, and execution, if any action is carried out on-chain, then one point will be added and one level will be upgraded. If the actions on and off the chain are combined, then the point will be halved. If a representative system is used for elite management, then one point will be subtracted. In the absence of fair voting, the point will be directly negative, i.e., A-.

AAA: Proposal, voting, and execution are all carried out on-chain.

AA: A proposal is created off-chain, the voting is on-chain, and the voting results are executed by a smart contract. Or the most proposals are created and voted off the chain, and the key proposals are put forward and voted on-chain and the voting results are executed by a smart contract.

A+: A proposal is created and voted off-chain. The voting results are executed by a smart contract.

A: A proposal is created and voted for governance off-chain, such as using Snapshot, and the code is deployed by multiple signature administrators.

A-: Governance is through community communication and funds are managed through multi-signature wallets.

Classification:

1.AAA

(1) Compound (Project Governance DAO):

Its governance uses three different on-chain components: COMP tokens, a governance module (Governor Bravo), and Timelock. Together, these smart contracts allow the community to proceed through the management functions of cToken or Comptroller.

· On-chain proposal (+1)

· On-chain voting (+1)

· Smart contracts execute the voting results and implement changes (+1)

(2) Maker DAO (Project Governance DAO):

Off-chain governance: A decision-making process for the community discussion and feedback collection. Anyone can participate in off-chain governance.

On-chain governance:

Governance polls: Anyone can create an on-chain Governance Poll using the polling smart contract, however, there is no UI provided to do this yet. Governance polls form soft consensus and gauge community sentiments through time-based voting.

Executive Votes: “execute” technical changes to the Maker Protocol. When active, each Executive Vote has a proposed set of changes being made on the Maker Protocol’s smart contracts. Unlike the other types of votes, Executive Votes use a “Continuous Approval Voting” model.

· On-chain proposal (+1)

· On-chain voting(+1)

· Smart contracts implement changes (+1)

(3) Tezos (Project Governance DAO):

Proposal period: Proposers can submit protocol amendment proposals using the Proposals operation.

Exploration period: Users vote on the winning proposal to continue the voting process using the Ballot operation or do not give a vote.

Cooldown period: The test network fork runs in parallel with the main network for 48 hours

Promotion period: Users can cast a Yay or Nay ballots on the proposal using the Ballot operation and vote on whether to pass the amendment according to previous off-chain discussions and their behavior.

· Creating a proposal on-chain (+1)

· On-chain voting(+1)

· Smart contracts execute the voting results (+1)

2. AA

(1) Lido (Project Governance DAO):

Members are mainly involved in managing protocol parameters, lists of node operators and oracle members, and can vote on app upgrades. The voting works on the Aragon. Other matters are governed off-chain based on Snapshot.

Proposals are presented in the forum for discussion and voted on via Snapshot.

Any LDO holder can make a proposal and vote on Aragon.

EasyTrack is designed to make the DAO routine operations easier. EasyTrack consists of 16 smart contracts, a standalone UI app, and a notifications bot, providing alerts on significant Easy Track-related events to the DAO community and development channels.

· Off-chain proposal + On-chain proposal (+0.5)

· Off-chain voting + On-chain voting (+0.5)

· Smart contract execution (+1)

(2) Nexus Mutual (Project Governance DAO):

Through elections, five members are elected to form an Advisory Board, including members of the founding team and other experts. The goal is to have a portfolio of qualified personnel covering the following three sets of skills:

Technical expertise: Smart contract security and blockchain,

Technical expertise: insurance and mutuals

General expertise: law, regulation, corporate governance and business management.

On-chain proposal making: A member raises a proposal via the Governance Portal.

White-List: The proposal will then be sent to the Advisory Board. The Advisory Board then whitelists the proposal by categorizing it and providing the total NXM token rewards shared amongst members who participated in the voting process.

Advisory Board Vote: The Advisory Board then votes on the proposal to provide all members with the view of the proposal. For regular proposals, the results of the Advisory Board Vote will determine the default outcome should the quorum not be reached.

