TL:DR: At the latest Governance Geeks Gathering, a group of DAO governance operators and experts from various major DAOs came together to discuss 2024’s top governance challenges. This post summarizes the process and outcomes from the workshop.
The Radworks Governance Committee recently started hosting Governance Geeks Gatherings during various Ethereum conferences, the first having taken place during ETHDenver 2023. Governance Geeks Gatherings are intimate gatherings that bring together high-context, DAO governance experts and operators to discuss challenges, share ideas for solutions and resources, and identify potential collaborations.
At the latest Governance Geeks Gathering during Devconnect Istanbul in November, we ran a workshop focused on capturing the challenges, concerns, and initiatives that governance facilitators and designers have top of mind going into 2024. Participants included governance operators from MakerDAO, Safe, Aragon, Radworks and others. There was also submission from Uniswap although they were unable to attend the event live. This workshop had these key deliverables:
Identify: Map out governance governance challenges and initiatives we’re currently grappling with.
Define: Select a few key challenges and define - in great detail - the context needed to understand these challenges.
Specify: Specify parameters and context needed for solution formation.
Share: Produce a summary post that showcases workshop results.
Documenting the workshop results publicly is meant to provide the broader DAO ecosystem, governance participants, and DAO service/tooling providers a glimpse into thought processes of how governance operators are approaching these challenges. This insight enables a better understanding of areas where support and participation are required.
Skip to the workshop template at the bottom of this post if you want to try it yourself!
For the first part of the workshop, the participants were prompted with the following questions. We took about 10 minutes to brainstorm individually on post-it notes.
In your experience as a governance operator:
- What are the biggest issues with DAO governance today? What shortcomings stand out the most?
- What worries you about the general state of DAO governance today?
- What governance challenges are you currently trying to solve within your own organization?
- What governance initiatives have you scoped for the coming year within your organization?
We then took about 30 minutes for everyone to share their responses. We worked together to group them into categories. The final groupings can be found in this Miro board.
Below is a summary of the main challenges the group identified and discussed during this portion of the workshop:
- Need for clear shared purpose: We noticed that many of the challenges or groups of challenges stemmed from the lack of a clear shared purpose/vision for the DAO. Not having a clear shared purpose can lead to:
- Inability to design effective governance & incentive mechanisms
- Lower transparency on roles, responsibilities and strategy alignment
- Difficulties finding “DAO/Product fit” (see Challenge 2 outlined below)
- Poor process for off-loading work to the community
- Finding DAO/Product Fit: Without alignment between the DAO and its related product, both the product and DAO are distorted and their momentum collapses. To nurture this alignment, DAO leaders need to gain and maintain better clarity on the DAO’s mandate and relationship to the product.
- Designing for accountability: Designing adequate accountability mechanisms that both engage contributors while also providing the necessary checks and balances around decision making is still a challenge. You first need to clearly understand the roles and responsibilities of different participants, which are not always well defined or tend to be very subjective and dynamic over time.
- Lack of shared resources & documentation: There is a need for more shared documentation and research between DAOs to avoid double-work & wasted resources. This can be challenging given how different each DAO is, but certain resources could benefit from having experts from different DAOs contributing to them or at least co-funding the creation of them.
- Testing tooling remains difficult: Testing and experimentation with new DAO tools or mechanisms remains difficult as the cost of onboarding just for an experiment remains too high for unknown benefits/community satisfaction.
- Regulatory uncertainty as a limiting factor for design & participation: Lack of legal and regulatory clarity around various aspects of DAO participation and operations often act as a limiting factor in imagining what really could be possible in decentralized governance. It also remains a blocker for many folks from participating in governance at all in some cases for fear of unknown ramifications.
- Capturing community insights: There is a need for better community/stakeholder analysis tools and services (e.g. ways to get better insights into how motives/incentives differ between different stakeholders). Better community insights = more evidence to signal how we should be designing governance mechanisms.
- Communicating proposal needs: DAO contributors tend to have the best context to know what proposals and input for the community is needed, however there is not always an easy way for contributors to communicate these needs to the community. There is a need for better ways for DAO contributors to communicate proposal needs (RFPs) to the community.
After the challenge mapping was complete, three challenge topics were chosen and the participants broke up into 3 groups. We used the rest of the time going through a “Problem Definition & Solution Specification” exercise.
The goal here was to work together in small groups to come up with a) a detailed definition of the problem with necessary parameters/constraints that should be considered and b) list specifications and necessary context needed to start formulating solutions on that topic and propose some rough ideas for solutions. The goal was not necessarily to find THE solution to these challenges, but to define the problem & conditions so that, we as a group of governance contributors and the DAO industry as whole, can all have the right context needed to understand and form better solutions for these challenges together.
Each group was asked to summarize their discussions from this portion of the workshop. Below are summaries of their discussions provided by each of the groups.
Many projects strive for a purpose/mission-aligned governance system - but the understanding of a shared “purpose” is often not clear to everyone within an organization. A clearly defined purpose acts as a north-star for governance coordination, development strategy and sustainability goals in a DAO. Having a clearly defined purpose allows different teams/sub-DAOs better coordinate their own strategies and initiatives to align with the shared DAO purpose. It also helps sub-DAOs better understand their relationship with the DAO, as well as expectations regarding funding and broader support in the short- & long-term. Not having a clear purpose to rally around can cause confusion and chaos around decision-making in good and bad times. The longer a DAO goes without having a clearly defined purpose, the more it risks introducing new systems that can introduce (inhibitory, non-intentional) constraints or other issues with governance in the long run.
