Decentralization ReportDavid Orban1, Penny Wong2, Esther Galfalvi3

Version 1.0
September 15, 2022
1

Chair of the SingularityNET Supervisory Council, Managing Advisor of Beyond Enterprizes
Member of the SingularityNET Supervisory Council
3
Independent Researcher
2

Table of Contents
Introduction

3

Section 1: DAOs, Governance and Voting

3

Definition and taxonomy

4

Voting

7

One token, one vote8

One wallet, one vote8

Quadratic voting

9

Holographic consensus

9

Reputation-weighted voting

10

Vote delegation/Liquid democracy

11

Challenges in DAO governance

12

Security

13

Scalability

13

Engagement

14

Lack of flexibility

14

Lack of coordination and clarity

15

DAO governance is a tool
Section 2: Decentralized Coordination

15
17

Ostrom’s principles

17

Organizational development perspectives

18

Organizational culture

19

Models of decentralized coordination

21

Design phases

25

Organizational layer

25

Technical implementation

26

Evaluation

26

Conclusion

26

Future research

26

Recommendations for SingularityNET

26

References

28

Literature

28

Video resources

322

Introduction
Decentralization has been achieved in many ways: some are based almost entirely on
blockchain technology, while others rely on organizational restructuring to achieve the goal offairer and better decision-making. The underlying challenges are manifold: how decisions
should be made; who should be involved in the decisions; how to structure the way that suchdecisions are made; how to preserve the autonomy and security of the individual while
protecting the interests of the whole? How to decentralize without some kind of fatal flaw?
This paper explores the literature on decentralization, both on and off the blockchain. It is basedon a review of both academic and non-academic literature, as in addition to academic research,
bloggers and YouTubers have a great deal to contribute to knowledge about decentralization,
while public chats and forums are a good way to gain insights into the nuts and bolts of (andsometimes vocal disagreements in) decentralized communities. To gain a rounded view, thisresearch has used a combination of Google Scholar and university library search, and searcheson the main Google search engine and YouTube to access blogs and videos. All resources arelisted at the end of this paper.
We intend this report to be used as a starting point for thinking about decentralization especially, but not restricted to, Decentralized Autonomous Organizations (DAOs). It is meant
for a wide range of audiences, including people who may not know much beyond the basics of
DAOs to those who are considering decentralization for their organization. The outcome of thisresearch is to provide some context for progressive decentralization, present some governanceand decentralized coordination models, and finally present some recommendations. This paperargues that there are two layers in decentralization: the technical governance process, which iseffectively a system to execute the release of funds from the treasury,4 and sets of coordination
processes. To develop a functioning decentralized ecosystem, such processes need to becarefully designed and migrated from the central leadership in conjunction with the technicalimplementation of the DAO (if applicable).
During this paper, we have purposely avoided any discussion of the legal challenges associatedwith DAOs, though these are many and pervasive throughout most contexts. It is ourrecommendation that in any attempt to decentralize, a careful analysis of the potential legal
ramifications should be conducted in context. Attention must be given to any future changes inlocal laws as these can seriously impact individuals who are contributing to DAOs.

Section 1: DAOs, Governance and Voting
DAOs promised to revolutionize how we structure socio-economic relationships (both throughthe diffusion of political influence and the distribution of technology in a decentralized manner,for example through blockchain nodes). As it is taking place on an emergent set of technologies,
4

Rachmany, 2020a. You Don’t Need a DAO. https://hackernoon.com/you-dont-need-a-dao-un3937tu
3

to this day it is still an explorative, experimental process. Some have attempted to map thelandscape of DAOs, but because it is changing rapidly, such resources either disappear or
become outdated as DAOs are founded and dissolved (or abandoned). The emergence of DAO
builders such as DAOstack, DAODAO and Aragon have enabled the genesis of thousands of
DAOs. Daolandscape.today attempted to keep abreast of the state of DAOs but is now defunct,presumably for this very reason; many DAOs that were started on the first DAO builders areinactive.5 Now the presence of DAOs is collated by DAO directories such as Messari6 andDeepDAO7 web resources, which list DAOs with details of governance processes and open
proposals.

Definition and taxonomy
The definition of DAO is somewhat ambiguous across different sources. However, Rikken et al.
(2021) arrive at a unified definition based on the common characteristics of DAOs:
A DAO is a system in which storage and transaction of value and notary (voting)functions can be designed, organized, recorded, and archived and where data andactions are recorded and autonomously executed in a decentralized way.8
Rikken et al.’s (2021) study has also analyzed the definition of DAOs across different academic
and non-academic sources, finding that while some elements appeared across different
spheres, there was no unified definition of DAO, even among DAOs and DAO builders. This
contributes to an ambiguity in the landscape of DAOs, making it challenging to analyze. Anothercommon feature of DAOs is the power afforded to individuals in the organization to take part in
the decision-making process - but this is variable across organizations. Decision-making can bereserved for certain members of the community, or it can be open to all; some resemble
traditional organizations in that they have some sort of hierarchy or at least different tiers ofauthority, while others are entirely flat.9
Blockchain-based decentralized organizations are highly varied in both function and level ofcomplexity. Many sites organize DAOs by function, including:10●●●●

DeFi/AMM protocol (e.g. UniSwap, Aave)
Philanthropy DAOs (e.g. UkraineDAO, BigGreenDAO)
Investment/Venture (e.g. Metacartel, Stackerventures; PieDAO)
Grants (e.g. MolochDAO)

5

Rikken, O., Janssen, M., & Kwee, Z. 2021. The Ins and Outs of Decentralized Autonomous
Organizations (DAOs), p.5. Available at SSRN 3989559.
6
https://messari.io/governor/daos7
https://deepdao.io/organizations
8
Rikken et al., 2021.
9
Sims, A., 2020. Blockchain and decentralised autonomous organisations (DAOs): the evolution ofcompanies? New Zealand Universities Law Review 423-458.
10
For example, BanklessDAO. 2020. https://banklessdao.substack.com/p/state-of-the-daos-1-october-20;
Binance, 2020. https://research.binance.com/static/pdf/dao-report.pdf
4

●
●
●
●

Social (e.g. HIVE; Hypersync)
Media (e.g. BeetsDAO)
Collector/NFT (e.g. Pleasr, Flamingo)
DAO Builders/Operating systems (e.g. Aragon, DAOstack, Colony)

These categories are still in their nascent stages; other function-based categories will doubtless
emerge. For example, if there are ever enough (genuinely) decentralized labor or morewidespread peer-to-peer resource-sharing platforms to replace the gig or so-called sharing
economy (e.g. RoomshareDAO), those could form a new category. Another could be education
DAOs that could increase literacy and numeracy rates in areas that need them, or placeownership of higher education systems in the hands of students, reducing the power ofmonolithic institutions.11
Other categorization is by technology and deployment type:

Source: Rikken et al. 2021.