Member Vote: The proposal then proceeds to a formal, binding member vote.

Proposal Implementation: In some cases, such as simple parameter updates or fund withdrawals, the proposal is subsequently automatically implemented by code. For other complex issues, there will be an additional step to develop the new code and make further proposals to decide whether or not the upgrade to a new version will take place.

· On-chain proposal (+1)

· On-chain voting (+1)

· Contract execution (+1)

· Review by committee representatives (-1)

(3) Constitution DAO (Investment DAO):

The corresponding share is obtained through the donation of Juicebox DAO. When the auction of the Constitution copies fails, the smart contract will automatically begin the refund. The user is free to choose to retain the token or have a refund. The whole process is completed on-chain through the contract and the auction is finally done by a multi-sig wallet. After the auction failed, Constitution DAO voted to give up the multi-signature wallet and transformed from the simple “crowdfunding” for purchasing the Constitution copies to Meme. Therefore, the current Constitutional DAO no longer exists.

· On-chain proposal (+1)

· On-chain voting (+1)

· Execution via multi-sig wallets

3. A+

(1) Uniswap (Project Governance DAO):

Off-chain Governance:

Temperature Check: A proposal is made on the governance site and voters use Snapshot to indicate their interest in bringing it forward to the next stage.

Consensus Check: Use feedback from the Temperature Check post and create a new Snapshot poll.

On-chain Governance:

Proposal Implementation: After the proposal is submitted successfully, the proposal() function will deploy the proposal.

· Off-chain proposal

· Off-chain voting

· Smart contracts execute the voting results (+1)

(2) YFI (Project Governance DAO):

Forum discussion is used to propose and vote on proposals

Proposals voted on by the forum will be subject to Snapshot voting

The Snapshot voting results are executed by smart contracts

· Off-chain proposal

· Off-chain voting

· Contract execution (+1)

(3) Aave (Project Governance DAO):

Built on the Aragon framework, it uses modular functional management.

Proposal Making: Aave Request for Comments (ARCs) are the first step in the governance improvement process. Anyone can participate in the Governance Forum, create ARCs, and vote on improvements.

Community Vote: The community’s opinion on new proposals is measured through Snapshot voting.

Proposal Execution: The proposal is submitted via GitHub and executed by the smart contract.

· Off-chain Proposal

· Off-chain voting

· Smart contract execution (+1)

4. A

(1) BitDAO (Investment DAO):

A member can draft a soft proposal for Snapshot that leads to an official community vote. The voted proposal needs to be adopted by a development team, with finalized code audited and submitted, then deployed by the multi-sig administrators.

· Off-chain proposal

· Off-chain voting

· Execution via multi-sig administrators

(2) YGG DAO (Guild DAO):

It is based on smart contracts built on the Ethereum blockchain. Smart contracts will be used to automate the functions of the guild including reward issuance, and eventually, advanced functions like NFT rentals.

The DAO’s assets (tokens, NFTs, virtual land parcels) are managed by the YGG Treasury, which is currently overseen by Yield Guild’s three co-founders. Assets can only be moved from the treasury when two of the three co-founders sign off on a transaction. The transaction will be proposed by DAO participants with the course of action determined by a vote.

· Off-chain proposal

· Off-chain voting

· Execution via multi-sig wallets

(3) OpenDAO (Project Governance DAO):

OpenDAO manages the DAO treasury (20%), staking smart contracts (20%)+LP Incentive (10%)+SUSHI through multi-sig wallets. The multi-signers are elected by voting. For proposals that cannot be uploaded to the chain on a daily basis, they are voted on through the Metaforo forum. The operation of the smart contracts requires the use of a snapshot for proposal and voting, which will eventually be executed by accounts controlled by the OpenDAO. For proposals to change governance models, they need to be proposed and voted on by Snapshot after being voted on and approved by the Metaforo forum.

