Are DAOs organizations with a shared onchain bank account? Maybe not.

*DAO “member(s)” refers to either a natural person or a legal person.

Myth: DAOs are organizations with a shared onchain bank account.

It’s hard to miss the writing on the wall if you’ve been a part of crypto since 2021. Everywhere you turn people speak about DAOs as the holy grail that will solve chronic governance problems DeFi and NFT applications face. A pop-up book definition that’s thrown around to get your average DAO-curious Jane up to speed is that DAOs are organizations with a shared bank account. Is this a useful definition?

Your typical shared onchain bank account is created using a Gnosis Safe which has the multi-signature feature. You have “the option to require a predefined number of signatures to confirm transactions” that open up any x-of-y control over a wallet address. For example, in a 3-of-5 multisig, you need a total of 3 out of 5 signatures to confirm transactions.
A basic DAO setup is usually as follows: a token-gated Telegram or Discord group controls a shared onchain bank account and uses Snapshot to cast votes. According to the definition above, is this a DAO?

Myth buster: DAOs are organizations whose a) onchain elements are b) central to the organizing process and c) where every member can directly influence the execution of key organizational decisions.

a) Onchain elements

The phenomenological basis of what it means to be a DAO is tied to something that has emerged recently. To debate if organizations from decades ago are DAOs is missing the point. There’s something unique about organizations that are DAOs, something very much tied to today.

We think DAOs are interesting because they have emerged along with new types of decentralized, trust-minimized systems. Most commonly, blockchains. Fundamentally, we think that an organization cannot, or should not, be a DAO if it does not connect to the technical revolution that we've experienced in the recent years, i.e. decentralized ledger technologies (DLTs) like blockchains. DAOs must have onchain elements.

b) Onchain elements that are central to the organizing process

Smart contracts are useful for organizations across the board. That doesn’t mean all organizations that utilize onchain elements are DAOs.

The company, Coca Cola is an organization that has shared bank accounts amongst its members. It can create onchain bank accounts relatively easily if it wanted to. Would you say it’s a DAO? Intuitively, no. But why?

We can further sharpen this question through a concrete example of ProFile Pics (PFPs). PFPs are NFT projects in which people hold similar-looking NFTs, yet each NFT within the collection has a unique configuration of properties. Well-known examples include CryptoPunks, BAYC, and Milady Maker.

Are PFPs DAOs? Generally they are not because the onchain elements PFPs employ are not central, enduring, and distinctive to more than just the product. Most PFP projects are unable to transition to a lasting brand because the core onchain elements are about buying and selling a product, not the organizing process per se.

We’ve argued so far that shared onchain bank accounts by themselves cannot fully define DAOs. However, sometimes shared bank accounts represent central and critical onchain elements of an organization. The classic example is investment DAOs. The shared onchain bank account enables pooling capital from anyone and anywhere; without it, investing as a DAO is unthinkable.

We don't know exactly how much needs to be onchain. But, what we know for certain is that whatever is onchain must be core in order for the organization to be a DAO.

c) Every member can directly influence the execution of key organizational decision

Then, does using a shared onchain bank account that’s central to the organizing process immediately qualify something as a DAO?

We see two types of DAOs sitting on opposite ends of the spectrum today.

On one side, we have an endless amount of DAOs that are a concatenation of a) a Gnosis multisig account, b) DAO tokens, and c) Snapshot voting. Juicebox is a community funding platform that has enabled the emergence of some of the best funded DAOs in history. We call them “token-multisig-snapshot DAOs” or simply “multisig DAOs”.

On the other side, we have what we call “capture-resistant DAOs” which are enabled by DAO frameworks such as Moloch, Compound Governor, TributeDAO, etc. Capture-resistant DAOs have one key difference to multisig DAOs. In a multisig DAO, the execution of votes is dependent on a subset of trusted people. However, in a capture-resistant DAO, not just the subset of trusted members, but EVERY token holder can directly affect the execution of votes.

Does it matter that everyone can directly influence the decisions at the organization level? Sometimes, it does. Small groups go rogue and execute transactions that pull the rug underneath the members, e.g. token holders. How? By emptying a shared bank account and running away, for example. That happens more often than you think. 👀 Structurally that’s much harder to do with capture-resistant DAOs than multisig DAOs.

Though Gnosis multisigs are incredibly useful, some people think even when Gnosis multisigs are central to an organization, it may not be enough to qualify an organization as a DAO. A caveat is in cases specifically related to the organization size.

Take a DAO that only has 5 members. If all 5 members are on the multisig, then a 3-out-of-5 multisig lets everyone execute a transaction, and every member could directly influence the execution.

However, as soon as the number of DAO members increases to 50, 500, 5000 and beyond, we can see that the example above was a special case, not applicable in real practices. We have yet to see multisig DAOs that are x-of-100, but we have seen capture-resistant DAOs with 100 voting members like Raid Guild, LexDAO, Meta Gamma Delta, and more.

This property that enables everyone in the organization to directly affect the execution of key decisions over resources sets DAOs apart from other types of organizations that came before it. And this unique element becomes more powerful as the size of the DAO grows.

New Myth: You can be a DAO without a shared onchain bank account although you need your a) onchain elements b) to be central to the organizing process, and c) every member should be able to directly influence the execution of key organizational decisions.

DAOs are not primarily automatic, technical constructions. DAOs aren't some kind of technical hyperstructure that takes primacy over its social components. DAOs are most interesting as social entities; DAOs are, predominantly, a socio-cultural phenomenon.

It’s not just about pooling money or having a shared treasury whether governed by a multisig or not. It’s not just about economic benefits but also significantly about governance benefits. Governance is how an organization decides and executes core decisions. It includes voting, economic activity (of which a shared bank account is one), contributions, reputation, and much more. Because we started from tokens and DeFi, it’s easy to think that coin voting is the only form of governance. The truth is, DAOs can use onchain elements for governance without needing to have any shared treasury.

DAOs such as the DIA, although it has lost a lot of momentum, make decisions about what to research next, without necessarily collecting funds or paying people. Research collectives organize to divide labor and incentivize each other with NFTs, such as POAPs, as status symbols. Book clubs such as the Federalist Papers Club issued shares for attending meetings and did not have to have a shared onchain bank account.

As our experiment with DAOs continue, more elements will be represented onchain. While a shared onchain bank account was critical for The DAO and the first version using a Moloch framework eponymously named MolochDAO, we will increasingly see DAOs with onchain elements that enable governance without any shared treasury. Through DAOs, we move away from the “internet of money”,  first enabled by Bitcoin, to the “internet of value.”

Gnosis Safe plus Snapshot or DAO frameworks seem like the very first lego pieces needed to make up a DAO to launch a minimum viable community. We understand this is a moving target and want to have our pulse on the evolution of DAO primitives. If there are any changes happening on the ground, hit us up.