11

CityDAO blog. 2022. Education’s Last Mile.
https://city.mirror.xyz/JLuzDxZm5uaGY0SDyMGLg-jbagDdd3VCnc1Ucli6iTQ
5The deployment type of categorization can be helpful for informing thinking about the kind of
infrastructure that may be appropriate for the type of organization, as the deployment type is a
key decision made at the start of implementation. Higher levels of organizational complexity (forexample those that run multiple projects) and scaling needs have different deployment needsfrom those that have relatively straightforward mandates. Self-coded DAOs require a higher
level of technical expertise at the development stage but also affords a greater level of flexibilityof customization. (It could also require a higher level of technical expertise to interact with thegovernance system, depending on design, which could impact engagement.) Organizations canuse a prefab DAO template such as those on Aragon, JuiceBox, and DAODAO. 12 Anotheroption is to use a DAO builder and combine with code such as on Aragon (which is not listed in
the typology above. For single purpose DAOs such as collector DAOs, a simpler model may beenough, but for complex projects (especially a hybrid model or a purpose-built model could be
useful). Aragon, for example, offers DAO templates, but many DAOs also use it as a base for
their own smart contracts when there are higher complexity needs (such as more sophisticatedmodels for assigning voting rights).13
A formal taxonomy of DAOs has been developed by Campisi (2022) across four dimensions: 14
-

-

-

-

Scope of multilateral agreement (the degree to which decisions are made jointly)- Restricted- Code upgradeability- Natural language guidelines- Unrestricted
Resource management- On chain resources- Upgradeable contract- Non-upgradeable contract- Various types of resources- Natural person- Legal entity
Discussions of proposals- Rule based- On chain- Off chain- Discretionary- Off chain- Linked
Voting- Liquid stake (tokens also represent value)- Weighted voting

12

Amann, 2022. Choosing the Right DAO Builder Platform.
https://www.youtube.com/watch?v=W9S9iHLcCAI
13
ibid.
14
Campisi, F., 2022. The Impact of Decentralized Autonomous Organizations on Corporate Governance(Doctoral dissertation, Politecnico di Torino).
6-- Dedicated voting
Merit (tokens do not carry value but represent the activity of the token holder)- Weighted voting- ID level

Source: Campisi, 2022.
Different types of DAOs need different types of governance structures, depending on complexityand purpose, but are generally token-based (see below for voting models). DAO builders suchas Aragon offer a standard set of voting protocols. However, there are known challenges to dowith many of these varieties of voting that can lead to power imbalances. These are explored ineach voting type. A straightforward, mostly automated governance structure can be useful if its
primary goal is simply to manage the movement of funds and decisions are made relatively
infrequently.15 More complex ecosystems with multiple projects and teams may require morenuanced governance infrastructure, preferably supported by self-leadership/management
practices (see Section 2).

VotingVoting has typically taken place on blockchains as it is secure and the execution of passed
proposals is automated. However, more recently some voting takes place off-chain, for example
to gauge opinion or to contextualize proposals in a wider discussion. In some cases, bothmethods are used: off-chain discussion and voting leads to on-chain execution, such as on
MakerDAO. The advantages of on-chain voting is that it is transparent and conforms to explicit
rules regarding proposals and voting. It is also sometimes vulnerable to attacks andexploitations, as will be outlined in the voting. On-chain voting systems use governance tokens,which can have different functions. Some simply confer the power to vote, while others are used
to carry out transactions (such as Uniswap),16 which can bring its own disadvantages - see
below in One-token-one-vote. Off-chain voting can happen through tools such as Discourse
forums, Discord chat, and Snapshot, avoiding transaction fees associated with blockchain
voting, and can result in more participation.17
Many voting systems are based on quorum voting, which requires a threshold of voting power tobe reached before a proposal can have the opportunity to pass, and then the collective decisionof the voters is arrived at once the proposal has qualified.18 (That is, if the threshold is notreached, the proposal automatically fails, irrespective of the existing voters’ decision.) Arriving at
the right quorum requirement can be a challenge. If the number is too high, most proposals will

15

Rachmany, 2020a.
Phemex. 2021. What is Blockchain Governance: Setting Platform Rules.
https://phemex.com/academy/what-is-blockchain-governance17
TallyDAO Documents. 2021. https://wiki.tally.xyz/docs/on-chain-vs-off-chain-voting
18
Calcagno, R. and Campisi, F., 2022. The impact of Decentralized Autonomous Organizations on
Corporate Governance. https://webthesis.biblio.polito.it/22366/1/tesi.pdf
16

7

fail owing to inadequate engagement, while if the number is too low, poor quality proposals canpass and the vote may not be representative of the majority.19

One token, one vote
A common voting model for DAOs is that in which one token is equal to one vote. This system isstraightforward and easy to implement, but if the token can be traded, it also carries criticalvulnerabilities such as the disproportionate power of large investors/token holders (also known
as ‘whales’). This can centralize power and create plutocracies.2021 Other challenges in thissystem include flash-loans, where an individual buys a large quantity of tokens for a short timein order to gain enough tokens to gain control of a vote.22
Time holding tokens are one way to mitigate this power, where voting power of each token
increases proportionally to the length of time for which tokens are in the possession of the token
holder. In theory, this helps to mitigate the power of whales and offers an incentive for early
adopters.23 However, in practice many whales are founding members who therefore have themost powerful tokens, so this is only a partial solution. Another refinement is conviction voting,where proposals are presented in rounds and tokens from each wallet holder are split between
proposals.24 Voting power is also increased proportionally to the amount of time the tokens are
staked.25 One disadvantage of this, however, is the time taken to make decisions; it would not,for example, be useful for crisis situations.

One wallet, one voteThis method tries to reproduce a ‘one person, one vote’ counting system in offline democracies.
It can be achieved by having a non-transferable non-fungible token (NFT) that acts as a voting
counter.26 In theory, this system is meant to equalize voting. However, it is vulnerable to thecreation of multiple wallets, also known as Sybil attacks.27 Solutions are difficult to find without
violating privacy; some Know Your Customer (KYC) solutions rely on identity verification, but
19

Limechain blog. 2022. DAO voting mechanisms explained [2022 guide]
https://limechain.tech/blog/dao-voting-mechanisms-explained-2022-guide/20
De Filippi, P. (2019). Blockchain Technology and Decentralized Governance:The Pitfalls of a Trustless
Dream. SSRN Scholarly Paper ID 3524352.
21
Binance. 2020.
22
As happened with MakerDAO:
https://forum.makerdao.com/t/urgent-flash-loans-and-securing-the-maker-protocol/4901
23
Moralis Web 3. 2022. What are Governance Tokens?
https://www.youtube.com/watch?v=8Sh8EOyWga8
24
Emmett, J. 2019. Conviction Voting: A Novel Continuous Decision Making Alternative to Governancehttps://medium.com/giveth/conviction-voting-a-novel-continuous-decision-making-alternative-to-governan
ce-aa746cfb9475
25
Axelsen, H., Jensen, J. R., & Ross, O.. (2022). When is a DAO Decentralized?. Complex Systems
Informatics and Modeling Quarterly, 31, 51–75. https://doi.org/10.7250/csimq.2022-31.04
26
Stanford Law School. 2022. DAO Symposium: the nuts and bolts of voting.
https://www.youtube.com/watch?v=YrJBBTFO1Bk&t=976s
27
Siddarth D, Ivliev S, Siri S, Berman P. 2020. Who Watches the Watchmen? A Review of Subjective
Approaches for Sybil-Resistance in Proof of Personhood Protocols. Front. Blockchain 3:590171.
https://doi.org/10.3389/fbloc.2020.590171
8

would go against the grain of privacy that defines many blockchain projects. A great deal ofeffort is being put towards finding solutions, including zero-knowledge proofs, which confirm
identity without revealing identity to the main organization, and KYC NFTs.2829

Quadratic voting
Quadratic voting has been designed to reduce the financial advantage of voters with large
amounts of tokens, where cost is equal to the quadratic value of vote numbers, raising the pricefor each vote with diminishing returns on votes bought.30 However, the system is also vulnerable
to identity attacks such as creating more than one wallet or collusion with other members.31
Furthermore, the financial advantage is not entirely eliminated with this system. It could,
however, potentially be combined with other voting systems that reduce the chance of multiple
identities. The risk is that more complex voting systems could result in confusion and low
engagement, and solutions that involve third parties can increase security risks.

