I am equally hopeful and bullish for the introduction of DAO framework in how companies make both their day to day and eventually most important decisions. Rooted in code, DAO framework is an exciting and objective way of conducting a fair, open and efficient governance. Ranging from small decisions to big changes, almost every big decision can be formulated in the shape of a DAO code, and more importantly tracked and studied over time to find inefficiencies. This prospect would be especially interesting to many organizations. Whether it is equity/debt raises, launching in new markets, product surveys, commercial transactions, discussions about setting company cultures or even writing the company charter, such decisions can be truly democratized with the help of thoughtful code. More importantly, stored on chain in its true form, it ensures that history is never lost in translation, creating a single source of truth.

While promising, it will be important to have a systematic way of managing the charter code, one that is both inclusive and reflective of the company’s progress with time, while allowing flexible propagation of decisions.

I have studied some interesting DAO templates in the market such as Aragon, Aave, Compound, Syndicate and Graph Protocol to name a few, which I believe each can cater to a specific niche. However, in the longer run, I believe each company will need a code charter in line with their evolving mission. All aspects, from access to communication, compensation, governance and treasury management can be automated via DAOs and housed on chain.

Tokens are an excellent means of building a vested community and an army of idea propagation agents. With the right tokenomics, such decisions will not only be more efficient but more resilient and inclusive.

DAOs will only be truly democratized, if the distribution is carried out carefully and if they are rooted in sound game theory principles which prohibit malicious intent. For example, if a DAO is held majority by institutional investors, it may not yield equitable results in decisions, which will naturally be bent towards the greatest token holder’s viewpoint. Secondly, it may only need a small majority share in holdings to influence big decisions, in scenarios where participants are not encouraged to stake regularly. So, such things need to be considered in the genesis phase of such code bases and tackled to align incentives without compromising on security, scalability or decentralization aspects.

Well-executed tokenomics can have meaningful implications for product offering and community building, both on the upside and downside. Each public token offering will see a significant number of value extractors or mercenaries. If the token distribution is easy to game, value extractors will find a way to maximize the number of tokens they earn, before dumping the tokens en-masse, which can really hurt credibility. Tokens spent on such users will have a negative benefit as the project would not connect with real product evangelists and organic growth will suffer.

Some effective ways that I have seen which counter this and build sustainable offerings are:

– Vested rewards: Implementing a vesting schedule has helped in identifying and locking in users with high conviction and high NPS. On the contrary, a vesting schedule helps stave away mercenary capital.
– Retroactive Airdrops – Retroactive airdrops have been used effectively with a vested schedule by protocols like Uniswap to discourage withdrawal of liquidity.
– Volume weighted distributions – is another technique that allows to build token stability and fends off sybil farming attacks. While one should consider that with a volume weighted strategy, big whales tend to benefit more than a regular user, therefore such impacts should be considered.
– A cashback system** could also be implemented to cover a portion of the transaction fees paid by a user over time.
– Considerations around inflationary or deflationary coin mechanism to balance supply and demand and drive adoption
– Considerations between POS and POW offerings – Both situations can have negative implications that encourage centralized behavior. Each application should be studied carefully to decide on the correct voting structure.