· Off-chain proposal

· Off-chain voting

· Execution via multi-sig wallets

5. A-

(1) Bankless (Guild DAO):

Most decisions in bankless Dao are made by soft consensus. The corresponding is hard consensus that needs to be adopted by voting at the whole Dao level. It can be simply understood that decisions related to the financial budget follow the hard consensus process, and other decisions are reached through soft consensus.

Hard consensus is reached through Snapshot voting. But Bankless DAO actually does not make any clear definition of the concept of soft consensus. What level of decision-making needs to reach what level of consensus and where to reach it is quite arbitrary. There are many places where soft consensus can be reached, such as chat channels, forum posts, a group meeting, or some discussions on Twitter.

· Off-chain discussion without voting (-1)

· Execution via multi-sig wallets

(2) Pleasr DAO (Investment DAO):

It allocates the ownership of DAO in the form of Tokens and manages their funds, performs asset sales (including spin-off proceeds), and conducts asset management via multi-sig wallets.Governance is via group chat.

· Off-chain chat governance without voting (-1)

· Execution via multi-sig wallets

AAA:

Compound (Project Governance DAO), MakerDAO (Project Governance DAO), Tezos (Project Governance DAO)

AA:

Lido (Project Governance DAO), Nexus Mutual (Project Governance DAO), Constitution DAO (Investment DAO)

A+:

Uniswap (Project Governance DAO), YFI (Project Governance DAO), Aave (Project Governance DAO)

A:

BitDAO (Investment DAO), YGG DAO (Guild DAO), OpenDAO (Project Governance DAO)

A-:

Bankless (Guild DAO), Pleasr DAO (Investment DAO)

From the emergence of The Dao with ambition to its demise, most DAOs are now appearing in the world as a crypto-native organizational structure for online collaboration. The DAO now has such a great variety. Can it live up to the “Code is law” principle and have decentralized technology features such as automation and censorship resistance that people imagined when the concept was first introduced?

OP Research has researched and divided the well-known and representative DAOs in the market into five categories based on the type of the proposal, voting and execution of DAO and the form of community representation. The benchmark is level A. The mode of the off-chain proposal, off-chain voting, and execution of proposals via multi-sig wallets is simple to build, efficient to execute, and transparent, ensuring the security of funds. The project team also has a relatively large authority to control the project direction, which is conducive to the development of early projects. Therefore, even though it is not autonomous enough, most of the DAOs still use this mode for management at this stage.

According to the DAO type, DAOs with high autonomy are project governance DAOs. This type of DAO interprets how to complete the operation of the protocol governance module through intrinsic capital. The reason for this may be that most DAOs of this type are transformed into the form of DAO governance after the project has been in existence for a period of time. The project product structure is logically clear, and has been operating for a long time. The team has some experience, the project route is relatively determined and the community is stable.

In contrast, DAOs with low autonomy are mostly investment DAOs and guild DAOs. Investment DAOs require a higher degree of freedom due to their investment properties. The investment behavior is also somewhat random, and investment pursues timeliness. The lengthy on-chain proposal voting and execution mechanism is exactly contrary to its natural attributes, and the transparency of the blockchain will make it disclose its investment targets, leading to being preempted by its competitors. Therefore, investment DAOs are mainly operated in an efficient way under people governance. For the guild DAOs, the reason is similar. Guild DAOs adopt multi-level management mechanisms due to more classifications. They have numerous management affairs and need to require the treasury frequently. Therefore, they also use people-governance to deal with cumbersome affairs and guarantee the security of funds via multi-signature wallets.

In summary, different types of DAOs have different operating mechanisms and management modes. The requirements for the efficiency of DAO governance are also different. The current DAO infrastructure is still in its infancy and there are many restrictions on the operation of DAOs. Therefore, there are limited use scenarios and relatively few suitable projects. The development of DAO’s degree of autonomy is still dependent on the technological progress of the DAO-related infrastructure. For DAOs that continue to widen the boundaries of some of their governance, they can only be operated in a less “autonomous” manner in the short term. Nevertheless, we are still in the era of rapid development of DAOs, witnessing how DAOs are interpreting a powerful and new form of social organization in the age of crypto networks.