Holographic consensus
This voting method is used by a number of DAOs and is meant to address scaling andengagement issues experienced by growing DAOs. Holographic consensus voting is designed
to reproduce the collective opinion of the community. This is used, for example, by DAOstackand DXDAO. Proposals can be made in the standard way, with the need for an absolutemajority with a prescribed threshold of participation, or they can pass through an extra layer ofvoting: effectively a prediction market, where token-holders spend attention tokens (GEN on
DAOStack) to “boost” proposals, essentially betting on the outcome and losing or gaining tokens
if their supported proposal fails or succeeds, respectively.32 Boosted proposals require fewer
votes to pass, moving from a requirement for an absolute majority to a relative majority, while
unboosted proposals continue to require an absolute majority. In such a prediction market,
stakers try to align their stakes with the expected opinion of the community.33 Participation canbe encouraged by awarding tokens from failed stakers to successful stakers.
A challenge in holographic consensus voting is the time taken, as the stages of staking andvoting can be a lengthy process.34 This makes it unwieldy for mid-level decisions and for28

A review of the literature on the anonymity/security challenge and various solutions can be found in
Sánchez, D.C., 2019. Zero-knowledge proof-of-identity: Sybil-resistant, anonymous authentication on
permissionless blockchains and incentive compatible, strictly dominant cryptocurrencies. arXiv preprint
arXiv:1905.09093.
29
KYC website. n.d. FAQ. https://kycdao.xyz/page-faq
30
Hellström, E., 2022. Fair Voting System for Permissionless Decentralized Autonomous Organizations.
Uppsala Universitet.
31
Allen, D. W. E., Berg, C., Lane, A. M., & Potts, J.. (2020). Cryptodemocracy and its institutional
possibilities. The Review of Austrian Economics, 33(3), 363–374.
https://doi.org/10.1007/s11138-018-0423-6
32
El Faqir, Y., Arroyo, J., & Hassan, S. (2021). A Scalable Voting System: Validation of Holographic
Consensus in DAOstack. In HICSS (pp. 1-10).
33
ibid.
34

Coinyuppie, 2022. https://coinyuppie.com/in-depth-analysis-7-common-voting-mechanisms-of-dao/
9

crisis-situations that require quick decision-making, such as responding to critical vulnerabilities.
While it is potentially a fairer way of voting than one-token-one-vote because it creates adisincentive for damaging actions, it is questionable whether a consensus on the prediction
market is truly representative and truly merit-based. The results may be skewed if people voteon what they think will pass (in other words, what will be popular) rather than what deserves topass (ibid.).

Reputation-weighted voting
Another, more sophisticated type of voting is that which gives extra weight to governance tokens
based on user behavior. Parameters can vary significantly; they can be based simply on wallet
behavior and token staking, but other models can include other kinds of activities andcontributions. In a wider activity-based reputation system, each member can have adecentralized identifier (DID), which tracks their participation in the DAO.35 This would observe
contributions such as suggestions, proposals, voting participation, forum activity, andoperational work - and can track participation across other DAOs, increasing data diversity.36
The reputation system is flexible because the parameters for accumulating reputation are highly
customisable. For example, forum participation can count towards reputation, or successfulproposal execution and/or project completion. The extent to which different actions can weight
the reputation is also customisable.
However, reputation systems carry some vulnerabilities, such as susceptibility to scamming;
governance mining such as bot-participation; voting arbitrarily or tactically just to participate andgain rewards; security and identity concerns. Another question is how to function in the earlydays of a system when no one has any reputation yet. Some of these challenges have beenaddressed by prospective implementers of reputation systems. For example, a “weighted liquidrank algorithm” has been simulated for online marketplaces to identify scams among seller
ratings.37 Results indicate that the algorithm has been able to successfully distinguish most of
the time between honest and dishonest sellers, and proved to be significantly more effective
than standard rating systems.38 Such systems could be used to detect system exploitation in
voting systems based on reputation as well.
In practice, reputation systems are comparatively rare among DAOs but gaining in traction.
DAOstack uses a reputation system (and this is extended to any DAOs that are built using
DAOstack’s operating system).39 Actions that automatically give or remove reputation include
proposal passing or failing. Other actions are linked to the holographic consensus mechanism; ifa voter wins or loses in the prediction market, reputation tokens are gained or lost too.40 The
35

Ont.ology News. n.d. Using Reputation in Governance. https://ont.io/news/850
ibid.
37
Kolonin, A., Goertzel, B., Pennachin, C., Duong, D., Argentieri, M. and Znidar, N., 2019. A Reputation
System for Marketplaces-Viability Assessment. arXiv preprint arXiv:1902.03857.
38
ibid.
39
DAOstack. 2019. A Guide to DAOstack’s Initial Reputation Protocol.
https://medium.com/daostack/a-guide-to-daostacks-initial-reputation-protocol-f8365f157f7a
36

40

ibid.
10

DAOstack system also enables the community to remove reputation via negative reputation
rewards if it is considered to carry too much power. Though this system is relatively limited,
DAOstack acknowledges that this is just a starting point and that DAOs can build morefunctionality into their systems.41
Another potential example of a reputation system is the proposed Ethereum-based Soulboundtoken, which are intended to “represent commitments, credentials and affiliations”, and would bedesigned to be run across different groups, not just used in the governance of Ethereum.42
Because Soulbound tokens are non-transferable and based across an individuals’ uniqueactivity, it has the potential to build trust through reputation, potentially in multiple spheres, andsolve some problems such as Sybil attacks.43 This is still in the early stages of development however the authors propose a variety of ways of solving some of the problems associated with
reputation voting, including protecting the system from people who might try to exploit it.44
One feature of reputation voting could be domain-specific distinctions and weighting. This would
split voting into domains of expertise, and people with experience in one domain would havemore voting power than if they are voting in another domain outside their expertise. This could
work in a nested structure (see Section 2), where rather than providing a large pool of proposals
that everyone must process and vote on, people mostly only vote on proposals that are directly
relevant to them - but they are also given power to vote in other domains if they choose (albeit
with less voting power if they have less expertise), and also in ecosystem-wide major proposals.
The DeepFunding part of the SingularityNET ecosystem is in its first phase of trialing a
reputation system.45 This could be integrated with other parts of the ecosystem by expanding
the reputation system uniformly, or as one domain in a linked domain-based structure.

Vote delegation/Liquid democracy
Liquid democracy allows governance tokens to be assigned to representatives who then vote on
proposals. In theory this would allow people with insufficient expertise or time to understand andvote on proposals to transfer their voting power to those who do. Uniswap, Compound, andENS (Ethereum Naming Services) use delegated voting, but the effects in each case are very
different. On Uniswap, for example, delegation behavior is highly varied; some delegates areevenly voted for with few tokens by many token holders while others are given a large volume oftokens by one or two walletholders.46 By contrast, the voting is very even on ENS, with many
walletholders delegating a small amount of tokens to delegates. The study shows that in somecases, individuals were sending tokens to themselves through another wallet, illustrating one of
41

ibid.
Weyl, E.G., Ohlhaver, P. and Buterin, V., 2022. Decentralized Society: Finding Web3's Soul. Available
at SSRN 4105763.
43
Binance Academy. 2022. What are Soulbound Tokens?
https://academy.binance.com/en/articles/what-are-soulbound-tokens-sbt
44
Weyl et al., 2022.
45
DeepFunding website. n.d. https://deepfunding.ai/
46
Fritsch, R., Müller, M. and Wattenhofer, R., 2022. Analyzing Voting Power in Decentralized
Governance: Who controls DAOs?. arXiv preprint arXiv:2204.01176.
42

