Re-Thinking DAOs as an Evolution of Coops

There is no doubt that most DAOs from the cohort that mushroomed during the 2020-2022 period are floundering, or being very loosely successful.

Yet, some pundits continue to profess a type of analysis that obscures instead of enlightens. Machiavelli for DAOs: Designing Effective Decentralized Governance struck me as a very unrealistic opinion about how to design decentralized governance by espousing Machiavellian principles.

One of the biggest problems is when we see DAOs as a lever to eliminate the need for human management. This is a naive and misguided assumption. No organization can run on autopilot, and DAOs are no exception. Even when you inject the strong community component that is always part of DAOs, communities also need to be managed with human intellect. In fact, DAOs can be even more difficult to manage than traditional organizations, due to their decentralized nature and the diversity of their shot-gun stakeholders.

We need to stop trying to force decentralized organizations as a panacea for something that doesn’t need it. And we need to be realistic about what’s viable.

There is validity in rethinking the way we design and implement DAOs towards more simplicity, not complexity. We need to move away from the idea of DAOs as completely autonomous organizations, and instead think of using DAO constructs as a complement that espouses the novelties of blockchain and cryptocurrency. Maybe DAOs are meant to be a complement to something else but not an entirely standalone thing.

I don’t mean that we need to throw the whole concept away. There are some very good embedded ideas, at the high levels:

1. Decentralization is a good anti-single point of failure.
2. Automation with embedded smart contracts does bring operational efficiency.
3. Community/user voices with decision-making influence have their benefits.
4. Giving back parts of the economic gains to participants that contributed to wealth creation is the right thing to do.

The “autonomous” part in the DAO vocabulary is perhaps the most misleading, misguided, and certainly the weakest part of the equation.

Management by committee, delegation, or populist votes is a terrible idea. Conflating blockchain consensus mechanisms with human decision-making is blasphemy against human intelligence and decades of sound management practices.

Voting on decisions, when you have an economic or ideological stake, is not a bad idea, even if it’s only a directional vote that could influence a future decision, but thinking that this is sufficient for running organizations or projects is a naive assumption.

On the regulatory side, being “autonomous” doesn’t absolve an organization (or its instigators) from the rule of law as set by governments or regulatory authorities.

Maybe DAOs could be applied when there is predictable repeatability, no issues, no surprises, and when a given system is stable. These difficult simultaneous conditions narrow DAO’s applicability field tremendously.

The cooperative (Coop) corporate business model is the closest to the DAO concept. I think the industry should work more diligently to extend and adapt the Coop model instead of trying to push DAOs as we know them today.

‍Platform cooperatism is a concept that was recently introduced. It is described as “businesses that sell goods or services primarily through a website, mobile app, or protocol.”

This article, ‘Staking’ Identities: Looking at the Practicalities of Transforming DAOs Into Co-ops looks at the similarities between DAOs and Platform Cooperatives.

We can draw a lot of inspiration from the cooperative Coop model. At their core, coops are businesses that are owned and democratically controlled by their members. That happens to be the primary goal of DAOs, which is why the match is worth exploring seriously.

By combining the best of DAOs and the best of coops, we can create a new type of organization that is democratic, equitable, and resilient.

Source - William Mougayar