Building DAOs as scalable networks

Rowan is a contributor to SuperBenefitDAO and works on scalable models of coordination and fractal DAO governance. Much thanks goes to @Lewwwk & @Philcockfield who contributed important insights to this article. This is the fifth in our series exploring DAOs as networks and is grounded in practical work that SuperBenefit is doing on governance design in web3. Thank you to @rathermercurial and Ananth (@plaintextbread) for their partnership on the designs this article maps.

Designing network economies for autonomous teams to operate in.

Recently many in the web3 community have been refocusing the concept of DAOs. Going from the idea of DAOs being sprawling, unwieldy communities to DAOs ideally being smaller, more pragmatic units of creative innovation that can engage with communities in new and richer ways. This is an attempt to retain a lot of the power and potential of DAOs, but reduce much of the complexity that has been encountered as communities have scaled, and their ability to govern themselves has failed to scale with them.

The problem with this refocusing however, is that we can’t escape the fact that these smaller more functional DAOs still operate inside an existing economic and social context. And this larger context will continue to exert a profound influence on everything that occurs at smaller scales. I think that transforming this larger socio/economic context still remains the fundamental opportunity for web3.

Over the past year at SuperBenefit we have been working on DAO governance design that is focused on redesigning both the small innovation units building in web3 and also the larger networks that they operate inside. The goal is to create DAOs as coherent wholes that are made up of networked smaller nodes formed into complex systems that can scale.

We have been exploring DAO primitives, and have found unique and valuable territory in applying them at network scales. These primitive building blocks can allow the growth of DAOs as autonomous teams of people - working groups, pods, sub-DAOs (we refer to them as “CELLS” for the sake of the metaphor of evolving complex organisms), being coordinated as collectively intelligent purpose driven networks. This embraces the fact that small teams are the fundamental atomic unit of crypto/web3, but places them inside the larger context of purpose driven network economies. You can track this research through this series of articles:

DAOs as systems that can influence systems.

Why is it so important to coordinate at this higher level?

One of the breakthrough concepts of DAOs as community driven networks is that they have the potential to influence whole systems. This is something that is incredibly difficult within our current paradigm of discrete entities (companies and non-profits) operating within the confines of our existing institutions and economic system.

It is becoming widely recognised that changing the big societal systems that drive the dynamics of our world requires multi-modal, multi-disciplinary, multi-scale, multi-national approaches that are intelligent, coordinated and responsive to the emergent nature of the systems they are working in. And these approaches have to be sustained and resourced over long time periods. For instance, think about finding solutions to climate change or income inequality.

DAOs as purpose driven networks have the potential to coordinate vast numbers of smaller teams that can act on many different parts of a system in a way that is coherent, flexible and collectively intelligent, allocating resources in highly effective ways ref.

Hence using the biological term “CELLS” mentioned above. Nature has solved for this complexity problem before, we have design precedent to draw on.

In the design we have been experimenting with; the community holds the overarching purpose of the network and this informs and supports an operating context. Cells, as the operational units of the network, function inside this operating context. Cells can be both highly independent or highly integrated into the structure of the DAO as needed. The overarching community evolves the purpose of the network and tweaks its economics to ensure that the mixture of coordinating and autonomous Cells are incentivised to advance its purpose over a long time horizon ref.

A template for designing purpose driven network economies.

At SuperBenefit we are actively implementing this design approach in several projects including All in For Sport – designing a perpetual funding mechanism for community sports projects globally. We are also working with several large philanthropic funders, partnering to find more sophisticated ways of deploying capital across complex problem spaces at global scale. With all of these projects we are implementing aspects of the following designs for building community driven governance for scaling network economies.

Our core design revolves around a two house governance system that splits governance across three different scales:

  1. Governance at the community scale, to safeguard the integrity of the network and keep it oriented towards its purpose.

  2. Governance at the operational scale, to leverage many of the highly effective mechanisms that have driven business to be such an effective tool for creating breakthrough innovation and scaling it to the world.

  3. Governance at the team scale, to ensure as many decisions as possible are made by autonomous teams operating closest to the reality of the system, and that these signals flow up to inform the larger network.

Here are the broad steps we are experimenting with to create these community driven network economies:

Stage one: Early Catalyst

People come together around an inspired idea or purpose and an opportunity to make it a reality. Start by prioritising permissionless community driven activity to inform and shape the early network. Then build a minimum viable governance structure so that the community can shape and endorse the direction of the evolving network.

  1. Start with a catalytic idea and an open community of people who are inspired to rally around the idea and its purpose. Ideally a diverse group of stakeholders with complementary perspectives, including lived experience of the domains the purpose aims to address.

  2. Permissionless testing of ideas that can be brought to a simple community proposal for community endorsement and support. Turning early conversations into experimental action.

  3. Forming more structured working groups (based on the design of the CELL primitive) to undertake and resource more structured activities, via community proposals.

  4. Recognising contributors with governance authority and resourcing their activities from community treasury if available.