11

the challenges associated with this mode of voting - continued susceptibility to individuals
holding large quantities of tokens across multiple wallets.47 This method also opens governanceto lobbying by invested parties, or could encourage voters to vote once and forget or keep
delegating to the same person out of convenience.48 The examples of Uniswap and Compoundshow that in reality, those organizations are highly centralized, with power concentrated in thehands of a few large-scale token holders.49
Voting is usually part of a multi-step process that involves synchronous and asynchronous
discussion before the proposal is made live and the votes are cast. The governance processesof many DAOs often pass through a three-phase process: first, responses to the proposal are
relatively informally gauged in the community through chats and forum discussions; then an
off-chain voting process can be done through Snapshot; then the final on-chain vote takes place(or some variation on this, with some differences in tools). The final vote is often just a
ratification of what is already known about the community’s orientation towards a topic.50

Challenges in DAO governance
There are evidently significant challenges in maintaining a functioning DAO. In 2021, anin-depth study of the DAO landscape found that 84% of DAOs on Aragon were showing noactivity and only 4% were showing high activity (defined as over 10 transactions over the courseof the 14 months of observation).51 On DAOstack and Moloch, the defunct percentage was at
59% and 65%, respectively.52
Although it is unclear why the percentage is so high on Aragon compared with the others,
DAOstack and Moloch emerged later and facilitated a much smaller number of DAOs.
(Interestingly, all the self-developed DAOs cited in Rikken et al.’s paper are still functioning, but
only out of a total number of 8).53 The high rate of attrition could be attributed to a combinationof factors - failures within DAOs, but also projects having reached the end of their natural lifeand persisting in the DAOspace. Another explanation, however, could be that when DAO
builders began to emerge, Aragon’s position as the first and highest-traffic DAO builder would
also make it the site of the most experimentation. The high number of defunct DAOs could beearlier versions, forks, and tests that were run on the Aragon operating system, as well as somethat fulfilled their purpose and came to a natural end - or eventually failed.

47

ibid.
DeepFunding blog. 2022. Round 1 - Voting Analysis Part 3. Next Steps.
https://deepfunding.ai/blog/voting-analysis-part-3-next-steps/
49
Fritsch et al., 2022.
50
Stanford Law School. 2022. Dao Symposium: the nuts and bolts of voting.
https://www.youtube.com/watch?v=YrJBBTFO1Bk&t=976s
51
Rikken et al., 2021.
52
ibid.
53
ibid.
48

12

In addition to the challenges specific to the voting systems detailed in the previous sections,
there are other problems that DAOs must contend with.

Security
Many of the so-called hacks (most notoriously The DAO hack, but also many others) are nottrue hacks, but in fact exploitations of the code as it was meant to run. In the case of The DAO,
one of the members voted for a change in the code that could be exploited and then did so.54
Flash loans as described above are also a potential problem. Owing to the merging ofgovernance and infrastructure on blockchain protocols, there has been a merging of issues
around security and economics (that is, where the rules of the economic system forms the
security vulnerability) has also been called “seconomics”.55 The types of vulnerabilities vary
according to the kind of DAO infrastructure and voting methods; consequently is it beyond thescope of this paper to list them all. A recommendation would be to choose a method ofgovernance and leadership, and then survey the literature and look to an expert to conduct athorough risk and “seconomics” assessment.

Scalability
DAO growth is often associated with problems in scaling. Proposal numbers can easily growbeyond members’ available time and attention, resulting in low voter turnout. It can beaccompanied by an increase in proposals beyond the technical expertise of some (if not most)voters, which they may not feel qualified to vote on and abstain, or worse, may vote on without
understanding it.56
A variety of solutions are available to solve this problem. One is to split the DAO into gateddomains where people are only voting on their areas of expertise, with funds controlled andawarded by people who are able to assess proposals accurately. This can be achieved withsome of the decentralized leadership structures described in Section 2, such as the Metropolis
model. The domain model could be combined with a wider decentralized structure where large
directional decisions are given to the community at large, but mid-level decisions remain withindomains where the people are most likely to have the expertise to vote on them. This way,community members would need to take part in only the decisions that are specifically relevantto them. However, in order to maintain full transparency, there would need to be an up-to-date
communication system to keep members updated on all upcoming votes in all domains. The
purpose of this method would be streamlining, not exclusion; people could temporarily be added- or have the power to add themselves - to a domain in order to vote if they wish.

54

Dhillon, V., Metcalf, D., Hooper, M. (2017). The DAO Hacked. In: Blockchain Enabled Applications.
Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4842-3081-7_6
55
Massacci, F., Ngo, C. N., Nie, J., Venturi, D., & Williams, J. (2017). The seconomics(security-economics) vulnerabilities of decentralized autonomous organizations. In Cambridge
International Workshop on Security Protocols (pp. 171-179). Springer, Cham.
56
Lu, C. 2022. The Sustainability of Digital Governance: Can a Smart Contract Serve as a Social
Contract?. http://dx.doi.org/10.2139/ssrn.4101298
13

Engagement
A connected challenge to the scaling problem is engagement. As the DAO grows, engagement
can drop because of the increase in numbers of proposals but the same amount of attention
and time belonging to voters, and limitations on expertise.575859 A survey by the Governance
Learning Forum (2022) has revealed a lack of interest around governance and leadershipamong DAO participants, potentially leading to accidental oligarchies in which only the same
motivated and active people are consistently making the decisions.60
Incentives for voting such as token-based rewards (or other non-monetary rewards) have beensuggested, as well as rewards in reputation on reputation systems); however, these can lead toattempts to ‘game’ the system to receive such rewards. 61 Channeling field-specific decisions tothe correct domains could partially address the engagement problem, or outsource the cognitive
load to outside experts who can produce reports that would form the basis of decisions.62

Lack of flexibility
The inflexibility of smart contracts can make it hard to reverse decisions. Also rigid governancestructure and potentially lengthy voting processes can make it difficult and time-consuming to
respond to crisis situations. This leaves the organization vulnerable; for example, requiringconsensus to fix a bug could leave a malicious agent enough time to exploit the vulnerability inthe code in a potentially terminal way. There are no straightforward answers to this. However,slow and small iterative growth cycles could help.
Another flexibility issue exists in various features of the voting structure. The autonomous
aspect of voting is attractive because the execution is extremely difficult to interfere with.63 Oncethe parameters for voting are set, the code is executed upon voting; the votes are cast; theresults are transparent; the funds are allocated. However, many voting systems (especially the
DAO builder pre-sets) are predicated on a pass-fail system with nothing in between, which lacks
the flexibility of negotiation and does not allow for multiple solutions.64 This can be partiallysolved by introducing more nuance into the voting system - multiple ranked options, forexample, or a gauge for level of interest, or a facility for commenting. Increasingly, voting does
not necessarily have to happen on-chain with the emergence of systems such as Snapshot,
which includes some of the aforementioned features. Even non-automated decentralized
57

Sims, A., 2020. Blockchain and decentralised autonomous organisations (DAOs): the evolution ofcompanies? New Zealand Universities Law Review 423-458.
58
Chohan, U.W., 2017. The decentralized autonomous organization and governance issues. Available at
SSRN 3082055.
59
El Faqir et al. 2021.
60
The Problems of DAO Governance: GLF22 Survey Results (2022).
https://glf.digital/fa5a954c2cfd429ba60122cc3ac3189e61
DeepFunding blog. 2022.
62
ibid.
63
Sims, A., 2020.
64
Rachmany,G. & Houwen, M. 2018. So You’ve Got a DAO…: Management for the 21st Century. DAO
Leadership: Luxembourg.
14

decision-making could serve if there was enough transparency to provide the required level oftrust. Decision-making tools have been designed to optimize decisions between multiple parties,
such as the Swarm AI platform. 65

