“Ultimate freedom is not the freedom to create or accumulate value, but the freedom to decide (collectively or individually) what it is that makes life worth living.”
David Graeber, Toward an Anthropological Theory of Value
In Part 1 of this series, I outlined the evolving structure of DAOs and the DAO landscape. In Part 2, I present what I see the role and primary purpose of DAOs becoming: the creation of long-term social value.
I have previously explained how actions and objects become meaningful—i.e. valuable—to humans through their incorporation into larger a social system. I stated, “When measuring an object’s value, not only do we try to determine what others might be willing to exchange for it, but we consider what others agree it is worth within a social context.”
Web3 technology—including blockchain and digital tokens—provides a way to connect individuals based on what we own and value. This new digital socioeconomic environment will facilitate the efficient, large-scale aggregation of people’s perceptions of worth, decreasing our dependence on money and prices as an information system and precipitating the preeminence of social value over financial value. Through open participation, shared ownership, and democratic governance, a DAO-based crypto economy will more effectively pursue the objectives that people collectively decide is valuable, rather than those objectives dictated by relative prices.
In this essay, I first describe the primary role of DAOs, as operations are increasingly managed by autonomous subDAOs. Second, I propose how DAOs will aggregate and actuate individual beliefs of value through novel onboarding, governance, and token distribution processes. I explain how—through more granular, diverse representations of value—DAOs will help reverse the abstraction of value imposed by the market price system and promote those ends that benefit a larger number of people. Lastly, I lay out how social value-based decision making will come to pervade the DAO economy and imbue itself in the ecosystem’s culture—an idea that steers us towards the final part of this series.
What Role Will a DAO Play?
This question arises as autonomous subDAOs begin to take on the majority of a DAO’s day-to-day operations. In Part 1, I proposed that individual subDAOs will manage ongoing “objective” decision making—such as assigning collateralization ratios to financial products, or directing the design of NFT-based credentials. Objective decisions will come with “right” or “wrong” outcomes as measured against KPIs—such as credit pool utilization rate, or active user growth. I stated, “The larger DAO, comprised of all token-holding members, will manage more subjective decision making, such as enacting a DAO-wide mission and approving subDAO inDAOments” (i.e. the introduction of new subDAOs). And rather than quantitative KPIs serving as performance standards, the DAO will direct—and be directed—by a mission, or constitution, which all members will enact.
An effective mission will communicate a relatively stagnant purpose—preferably ossified in policy—in order to provide stable social and cultural expectations for a DAO’s members (both existing and prospective), counterparties, and subDAOs. The community will then use the mission to determine the creation and funding of individual subDAOs, as well as the accompanying metrics of success. As a result, the subjective, qualitative outcomes of DAO-wide democratic—albeit infrequent—governance processes will align the objective, KPI-driven decision making of all subDAOs. The mission will further guide treasury resource allocation and token distribution, thereby influencing the incentives required for DAO participation and advancing the values endorsed by the community.
Despite its importance, establishing a mission remains one of the most often mishandled DAO initiatives. For example, the case of MakerDAO illustrates how one of the biggest, oldest, and most battle-tested DeFi protocols can still fail to establish a singular mission. The resultant governance tensions recently roiled the community’s vision of MakerDAO—fueling ongoing disagreements about whether the DAO should act like a profit-seeking organization, central bank, or public-good provider—and incited disagreements about what Maker’s main product, the stablecoin DAI, should even be. Accordingly, a mission that reflects a DAO’s collective values will remain one of a DAO’s most important responsibilities, in order to focus investment activities and establish a DAO-wide identity. Building on such a foundation, DAOs will operate according to communal perceptions of value and work towards social value creation.
Information Aggregation and the Creation of Social Value
Social value—derived from broader sociological values—is centered around consensus and rooted in conceptions of what is ultimately good or desirable in life. Simply put, social value is created when people agree that a certain end is a net positive for their lives, and as a result, invest time or resources in realizing it. Crucially, social value is formed within a broad context, as specific objectives assume meaning and value based on the desires of others and the effects on a larger social whole. This context—David Graeber's “imagined audience”—attaches a normative quality to value, making social value reflective of not only what people want, but what they ought to want, and thus, influencing the choices that people make.
For DAOs, social value-based decision making will include capturing the totality of a community’s beliefs and leveraging that information to direct the DAO towards the most value-added activities. This process will begin at onboarding and proceed through DAO governance and token distribution.
In addition to providing fair access and diverse communities, more robust DAO onboarding processes will aggregate information about the objectives that hold the greatest worth to new and existing participants. Novel DAO governance systems will also be devised in order to be able to capture the necessary breadth and nuance of this information. An existing tool that facilitates these aims is jokeDAO's contest product, self-described as “bottom-up, on-chain governance for communities to submit entries and vote on favorites.” Instead of centralized teams imposing proposals and priorities on DAO communities—a process no different than those of traditional hierarchical systems—communities of token holders autonomously create proposals and establish priorities. Not only does this structure enable DAO members to then vote on their own ideas, but it also elucidates preferences regarding those ideas. Rather than the governance process ending in “yes” or “no” vote on a single proposal, multiple proposals are simultaneously ranked. The resultant intra-DAO disagreement—and inevitable conflict—will further sort the objectives worthy of investment, enabling the community's collective perceptions of value to more directly influence DAO-wide initiatives.