  5. Spinning up basic network governance infrastructure consisting of:

    1. Shared governance state - a shared description of what the network intends and how it will go about achieving its goals. Agreements around how to make proposals, change the structure of the network etc

    2. Proposal voting and tools

    3. Treasury wallet management

Stage two: Establishing a two house structure

Evolving past early decision-making to a scalable governance structure.

As more working groups (Cells) are created, Governance splits into two different houses – Community Governance & Operational Governance.

  1. Community governance - safeguards the purpose of the network

  2. Operational Governance - gives flexibility, autonomy and modern incentive design to produce innovation and scale

Operational governance forms out of Cells (working groups) coordinating in a sociocratic structure. Individual Cells have autonomy over their own actions, but then form coordinating structures with other Cells. These larger structures can derive strategy from feedback loops coming from the smallest scales of the network but also include direction from the network’s larger context (including from “Community Governance”).

Operational governance is also built on an economic model that can incentivise both structured “scaling hierarchies” as well as reward small teams who take risks and innovate to move the network forward in new directions (for example using retroactive public goods funding) ref.

Community governance is made up of Cell contributors, founders, partners (sponsors, funders etc), as well as others that have a stake in the purpose of the network but may not be contributing directly to its operations, for example other mission aligned organisations and networks. This allows community governance to include a broader base of stakeholders, many of whom have no financial stake in the network but are aligned with the purpose that the network is advancing.

Governance participation for Community Governance is managed by non-transferrable tokens/badges ensuring that no one can buy voting rights. It is focused on safeguarding the purpose of the network and slowly evolving and steering it over time, using slower less dramatic governance methods such as conviction voting, optimistic governance, quadratic voting and other yet to be designed mechanisms. It optimistically approves the overall operational budget but doesn’t partake in operational and technical decisions.

Community Governance also forms the back-stop for Operational Governance. Because of its focus on efficiency and effectiveness, Operational Governance has the potential to fail - either through governance capture, concentration/centralisation of power, or in other ways become misaligned with the direction that Community Governance is evolving the network towards (such as its purpose, values and vision). When this happens, Community Governance has a mechanism to step in and require changes from Operational Governance. Its control of the treasury and operational budget approval underpins this authority and ultimately Community Governance can vote to dissolve the network.

In the early examples we are experimenting with, the design requires that if Community Governance votes to withdraw treasury funding from the network the funds in the treasury will automatically be transferred to a US 501c foundation.

Optimised across the three different scales of decentralised organising.

This system leverages mechanisms that derive collective intelligence from the three different scales that a DAO network operates across:

  1. Collaboration scale - Cells operating as high bandwidth small scale collaborative units that can think and move fast and are operating at the grassroots of the system.

  2. Coordination scale - structures of Cells operating together in coordinating systems using sociocratic governance to allocate resources and effectively create and implement strategies for the Cells to execute on (Operational Governance).

  3. Constituency scale - participation of a broader constituency of stakeholders that safeguard and evolve the long-term purpose of the network (Community Governance).

The other important role that this mechanism plays is to create a legally compliant network structure that can allow individuals and organizations to participate in the evolving network without many of the risks that would prohibit most traditional organisations (corporations, non-profits and governments) from participating.

The separation of community and operational governance allows for Community Governance to be wrapped up in a UNA (in the US), or other proto-non-profit structures in other countries. This limits liability for people participating as members of community governance – based on community badging being non-transferrable and carrying no financial ownership in the network.

As long as the requirements of the operating agreement that governs the UNA are met – such as decisions being made via cryptographic voting – this DAO network structure has a huge amount of flexibility to evolve as it experiments with many different approaches at many different leverage points in the systems within which it plays. In time it can then adopt a more formal legal structure as it settle to become a more stable network economy.

Note: jurisdictionally compliant structures will continue to be developed and evolved, but the fundamentals should be implementable within any framework. However, please note, we are early in experimenting with these models and none of this should be considered legal advice.

Fit for purpose governance across all scales.

The big leap here is that this version of a “two house” model can provide the above formal protections without condemning the whole network to becoming a bureaucratic and rigid non-profit structure. This is because Operational Governance has the flexibility to reward contributors in ways that leverage the best tools that capitalism and the business world have to offer – as well as emerging web3 tools. These can be used to provide flexible incentive mechanisms for Cells that align DAO activities with its overarching purpose.

We think that designing DAO governance and tooling around the three different group scales articulated above is the key to leveraging the most effective methods of governance across a network. Community Governance creates and protects the larger context so that Cells can create, innovate, perform and scale in ways that enhance the overall network and its purpose, but without outgrowing the limits of the system or co-opting governance power to capture it.

We are learning as these experiments evolve and are deeply appreciative of the collaborative ethos present in web3. So do reach out if you have feedback, ideas or want to compare notes.

Article Series

Subscribe to SuperBenefit
Receive the latest updates directly to your inbox.
Mint this entry as an NFT to add it to your collection.
This entry has been permanently stored onchain and signed by its creator.