Lack of coordination and clarity
The move from traditional management to automated governance structures can create
ambiguity regarding roles, responsibilities, and accountabilities. It has been observed that taking
away leadership structure does not necessarily mean that power structures do not form; they
are simply ambiguous and opaque - the opposite of the transparency issue that DAOs intend tosolve.66 One level of ambiguity is created by the interaction between anonymous wallets and thetransferability of votes through capital. This is made evident in the comparison of Compoundand Uniswap described above: voting is controlled by a minority, but it is not clear who is
controlling it; only that control is happening. Other forms of ambiguity are created by lack ofclarity around responsibilities and accountabilities, and absence of good coordination that
replaces the management structure. This is explored in greater detail in Section 2. A connectedchallenge is the onboarding process; new contributors can find it hard to know where and how
to contribute or explore other projects.6768 Discord servers, a common means of access for new
contributors, are sometimes inactive or poorly organized, with little help for new users. If theorganization wishes people to join up freely without some kind of formal recruitment process,individuals looking to contribute should be clear on the DAO’s vision, purpose and values; beable to understand the structure of the DAO; how to begin contributing; accountabilities; andcompensation terms and processes - without needing to ask anyone. A clear DAO structure on
the main site and transparent, easy-to-understand process information (as well as
straightforward processes themselves) are essential for maintaining clarity; see for example theIndex Coop Handbook.69

DAO governance is a tool
DAOs are seen as an answer to the power inequities and opacity of traditional organizations
because voting, disbursements of funds, and transactions are all visible and not controlled byany single authority.70 DAOs offer a wide range of tooling and infrastructure for on-chain
governance. However, while there are many types of governance systems and even more indevelopment, they do not necessarily guarantee success, democracy, or even decentralization.
In other words, the DAO governance structure is not the decentralized system - it is a tool that
can help to create a decentralized system. The next section will discuss the challenge of65

Unanimous website. n.d. How does Swarm work? https://unanimous.ai/what-is-si/
DeFi, NFT & Web3 Insights - The Defiant. 2022. Here's Why DAOs Fail; Former SushiSwap CTO
Reflects on Decentralized Orgs. https://www.youtube.com/watch?v=jDZByvCEsWI
67
CabinDAO. n.d. How to DAO 201: Onboarding as Wayfinding
https://creators.mirror.xyz/ggSQQlTSGqJ2_U7HVNjm4f3s98on5EfUyR9rW_z3fw0
68
Tr3butor DAO. 2022. 8 tips for seamless DAO onboarding.
https://mirror.xyz/tr3butor.eth/omHDnKG-AURKKJ01gPOuIFn7dE_MZf6mO4--O6dP8cQ
69
Index Coop. n.d. Index Coop Community Handbook. https://docs.indexcoop.com/
70
Calcaterra, C.J. and Kaal, W.A., 2021. Decentralization. de Gruyter.
66

15

creating true decentralization, which may or may not need blockchain tools depending on thenature of the organization and its goals.

16Section 2: Decentralized Coordination
In order to transition to a decentralized organization, some organizational principles still apply.
No matter who is responsible for making the decisions, critical organizational coordination
processes must continue. These are often lost in DAOs owing to a dilution (or loss) of clear
responsibilities and accountabilities. However, there is also a risk of trying to reinvent the wheel
by creating a complicated decentralized organizational structure, which may simply reproduce a
different form of centralization. Indeed, some DAO designs start to look like traditionalorganizations again once they break into self-governed groups or use representation systems
such as councils or liquid democracies. In order for decentralization to be worth doing, thedecentralized mechanism must function better than the original centralized management
structure.
This section takes an organizational perspective, considering the principles and practice of
coordination that still apply to DAOs, working in conjunction with technical governancemechanisms.

Ostrom’s principles
Ostrom’s principles of governing commons-based peer production71 can form the basis of many
decentralization processes; Rozas et al. have proposed its adoption for thinking throughblockchain-based decentralization.72
1. Clearly defined community boundaries: to define who has rights and privileges within thecommunity, for example, to use certain resources or to perform certain actions on them.
2. Congruence between rules and local conditions: the rules that govern behavior orcommons use in a community should be flexible and based on local conditions that may
change over time. These rules should be intimately associated with the commons, rather
than relying on a “one-size-fits-all” regulation.
3. Collective choice arrangements: to best accomplish congruence (Principle number 2),
people who are affected by these rules should be able to participate in their modification,and the costs of alteration should be kept low.
4. Monitoring: some individuals within the community act as monitors of behavior inaccordance with the rules derived from collective choice arrangements, and they shouldbe accountable to the rest of the community.
5. Graduated sanctions: community members actively monitor and sanction one anotherwhen behavior is found to conflict with community rules. Sanctions against members
who violate the rules are aligned with the perceived severity of the infraction.

71

Ostrom, E., 1990. Governing the commons: The evolution of institutions for collective action.
Cambridge university press.
72
Rozas, D., Tenorio-Fornés, A., Díaz-Molina, S. and Hassan, S., 2021. When Ostrom Meets Blockchain:
exploring the potentials of blockchain for commons governance. Sage Open, 11(1),p.21582440211002526.
17

6. Conflict resolution mechanisms: members of the community should have access to
low-cost spaces to resolve conflicts.
7. Local enforcement of local rules: local jurisdiction to create and enforce rules should berecognized by higher authorities.
8. Multiple layers of nested enterprises: by forming multiple nested layers of organization,communities can address issues that affect resource management differently at both
broader and local levels.
Some DAOs manifest some of these principles; however, often few of them are formalized or
clearly defined in the organization’s processes, or in some cases included at all. This partly
originates in the confusion of coordination with governance. Various organizational functions arelost in DAO formation; monitoring can be slack and intermittent, for instance, or responsibilities
vaguely defined.

Organizational development perspectives
Regardless of whether a formal model is used or some kind of bespoke solution is developed,
some common principles apply. Rachmany and Houwen, in what is effectively a playbook for
DAO leadership, propose that there are a number of key features that need to be present for adecentralized organization to work well: alignment (of values, vision, and outcomes - notnecessarily reasons), honesty and transparency, communication, responsibility, and gooddecision-making.73
It can be helpful to think in terms of macro- and micro-level needs to make critical decisions
about how the organization needs to be structured - including whether it needs to be a DAO atall, or another form of decentralized organization. DAOs are useful for some purposes (financial,transparency, avoiding regulation [for now]) but not for others.74 DAOs often omit the inclusion ofmanagement structures which in traditional organizations work well because they fulfill specificorganization and individual needs (e.g. responsibilities, accountabilities, clear process
definition). There are known problems emerging in DAOs when some form of structure is notapplied, often to do with decision making and responsibilities.75
Every core function that is fulfilled in a hierarchical organization needs to find expression in the
new decentralized organization. These functions are not necessarily just contractual; traditional
hierarchical organizations also satisfy key individual needs outside the terms of the legal
contract.
Organizational (macro) needs can include:●●

Meeting project goals and broader company vision
Developing and growing the utility and value of the organization

73

Rachmany, G. & Houwen, M. 2018.
Rachmany, G. 2020a.
75
ibid.; Messari, 2021. Mainnet 2021: Progressively Decentralized: Building Toward a DAO
https://www.youtube.com/watch?v=_NA3NxTEZGM
74

18

●
●
●
●
●

HR (legal, recruitment, salary/compensation, dispute resolution, etc)
Project fund allocation
Alignment between organization and individuals (vision and values)
Clear processes
Crisis response

Individual (micro) needs can include:●●●●

Psychological needs - role and process clarity; community; psychologicalcontract
Career development needs - moving intra organizationally/between projects andinter-organizationally (e.g. references)
Healthcare and legal
Other support needs (e.g. special needs support): avoiding burnout or
overwhelm, maintaining happiness and health.

