How to DAO

Abstract

Decentralized Autonomous Organizations (DAOs) have been used to govern a wide variety of applications, ranging from decentralized finance (DeFi), investment clubs, and crowdfunding campaigns to more socially oriented initiatives such as decentralized social networks and guilds. Depending on their purpose and intent, different DAOs reflect different needs and desires for trust and confidence. In this chapter, we argue that blockchain practitioners should be wary of adopting a one-size-fits-all approach to DAO governance and design. Instead, different solutions should be adopted to achieve the governance structure that is most desirable for each DAO, according to its own purpose and specificity. We distinguish between three macro-categories of DAOs based on their relationship with trust and confidence, to issue recommendations on institutional design: (1) trust-driven which express a lower need for institutional scaffolding; (2) confidence-driven DAOs that require a more extensive institutional scaffolding; and (3) trust and confidence driven DAOs which require some degree of institutional scaffolding. The chapter concludes by underlining the importance of accounting for the relational aspects of a DAO community when designing the institutional structure of a DAO.