Token distribution—a mechanism desperately in need of reevaluation—is another tool DAOs will leverage to build long-term social value. Today, projects frequently airdrop tokens to reward users. While this has proven effective at generating initial hype, most airdrops have become a net negative by attracting parasitic users who contribute nothing except downward pressure on token price. Instead, the goal of DAO founders will be to get tokens into the hands of the right people, rewarding those who will contribute value to the DAO. In the future, successful DAOs will distribute their tokens according to a community’s dynamic perceptions of value—value that shifts according to the needs of the DAO and the trends of the competitive landscape. A recent article from Zee Prime Capital stated, “You as the protocol owner exert greater influence in shaping the behaviour you feel most optimal for your ecosystem.” Through more intentional token-based incentive structures, DAOs will promote the objectives they value most—that is, the objectives that carry the greatest social value for the project. Through this lens, token distribution will not be about rewarding those users who add to protocol revenue, but rather those individuals who contribute to a project in the ways deemed most valuable by the community. Put another way, the future of DAOs will feature ownership that is generated based on the social value of an individual’s contributions, rather than the financial value of their investments.
Reversing Value Abstraction
By aggregating and actualizing communal perceptions of value, tokens acquire a new definition: transferable digital objects that carry the rights to influence and own the underlying social value created by a DAO. Tokens are easily monetized, translating this social value into financial value more directly than ever before. But even more importantly, additional benefits—beyond those of monetary origin—can be attached to tokens and realized by buying, earning, and holding them. These benefits include: governance power, access permission, reputation, and membership, among others. This diverse value potential—as opposed to that of traditional financial assets, such as bonds and equities—will enable DAOs to leverage different forms of motivation when incentivizing participant behaviors. Combining token-based incentives and democratic governance processes, DAOs will help reverse the abstraction of value imposed by money and the price system and promote more efficient long-term resource allocation.
In this way, DAOs and tokens represent an alternative solution to Hayek’s problem of incomplete knowledge, meaning they will establish an economic order that ensures the best use of resources “for ends whose relative importance only individuals of society know.” Hayek realized that economic problems always arise in consequence of change, and proposed the price system as a decentralized mechanism for communicating the information required subsequent action. Instead, globally distributed DAOs self-governed by their owners (i.e. token holders) will better reveal those ends that maximize social value, thereby ensuring resources are distributed to the activities deemed most important by the relevant participants.
While I am not suggesting we replace money and the price system with tokenized claims (which may be a subject for a separate essay), DAO tokens will reverse some of the abstraction and homogenization of value inflicted by the institution of market prices. The innovation of digital tokens—and the rest of the Web3 technology stack—creates the potential for novel, bespoke incentive structures. Multicoin’s Tushar Jain writes, “These incentive structures can be finely tuned to facilitate large-scale coordination to achieve specific goals.” Rather than resorting to capitalism’s lowest common denominator of profit maximization—which will inevitably be the goal of some actors—DAOs will use tokens to incentivize behaviors that participants believe will create the most value for the DAO. And using the different types of value that tokens can embody, DAOs will be able to design incentive structures that more align with the desired outcomes. For example, when building a social network, a DAO can distribute tokens that represent status in the network, thus promoting the select activities that accrue positive reputation. Tokens will then reflect the social value created by a DAO—growing in value as the project grows in value—and begin to detach individual goals from purely financial motives.
The shaping of our social context is a continual process to which we all contribute. As we obfuscate our actions behind abstractions such as money, we often overlook the influence we have on the production and reproduction of society. By inscribing our actions to a singular measure of value—which then becomes the focus of all our desires—we lose track of the actual holistic value (both positive and negative) we contribute to our world. By introducing more granular, diverse ways to represent, communicate, and transfer value, DAOs will more effectively define social objectives and more efficiently direct resources to collectively-defined ends—a new version of Hayek’s decentralized information system. Ultimately, DAOs will increase human awareness of the total value of our actions, thereby reinstating human agency in the conscious production of our society.
Conclusion
Today, the activities of corporations and capital allocators are dictated by highly centralized, homogenous groups, leading to unequal power structures, stagnating economic development, and unaddressed existential risks. The future of DAOs will feature diverse input from a broad base of participants making high-level, subjective decisions that are guided by an overarching mission and executed by focused subDAOs. Further, tokens will provide incentives to build upon collectively-determined objectives, collapsing the barrier between altruism and self-interest. Some communities have already proven that they can put projects ahead of profits, and social value ahead of financial value. In 2021, two DeFi protocols, Alchemix and Compound, suffered bugs that distributed extra funds to users. In both cases, due to social pressures and communal interests, many of the funds were returned.
Through more open and democratic decision making, as well as innovative technology, DAOs will aggregate communal beliefs of value at an unprecedented scale. And while they will often involve monetary aims, social value-oriented objectives decided upon by the community will underlie all DAO investment decisions. This way, DAOs will be better suited to address the problems and opportunities of tomorrow, producing outcomes that benefit a larger number of people.
The examples of Alchemix and Compound also illustrate how DAOs, and the decisions their participants make, contribute to an emerging ethos of the DAO ecosystem. As atomic units of Web3 governance, DAOs perpetuate their beliefs and values through their decisions and activities—through their mission, metagovernance participation, project funding, and even memes. Thus, the social context of DAOs will be reflexively produced in-and-by the values and objectives of individual DAOs. As Kim Stanley Robinson wrote in Red Mars: “Organism and environment change together in a reciprocal arrangement, as they are two manifestations of an ecology, two parts of a whole.” In the end, the pursuit of social value will constitute the process through which DAO activities are coordinated and define the culture of the crypto economy. DAOs will be created and grow as a “side effect” of the maximization of social value, which will accrue to DAOs and individual participants as cultural capital—the subject of the next essay and final part of this series.