Only fund allocation is automatically fulfilled by the DAO structure (and, as the previous section
has argued, democracy and personal power can actually be limited rather than freed by the typeof governance system in place). The other organizational functions require some degree of
coordination through a layer (or multiple layers) of infrastructure. However, these are unevenly
executed among DAOs, sometimes leading to ambiguities around decisions, direction, andpower. Such consequences have the potential to gain in effect as the DAO systems becomelarger and more complex, for example if multiple subDAOs are generated without a strategy.
The challenge is to create a system that devolves power from the central hierarchy toindividuals in the community, but where the effectiveness of projects is not hindered by thegovernance processes, a disproportionate increase in responsibilities or cognitive load, or
critical absences in the project management processes. For example, if someone is disrupting ateam beyond capacity to negotiate or resolve, it is inefficient for the whole community to vote for
their removal. The granularity of such a level of decision making would be extremely
cumbersome and inevitably impact voter engagement. Either the team or an individual within
the team needs to have local power over such local concerns. Consequently, it is necessary todefine which processes the community votes on and, equally importantly, who has responsibility
for all the other processes.

Organizational culture
Organizational culture is the set of collective values of people within an organization.76 So far,we could find no academic research on organizational culture in DAOs; however, it is an
important consideration. The organizational culture is co-created by a variety of elements: theoriginal vision and ethos of the organization (and how well it is communicated and reinforced);
the process elements that govern responsibility, accountability, and support; and the individual
76

Rosemann, M., vom Brocke, J.. 2015. The six core elements of business process management.
InHandbook on Business Process Management 1. Springer, 105–122.
19

values and attitudes of the people - all of which contribute to “the way we do things aroundhere”.77 These are mutually reinforcing, co-created elements; there are no elements thatunidirectionally exert power. There are, however, steps that can be taken at the beginning toensure a strong culture within the environment: alignment of values; good communication
channels; transparency and honesty are all critical ingredients. The organization also needs tobe an environment in which people can feel safe to express opinions and disagree without fearof punishment (formal or social).78 This means that support and communication need to be
active, not passive, but as we have argued in the introduction to this section, manyorganizational functions can become passive in the decentralization process. The potential forthe lack of a “shared mission” and “social fabric” is noted both by authors and those who haveexperienced the consequences themselves in a DAO.7980
In other words, peer support and positive organizational culture cannot be taken for granted - ortheir significance underestimated. It has been noted that in some cases, DAO participants use
funding to put on events, which often have few returns and few mechanisms to hold organizers
accountable for such returns, but are mainly done because they are enjoyable to do so.81 Thissuggests that events have a powerful role in DAOs, perhaps making up for the lack offace-to-face social interaction in day-to-day work life. Possible answers to the psycho-social
element could be to provide local community events and spaces, such as coworking events,
hackathons, local hackerspaces, retreats and so on.82 In terms of returns, it may be desirable toset up accountability mechanisms for the return on investment in a high-cost event thatinterfaces with customers and the global community - or perhaps simply acknowledge thepsychosocial element as intrinsically valuable and have a designated social fund for all kinds ofcommunity-based activity.
Another concern is how the technological parameters of voting and other functional processes
of DAOs can encode certain cultural values. For example, incentives that effectively amount to azero-sum game among token holders will create their own kind of organizational cultures potentially encouraging competition over collaboration, and incentivising exploitation andhacking over participation. Furthermore some incentives (for example those that directly confer
wealth or power) are also arguably not very incentivising to increase participation more widely
than directly benefits the token holder). To harness the power of voting technology, it has beensuggested that reputation systems can turn the zero-sum game into a positive-sum game.83
77

Mukhopadhyay, B.R., and Mukhopadhyay, B.K. (2021). Organisational Culture is “The Way We do
Things Around Here”, North East Colours, Editorial, 15th April
78
Rachmany, G. & Hoewen, M. 2018.
79
Rachmany, G. 2020b. The State of the DAO: Rise, Fall and Rise. Hackernoon.
https://hackernoon.com/the-state-of-the-dao-rise-fall-and-rise-0l8837dk
80
GenesisDAO. 2021. Kate and Livia’s exit notes on Genesis Alpha DAO.
https://docs.google.com/document/d/1yL8SO6GoREm_Rfcx1ygcJdfnNOHKo25JEY-pbam_voM/
81
Rachmany, G. 2020b.
82
Rozas, D. and Huckle, S., 2021. Loosen control without losing control: Formalization anddecentralization within commons‐based peer production. Journal of the Association for Information
Science and Technology, 72(2), pp.204-223.
83
Kaal, W.A., 2021. A Decentralized Autonomous Organization (DAO) of DAOs. Available at SSRN
3799320.
20

Consequently the technological parameters can form a powerful component of theorganizational culture (though not necessarily always in a positive way - see the next section for
the example of Steemit.)

Models of decentralized coordination
There are many examples of decentralized organizational structures. Some are self-organizing
and highly organic, while others reconfigure the structure of the organization to smaller internalhierarchies or domain structures (much like Ostrom’s 8th principle of nested enterprises). Rozasand Huckle identify a spectrum of formalization, ranging from mechanistic to organic, where
highly mechanistic organizations operate with defined rules and roles (and sometimes
hierarchies), whereas highly organic organizations are more free-form.84
On-chain freeform systems are somewhat difficult to pinpoint precisely because they lackdefinable structures; where they exist, they seem to be used for relatively straightforward
purposes. Bitcoin, for instance, is governed by the voting protocol, and developers can join,leave, and decide for themselves where they want to contribute, though there are still
formal(ish) job roles such as core developers and non-development jobs such as marketing. But
two characteristics make such a freeform environment work for Bitcoin. Firstly, Bitcoin has arelatively narrowly-defined purpose, which means that the organization does not have to juggle
multiple functions and jurisdictions. Secondly (though connected to the first point), Bitcoin does
not have to interface with customers because the customer base is also the user and contributor
base of the organization. Another example is Steemit, a decentralized application for blogging,where content creators are rewarded in tokens for their contributions.85 The system is flat,allowing token holders to vote for changes and accumulate tokens by participating on theplatform. However, the purpose of the Steemit system is limited to one function - content
rewards. It has also been criticized for being unequal and creating a plutocracy owing to making
voting power transferable, and to bots that mine for voting power by contributing strategically,
concentrating power in the hands of a few token holders.8687
More complex projects that use on-chain governance systems often use some kind of team or
domain structure. Some organizations have formalized the working group developments
process using domains or pods; these structures can be implemented on- or off-chain. They canbe organized in different ways, such as by function: Synthetix, as part of their progressive
decentralization process, has used several DAOs to handle different functions of theorganization, such as treasury, protocol management, public goods and grants.88 Other domains
could be based on project category or even individual projects, or a mix of all the above.
84

