Service DAOs - Landscape, Challenges, and Solutions
Whereas traditional companies look to consulting firms for advice, protocols and DAOs often have entirely different needs, operating mechanisms, and cultures that are best serviced by other crypto-native contributors. Service DAOs are being spun up to tackle this demand and are positioned to summon the 263B consulting market equivalent for crypto-protocols and DAOs.
We spent the past month interviewing service DAO operators. Below we hope to provide an overview of the landscape, the biggest challenges they are facing, and community-sourced ideas that have worked in practice to mitigate these challenges.
But First — Why Are They Forming?
The service DAO operators we talked to largely identified 3 key strengths over traditional consulting firms.
1. Contributors get Direct Ownership of the Organization
Service DAO contributors get both a share of the value they create per client and a share of the entire organization — its reputation or future revenue streams.
According to operators, ownership fundamentally changes the approach people take to the organization. It better aligns incentives and induces a more collaborative and open culture.
2. Open Contribution Culture
Some service DAOs are structured so that anyone can join and contribute.
If you have the skillset and are valuable to the DAO, there is little stopping you from working on an account. For those DAOs that do filter their applicants (via interviews, review of historical work), they value one’s ability to add value over credentials — for instance, anon contributors were common among those we interviewed.
3. A better understanding of the problems they’re trying to solve
The largest clients of service DAOs are other DAOs and crypto-protocols. These clients face particular challenges in development, operations, management, compensation, PR, legal, etc. that are best solved by other DAOs.
For instance, a DAO2DAO salesperson is much more familiar with challenges around lobbying token holders to pass governance proposals, multisigs, and how these might affect the service cycle.
4. Reduced Earnings Volatility for Contributors
Contributors get paid in stables, service DAO governance tokens, and the client’s project tokens. Because a portion of the client’s project tokens accrues to all stakeholders in the organization, individual contributors can smooth earnings volatility over time.
Challenges Facing Service DAOs
We’ve placed the issues most commonly cited during interviews into four interwoven categories.
People
1. Difficulty sourcing and retaining contributors
Skilled contributors bounce around different DAOs and are difficult to retain for long periods of time.
Service DAOs are experiencing demand that far outpaces their capacity. Many are thus struggling with sourcing talent that is value-aligned, a good cultural fit, and familiar enough with the tasks at hand to execute without managerial oversight.
2. Difficulty activating latent community talent
Even for DAOs that have access to talent, getting the talent within the network to actually contribute is difficult.
Operators cited shyness and confusion as the two main sources of this issue. Either talent did not know about DAO culture (where contributing to become a contributor is common) and awaited instruction, or were too unsure of standardized processes, who to communicate questions with, whether they would get compensated, to actively participate in projects.
3. Difficulty aligning on culture and values, and disseminating them throughout the DAO
The most frequently cited difficulty was around culture building. Operators were struggling with:
- Making sure contributors are value-aligned
- Creating culture-aligned internal processes, marketing, docs
Operators stressed that culture referred to the entire experience of being part of the DAO — from the language used, the platform, the docs, the meeting formats, etc.
Every interaction contributors had with the organization and its members would be a reflection of organizational philosophy and culture, which was by far the most cited determinant of retention, contribution quality, recruiting ability, and just overall better operations.
One DAO operator cited the example of Amazon’s Door desks. In the early days of Amazon, everyone at the office used recycled doors as desks, apparently to signal that Amazon “only spends where it improves client experience”. This ethos would then seep into every interaction within the firm and between the firm and its clients.
DAO operators are struggling with aligning on mission and creating a DAO-wide culture in a hierarchy-less, asynchronous, and remote environment.
Operations
1. Lack of standardized processes
Operators found it difficult to standardize processes and maintain documentation for those processes.
When processes were decided upon, DAOs had difficulty in disseminating the information to contributors, so that they were consistently used in practice.
