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DAOs unlock the potential of innovative, distributed forms of governance that flatten organizational hierarchies and empower online communities. Discover why DAOs could revolutionize how groups and companies are controlled and how the transparent and immutable nature of the Tezos blockchain is making it possible.
DAOs are open-source, blockchain-based organizations that are governed from the bottom up by members. Community members use governance tokens to cast votes on proposals regarding the activities of the DAO and the use of treasury funds.
Unlike traditional companies, which are created by filing legal documents to a central authority and are controlled by a central leadership team, DAOs are created by deploying code to a public ledger and are controlled by community members.
While undeniably innovative, doing away with boards and bosses can sometimes create a lack of direction. Corresponding self-management frameworks—which establish clear organizational rules through a constitution—offer a way to overcome this issue, such as the holacracy model used by companies such as Zappos.
DAOs function according to rules defined in a smart contract: code that runs on a blockchain. Nobody can alter the code and change the rules of the DAO, except through the voting mechanism, which itself is defined in the smart contract.
The decentralized autonomous organization structure—being code-based and open-source—gives rise to several advantages over traditional ways of governing an organization:
One issue that can arise for DAOs is the possibility of one member, or a small bloc, monopolizing voting power and effectively centralizing leadership. This is a serious consideration for DAOs, but it can be minimized through thoughtful DAO implementation, including well structured tokenomics, appropriate token distribution strategies and the use of secure multi-signature wallets.
Although all decentralized autonomous organizations are blockchain-based and community-governed, there is significant diversity in terms of types of DAOs.
That’s because DAOs can be created for many different purposes, including:
Depending on their goal, DAOs require different structures, tokenomics and rules. Other common forms of DAOs include collector DAOs, entertainment DAOs, social DAOs, and service DAOs. Each has its own tailored structures and rules.
As a blockchain that features highly secure smart contracts, the Tezos blockchain makes sense for teams considering what blockchain to structure their DAO off, as these two interesting examples show.
Projects utilizing decentralized on-chain governance
The Tezos ecosystem’s features support high-value DAOs that govern stablecoin protocols and decentralized exchanges, and Kolibri DAO is a prime example.
Kolibri DAO is the first fully decentralized DAO running on the Tezos blockchain, having launched in July of 2021. It provides fully decentralized governance for the Kolibri algorithmic stablecoin protocol, which was launched in February 2021 and has quickly become one of the leading DeFi projects on the Tezos blockchain, with over US$11 million in total value locked in the protocol at the time of writing.
The launch of the DAO was the final step in the founders’ gradual decentralization plan, “with the goal of ensuring on our way out that no other entity can ever unilaterally control the protocol.”
Handing over control to the community allows users to submit proposals and to vote on proposals using the DAO token, kDAO. The tokenomics of Kolibri DAO initially gave the founders a significant stake in released kDAO and thus powerful voting rights. As the ecosystem has matured, more governance token shares have been released into the community, which now has majority control over decision-making.
The primary way for users to acquire kDAO governance tokens and earn voting rights is to contribute liquidity, which earns them liquidity mining rewards in the form of kDAO.
In addition to being used for governance, some kDAO goes into a community fund to pay for ongoing improvements to the protocol—as voted by the community. Currently, 35% of kDAO tokens are set aside for the community fund.
Another thought-provoking potential application of a DAO on the Tezos blockchain is Reno DAO, which is exploring digitizing the governance of the city of Reno, Nevada.
Reno DAO’s purpose would be to bring financial benefits to citizens by monetizing assets such as public art and real estate. While the DAO is still in an ideation stage, Reno Mayor Hillary Schieve described her vision for the DAO on the TezTalk Radio podcast: “I really want to create a local economy that can benefit all of my citizens… a community of things that we can all own together in our city and be able to monetize that. And look at ways we can really benefit each other in our local economies.”
Schieve envisions conferring voting rights in the DAO through the ownership of a governance token called RenoCoin. Reno DAO collaborator, Theodore Clapp, said the token could initially be distributed equally among citizens of Reno.
“Obviously structured in a much different way, the behavior is similar to buying shares in a company. The more Reno Coin you have, the more ownership of the DAO you have, which would be the Reno economy. That’s why we want to equally drop it to the Reno citizens, so everyone has an equal share of the DAO; of course they can sell it if they want to,” Clapp said.
Clapp believes the Tezos blockchain is an ideal home for Reno DAO primarily due to its scalability, low gas fees, sustainability, and the formal verification of smart contract code which minimizes the risks of serious bugs.
He said another important factor in the decision to use the Tezos blockchain was the availability of resources, tools, and frameworks that ease the creation of DAOs, such as the DAO smart contract framework Homebase.
Homebase: streamlining DAO smart contract creation
The creation and deployment of DAOs has typically required significant technical knowledge and coding skill. However, the Tezos ecosystem now features some powerful tools to significantly reduce the technical barriers users face when seeking to create their own DAO.
Homebase, a web app for the Tezos ecosystem, was developed with the express goal of democratizing DAO creation and making the benefits of decentralized, transparent governance available to any interested parties, be that projects, organizations, or communities.
Essentially, Homebase is a user interface (UI) built on top of BaseDAO, which is a generic smart contract framework that can be used as a base layer for the creation of DAOs on the Tezos blockchain.
What makes Homebase so useful for creating DAOs?
DAO blockchain smart contracts are not simple, but Homebase abstracts away the complexity for the end-user. Rather than needing to know how to code Tezos smart contracts, users can simply interact with the Homebase UI to input information and select options, and Homebase will generate the DAO smart contract code based on the BaseDAO framework.
With Homebase, users can define many of the most important rules in the DAO smart contract, such as the proposal system, quorum thresholds, and parameters of the DAOs governance token.
Homebase Product Manager Gregory Rocco believes the growth of DAOs on the Tezos blockchain will come from two key use cases; decentralized governance of protocols and decentralized governance of public-goods funds.
“On the public-goods side, a DAO becomes an interesting means to allocate funding based on levels of interest in particular goods or services that token holders deem to be worthy. For example, bakers in the Tezos ecosystem can fund a DAO with a percentage of their block rewards and re-allocate that tez towards tooling to better help baking infrastructure,” Rocco said.
“On the decentralized project side, you can effectively remove a centralized team and continue to minimize trust from any core protocol by enabling DAO participants to tweak parameters as a collective body.”
As more Web3 projects emerge and more communities and organizations begin to migrate on-chain, the demand for the kind of decentralized governance offered by DAOs will likely increase. Digital and crypto economies are changing how people work and generate value, so it’s only natural there will be a paradigm shift in how companies operate and engage with stakeholders as well. DAOs may well be the future of corporate governance and accountability.
Tools and frameworks like Homebase and BaseDAO, in addition to features like formal verification of smart contracts, ensures the Tezos blockchain is well-positioned to be able to cater to this demand and provide the functionality needed by the next wave of creators and cutting-edge projects.