Rozas & Huckle, 2021.
Steem. n.d. https://steem.com/SteemWhitePaper.pdf
86
Guidi, B., Michienzi, A., & Ricci, L.. (2020). Steem Blockchain: Mining the Inner Structure of the Graph.
IEEE Access, 8, 210251–210266. https://doi.org/10.1109/access.2020.3038550
87
Davis. 2018. The Vote Selling Plutocracy on Steem.
https://medium.com/@v7davisa/the-vote-selling-plutocracy-on-steem-how-it-contributes-to-the-disenfranc
hisement-of-low-stake-832a0ca5cf33
88
Messari. 2021.
85

21

DXDAO, for instance, has ‘squads’ that cover different functions (such as marketing andcommunication) and projects (such as individual product development).89 Ethereum Naming
Services (ENS) has four working groups: Meta-Governance, ENS ecosystem (developing theprotocol), Community, and Public Goods (ENS as public good and funding other public goods).90
Current working examples of formal domain based frameworks include Holacracy,91 Metropolis92(formerly Orca Protocol) and Colony,93 though each is differently applied. Holacracy is anadaptable off-chain organizational model, while Metropolis and Colony provide technologicalon-chain infrastructure for decentralized governance.
Metropolis Pods are permissioned working groups linked to a multi-sig wallet, which work with
an NFT.9495 Roles include pod members and a pod manager, which is an administrative role that
does not control day-to-day operations but does control pod permissions. This can be omitted
entirely, with the group taking responsibility for this function, or can be performed by a smart
contract. Pods can act as members of other pods, with the same rights and permissions as pod
members.
Colony is a DAO operating system provider that uses a domain-pegged reputation system toconfer authority to take action, so reputation carries weight in that domain but not others.96
Consequently, it is possible to separate coordination from voting. Colony also operates through“lazy consensus”, which means that votes only happen when there is a conflict; the domains
continue to manage their own processes through the reputation system until there is a problem,
which reduces voting (but also potentially reduces community participation).97 Colony’s
reputation system has also now been integrated with Snapshot off-chain voting.98 dOrg uses a
reputation system in governance, using coordinator roles that provide gateway services toonboard people, but then final say over hires is given to the community.99
Domain-based systems can be helpful in that they can overcome some of the scaling
challenges described in Section 1 by assigning mid- to low-level decisions to the appropriate
89Öberg, L., Almquist, H. 2022. The Use of Management Control in Decentralized Autonomous
Organizations. Linköping University.
https://www.diva-portal.org/smash/get/diva2:1690452/FULLTEXT01.pdf
90
Ethereum Naming Services Documentation. n.d.
https://docs.ens.domains/v/governance/governance-proposals/term-0/ep4-social-proposal-creation-of-fou
ndational-working-groups-and-working-group-rules
91
Robertson, B.J. 2015. Holacracy: The revolutionary management system that abolishes hierarchy.
Penguin UK.
92
Metropolis website. n.d. https://www.metropolis.space/
93
Colony website. n.d. https://colony.io/
94
Metropolis website. n.d.
95
Metropolis documents. n.d. https://docs.metropolis.space/docs/pod-basics/pod-basics
96
Colony blog. n.d. The Colony Reputation System.
https://blog.colony.io/the-colony-reputation-system-5616293c3949/
97
Griffing, J. 2022. Colony.io's "Lazy Consensus"
https://mirror.xyz/jasongriffing.eth/gERdgYkZ1LfbEBGbHQ8tIprjjaGhX9VqaPuLDzETe1A
98
Nelson. 2021. Defi Tool Snapshot Now Using Colony to Rebalance Voting.
https://decrypt.co/85171/defi-tool-snapshot-using-colony-rebalance-power-dao-voting
99
dOrg member handbook. n.d. https://docs.dorg.tech/22

groups. However, there are a couple of challenges associated with this, too. One is that bycreating gated systems, it opens the way to diminished transparency and centralisation, and it
would be important to ensure that there was sufficient information flow from and clear
responsibilities for each group. It has also been noted that communication between domains in
DAOs is sometimes fragmented,100 so a clear plan for communication between domains andinterfacing with the broader community would be essential.
The Holacracy model is a non-blockchain-based means of self-organizing. It uses a nested
structure where teams are organized into ‘circles’ and ‘roles’, and in which an individual canhave multiple roles.101 The system is constitution-based and consequently can be applied
somewhat rigidly, with potential for overload of individuals who may end up having too many
overlapping role responsibilities. However, it is inherently customisable, and there are tools in itthat can be used independently of implementing the full Holacracy infrastructure - many ofwhich are useful but not unique to Holacracy (such as keeping discussions about work content
and process separate).102 Its high level of formalization could make it adaptable for a DAO, assome of the DAO builders and tools are oriented towards a pod structure already. Indeed,
LeapDAO has integrated a Colony reputation system with Holacracy.103 Circles or teams
manage their own multi-sig wallet with individual budgets (as with Metropolis), with work done
through bounties.
The cooperative model can be another helpful way of thinking about decentralization because it
provides an alternative perspective on governance and coordination, which in DAOs can besomewhat technically focused. They offer a “time-tested toolbox for creating robust sharedownership through legally defensible means: bylaws, operating agreements, and IP ownership,in addition to clearly defined rights, responsibilities, and lines of accountability”.104 Furthermore,as non-profit organizations with (generally) clear ethos and vision, they also create strong,
supportive organizational cultures,105 which could be helpful to point the way towards developing
strong value-based cultures in DAOs. Some online cooperatives exist, and some are evenhybridized with DAOs. The Distributed Cooperative Organization (DisCO) is a cooperative
framework that uses blockchain technologies but positions itself partly as a counterculture to
DAOs, seeing itself as a removal from capitalist systems. Contributors are not volunteers but
compensated, though the organizations themselves are non-profit, moving towards a

100

Stanford Law School. 2022.
Robertson, B.J. 2015; Schell, S. & Bischof, N. (2022) Change the way of working. Ways into
self‐organization with the use of Holacracy: An empirical investigation. European management review. 19(1), 123–137.
102
Nixon. 2017. Good Holacracy, Bad Holacracy. Maptio blog.
https://blog.maptio.com/good-holacracy-bad-holacracy-678a0001fffb
103
Bitnewbot. 2018. LeapDAO’s Friendly Frankenstein: DAO Meets Holacracy Edition.
https://bitnewsbot.com/leapdaos-friendly-frankenstein-dao-meets-holacracy-edition/
104
Robey, A. 2022. What Co-ops and DAOs can learn from each other.
https://www.fwb.help/wip/what-co-ops-and-daos-can-learn-from-each-other105
Walden, J. 2019. Past, Present, Future: From Coops to Cryptonetworks.
https://jessewalden.com/past-present-future-from-co-ops-to-cryptonetworks/
10123

post-growth model.106 The DisCO goal - by its manifesto - is the development ofcommons-based resources and actions.107 As the DisCO movement is still quite small, projects
are limited. One pilot project is Laneras,108 which works with local communities to preserve
knowledge of weaving practices in western Spain and pass on that knowledge to local
inhabitants.
Similarly, it can also be useful to look to other off-chain decentralized organizations such as
Drupal,109 an open-source web development community, to see how decentralized systems canfunction organically without blockchain governance structures (to strip out conceptually any
ambiguities created by governance). In Drupal, tasks are variable in their levels offormalization.110 For example, high complexity, more technical tasks are more formalized withclear accountabilities and responsibilities, while social tasks (such as event-organizing) aretaken on in a ‘do-ocracy’, in which people self-assign to tasks.111112
A final example of decentralization, but one that is useful to consider for DAOs, is the Teal
system (which is more like an orientation).113 Laloux proposes that consciousness has moved
through developmental stages over the course of human evolution, and assigns different colors
to each stage. Teal represents what he perceives as a new paradigm, a stage that ischaracterized by: “taming the fears of the ego”; “inner rightness as compass”; “building onstrengths”; “dealing gracefully with adversity”; “wisdom beyond rationality”; “striving forwholeness” (with self, nature, and others). People who belong to this new paradigm, hesuggests, create new kinds of organizations. The author researched a number of firms that
represent this new type of organization, and discerned three fundamental paradigmatic shifts:
moving to self-management in structures and processes; striving for wholeness in generalpractices and in HR processes; and listening to evolutionary purpose (that is, to what theorganization wants to become, not what to make it).114