Some operators felt that documentation and process bloat was a big overhead to newcomers who wanted to start contributing but had to wade through pages of docs. This was in direct contrast to those who blamed the lack of onboarding documentation as the direct cause of a lack of contributor activation.
In general, most DAOs were struggling to achieve a balance between incurring too much communication, documentation, process optimization overhead on one hand and variance of contributor work, lack of unified processes delaying contracts, confusion on how to participate/onboard on the other.
2. Legal uncertainties
Many DAOs struggled with incorporation (especially if they weren’t based in the US), picking an optimal entity, issuing tokens, helping contributors with taxes, and paying vendors/non-cryptonative external entities.
External
1. Inconsistent client experience
Aside from culture, the second most cited issue was variance in client experience. Because processes were not standardized and well communicated, or because of a lack of QA through hierarchy, projects took longer to complete while some clients had not-so-great experiences.
2. Friction in closing
In DAO2DAO sales, operators faced difficulties around the closing process, especially with DAOs that could only pay for services after a vote and a multisig.
Crowdsourced Solutions — What has worked for at least one DAO
Once contributors outlined the largest problems they were facing, we then asked what solutions had worked to mitigate these problems within their DAO. We’ve compiled these crowdsourced solutions.
Note that each solution has worked for at least one DAO we spoke to, so there may be contradictory solutions that have worked for different DAOs.
We’ve only included 5 per category because Medium doesn’t allow charts. If you want to see the full list check it out here: Solutions Full Text
Categories: Legal, People + Operations, Techstack, External
Legal
- Workers Co-op — the downside is that it is hard to find lawyers who really know about cooperatives.
- LCA — allows for an investor class with a two-class system
- LLC — makes sense for small dev shops but makes it difficult to have anon contributors
- Series LLC — easy to maintain but downside is centralization
- Talk to lawyers early, not when you need them.
People + Operations
1. Compensation Structuring
- Coordinape + Sourcecred combo for compensation splits. This is slower but more decentralized.
- The salesperson gets 10%, DAO treasury gets 10% and the rest is divided up among contributors. Delineate payment by roles per project.
- Establish a culture of “pay a lot” early. Sometimes external coin holders don’t like paying out DAO contributors, so establish this culture early on.
2. Recruit and Retain Talent
- Bring new people on and train them by requiring everyone in the community to mentor someone else in the project.
- Allow new folks to just shadow.
3. Build Culture
- Encourage more 1:1 interactions (like Donut on Slack). It is really important to have people know each other personally.
- Repeat mission, narrative as often as possible.
- Limit your rate of growth so culture spreads first before hiring. Ideally, DAO always has more experienced people than newcomers.
- Make memes, art, some sort of shared “holy” document/art with all the collective principles around which the community can aggregate. (ie Loot).
4. Streamline Operations
- Hire Project Managers.
- Allocate talent/capital for comms, coordination improvements, process improvements, full-time member experience, documentation, QAing forum posts, sales processes…etc.
- Maintain structure, limited work quality/client experience variance by adopting existing processes (design sprint) — do what’s already been tested and works.
Tech Stack
- Custom CRM, and invoice https://smartinvoice.xyz/
- Utopia / Gilded Finance
- Discord, Gnosis, Lettucemeet, Airtable, Notion, Snapshot
External
- Have a few people who work on managing the bridge between working groups, people, and the public.
- Transparency is a spectrum and has high overhead.
- If you’re an open-source, community-driven project be fully transparent.
- If you’re building a product then spend a bit less focus on transparency.
- Balance transparency with operational focus depending on what you’re building. - Craft a meme for the DAO. Helps with retention and recruitment as well.
Conclusion
We hope this helps all the DAO operators and DAO tooling builders out there devise better solutions for decentralized coordination.
If you’d like to add to this list or be part of a group of service DAO operators, we’ve created a community to share solutions and push the space forward. If you’re building in the space we’d love for you to join. Reach me at @0xtaetaehoho on Twitter or t@1kx.capital.