106

Guerilla Media Colllective Wiki. n.d.
https://wiki.guerrillamediacollective.org/Distributed_Cooperative_Organization_(DisCO)_Governance_Mo
del_V_3.0#Open_Value_Cooperativism_and_Distributed_Cooperative_Organizations
107
Troncoso, S. 2019. Last Night A Distributed Cooperative Organization Saved My Life: A brief
introduction to DisCOs.
https://hackernoon.com/last-night-a-distributed-cooperative-organization-saved-my-life-a-brief-introduction-to-discos-4u5cv2zmn
108
DisCO website. n.d. https://disco.coop/labs/laneras/
109
https://www.drupal.org
110
Rozas & Huckle, 2021.
111
ibid.
112
Rozas, D. 2017. Self-organisation in Commons-Based Peer Production. University of Surrey.
https://openresearch.surrey.ac.uk/view/pdfCoverPage?instCode=44SUR_INST&filePid=13140381440002
346&download=true
113
Laloux, F. 2014. Reinventing organizations. A guide to creating organizations inspired by thenext stage of human consciousness. Nelson Parker, Millis.
114
ibid.
24

In terms of Teal’s application, Laloux suggests Holacracy as a pre-developed system for neworganizations, but also provides guidelines for those who prefer to develop their own system.
Guidance focuses on fostering the wholeness, self-management, and purpose that characterize
the new organizational paradigm. Such practices include promoting the independence ofcommunity members to make decisions and resolve their own conflicts (by putting goodpractices in place - not abandoning them to their own devices). They include keeping a finger on
the pulse on the purpose of the organization, where anyone can tune in to their sense ofwholeness for the organization. They include creating conscious meeting practices and safe
spaces for anyone to communicate, and deep, connected recruitment practices.115 Thus, theTeal system is more an organic set of principles that are sometimes formalized in a more
focused fashion, depending on the organization.

Design phases
The following phases express the order in which decisions need to be made in order to avoid
accumulating problems at a later stage.

Organizational layer-

Identify the purpose of the DAO and future directions (overall vision and goals)
Identify level of complexity needed in order to express the purpose
Identify main needs of the organization
Outline vital organizational functions
Define (collectively) which decisions should be made by which parts of the community;
permissions (if applicable)
Define the starting structures and processes (including flexibility for future direction;accountability; responsibility; conflict resolution etc)
Design communication channels
Design reflective mechanisms

Technical implementation-

Decide on a deployment type (see Section 1)
Choose a voting method that best articulates the organizational needs
Define token functionalities
Identify most appropriate blockchain(s) for purpose

Evaluation-

115

Set periodic milestones at which evaluations will be made by the community of whether
the system is working or not, and how to grow and optimize.

ibid.
25

Conclusion
Running decentralized organizations on blockchain technology using smart contracts can be a good
way to overcome regulatory difficulties, unnecessary bureaucracy, and streamline certain kinds ofdecisions by providing more direct access to funds. However, organizations can run into problems
owing to the limitations of smart contracts and the omission of crucial organizational functions suchas clear responsibilities and mechanisms for accountability. This can lead to in-fighting, process androle ambiguity, inefficiency, and potentially derail the purpose of decentralizing. Therefore, two layersof decentralization need to be addressed in the design phase, with enough flexibility to change: thetechnical layer and the coordination layer. The overall design, and the type and level ofdecentralization, need to be guided by the goals of the organization. Some designs are suitable forsome purposes but not others, and their effectiveness is heavily influenced by complexity, culture,
and attention to processes.

Future researchThis report has only scratched the surface of some of the topics around decentralization and
DAOs. More research would be useful to investigate different aspects of successful DAOs, forexample governance, community, recruitment and onboarding. In-depth qualitative or
mixed-methods research would be useful to discover the experiences of people who work indecentralized systems, both as contributors and as part of governance processes. This would
give a better understanding of common problems, successes, and solutions in coordinating
DAOs and DOs. Some research on DAOs from an organizational development perspective
would also be helpful to more fully understand the functions and processes that need to be
migrated into DAO form.

Recommendations for SingularityNET
As we have suggested throughout this paper, the design and development of DAOs vary according
to function. The most straightforward systems are suitable for simpler, single purpose organizations,while organizations that are, or expect to be of greater complexity may need more elaborate systems
to fulfill their needs. SingularityNET, as a relatively complex ecosystem already, requires planning on
both technical governance and organizational levels to unify and develop towards an increasing levelof decentralization. It has the advantage of already having a lot of practical infrastructure, but also
the added complexity of multiple actors working in the community with different priorities.
One way of beginning the progressive decentralization process is to separate the practicalinfrastructure from the central funding system and split the parent organization into different
functions, shrinking their dominance in the ecosystem. So for example, SNET treasury could
become the community treasury, allocated by member voting through a governance mechanism,
while the practical infrastructure becomes a pod with its own multi-sig wallet, and the open SNET
projects also devolve into pods.

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The main recommendations of this paper are:
1. Move through the decision phases described in the previous section.
2. Consult with experts to benefit from their experience. More research can be conductedparticularly with DAO creators who work within complex ecosystems, or nonblockchain-based decentralized organizations to better understand their dynamics. Outside
experts who offer consulting on organizational change are helpful for ensuring the smoothtransition to a DAO.
3. Design how people should be able to contribute: permissioned domain system, freeform
self-assignment, or hybrid. Design a coherent, transparent, and clear onboarding andprocess. A ‘buddy system’ for new contributors could be considered. The communication
system should have an overarching logic and coherence that spans the whole range ofcommunity activity.
4. Focus strongly on community building and consistent integration of all subunits of theecosystem. The above can become part of a community/social/culture unit: partially or wholly
responsible for process clarity, up to date information about the ecosystem and clarity ofrelationships within ecosystem; growing the ecosystem, recruiting, but also useful for
maintaining social cohesion through events, chats and so on. Eventually this could extend togeographically located groups if the ecosystem becomes large enough and help thecommunity cohesion through local hackerspaces, events, retreats, and so on. They can also
keep their finger on the pulse of the community; whether people are happy, offer a career
guidance service, keep communications open between teams, keep an eye on onboarding
systems and so on. This could be shared between a practical HR unit and a social unit, or it
could be kept separate, but the interests of the individual should be advocated for as well asprotecting and cultivating the organization as a whole. The community is the heart of theorganization, so understanding what is happening in the community will be paramount.
5. Start decentralization on a small scale, governing a smaller subset of the entire organizationand focus on topics that are straightforward and easy to understand, and only expand stepby step as processes have proven themselves.
6. Ensure that you are not walking into a dead-end street from which you cannot escape. So
until your organization and processes are sufficiently matured, try to avoid rules baked insmart contracts that can not/hardly be changed; far-reaching decisions based on large-scalevotes that will make any tweaks and changes afterwards very hard; layers of stakeholders
with established rights and perks and revenues that resist change; being completelydependent on centralized tooling that offers little control. In other words, at this early stage,
design for flexibility and adaptability.

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