Curating a shared purpose can be difficult given the complexity of DAO structure and roles. Identifying who should lead this work or what stakeholders should be involved in its creation is tricky and will likely look different for each DAO. Founders often don’t want to take on this responsibility, although they have the best context. Trying to include the broader community in this process is important but strenuous given the sheer coordination effort needed to collect input from different stakeholders and boil them down into a single paragraph or sentence.
Highlights of the solution specifications we discussed:
- Before starting on purpose formation, make sure the “purpose of the purpose” is clear. A purpose acts as a North-star for organizations and codifies what the project believes in and what it is trying to accomplish.
- Assign responsibility of ownership within the project of who is leading this work to avoid it being forgotten or delayed due to a “tragedy of the commons” situation. The selection of leadership here could be done on a volunteer or election basis, for example.
- Community involvement is crucial in both the creation and ratification of the purpose to give the purpose legitimacy. In the creation process, this could mean posting a survey to the community to capture how a purpose is currently defined/interpreted or running stakeholder interviews with active contributors from different stakeholder groups for input or feedback on a purpose draft).
- The final purpose statement should be ratified by the community (e.g. via off-chain consensus vote). This solidifies the legitimacy of the stated purpose.
- Having a third party facilitator can be very helpful. Radworks went through a purpose definition process earlier this year with the help of Apiary, an external team that advises teams on building better systems for collective, decentralized decision-making. They facilitated the community research, initial drafting of a shared purpose with the founding team, gathering and incorporation of community feedback and finally the ratification of the process. They also found that stakeholders gave much more candid and honest answers when speaking to a third party.
- Once the purpose is clear, distributing the narrative of the DAO’s purpose has to be consistent within as well as outside of the organization. It will take time and consistency in messaging.
DAOs need to create alignment across a variety of variables: with their purpose – as we saw in the previous section – and with other factors such as their ecosystem and their community. Importantly, a DAO needs to align with the business and products it supports and is supported by. Without alignment between the DAO and its related product, both the product and DAO are distorted and their momentum collapses.
How can we create alignment between a DAO and the product? How can we ensure the DAO and the product support each other and compound value together instead of individually? And related, how can we prevent DAOs and products from preventing each other’s success?
During the gathering, operators pointed out how DAOs serve different purposes alongside their founding organization. Some are go-to-market engines focused on growth, retention, or regulatory risk management. Other DAOs are coupled and embedded into the product itself. Alignment must be considered alongside the defined purpose of the DAO. In the same way that a go-to-market strategy must have alignment with the ideal customer profile of a product, a DAO should seek to service the right community and compound the value proposition of the business it is entangled with. To create alignment, let’s first clarify how DAOs sit alongside the Embedded-External DAO Spectrum.
Today, many L2s and web3 applications launch what we might call “External Go-to-Market DAOs.” These aim to solve the cold-start problem by jumpstarting network growth with direct financial incentives, facilitated through speculation. These DAOs reward early adopters with voice, vote, and veto powers. Then, these DAOs progressively reward ongoing participation as a mechanism for retention. External GTM DAOs are decoupled from the product; they exist often in the service of a foundation, or with products that allocate a portion of revenue to a group treasury. External GTM DAOs are formed by product users, developers, advocates, and partnerships.
In contrast, “Embedded DAOs” are those where power and governance are within the product itself. Bitcoin and Ethereum illustrate the purist embedded model; the DAO is the product. In both cases, protocol operators are the primary DAO participants. While a product could technically survive without an External GTM DAO (although less likely to thrive) the removal of the Embedded DAO would mean the dissolution of the product. In short, Embedded DAOs are powered by the same infrastructure of a product’s technology — they are formed by miners, sequencers, validators, and operators.
DAOs often sit somewhere along the spectrum from Embedded to External GTM DAOs. From our experience, web3 teams often launch an initial External GTM DAO and seek to transition the DAO into an Embedded one, as they decentralize the product. For example, a web3 application might launch a foundation, allocate funds to a treasury, and then distribute points via an ERC20 token. Then, tokens can only be “mined” by running a node for the application or composing with it. This encourages initial users and advocates to secure the application’s network and contribute to its path to decentralization. The trick is to maintain design-purpose alignment during this transition process.
Founders and leaders need to gain and maintain clarity on your DAO’s mandate and relationship to the product. Otherwise, issues will undoubtedly arise from the increasing misalignment. Downstream symptoms of misalignment include a diversity of tactical headaches: noise, lack of accountability, scammers, governance confusion, etc. One common source of misalignment example includes launching an External GTM DAO that attracts the wrong product users (e.g. speculators), but then failing to convert speculators into product users and long-term advocates. Avoiding misalignment is non-trivial; it often requires avoiding lucrative short-term temptations and promoting intentional participation churn.
Founders and organizations should seek DAO-Product Alignment by asking:
- Is the “DAO” (and its community) a go-to-market strategy? If so, is its goal growth, retention, or regulatory protection?
- How will the “DAO” (and its infrastructure) relate to the product itself now and in the future? Is governance intrinsically part of the product, such as miners in Bitcoin?
- If you launched an External DAO supporting go-to-market, do you plan to transition its mandate from ecosystem growth to product decentralization? If so, how will you make sure you maintain alignment between initial DAO commitments and product needs?
- What metrics are you using to measure the DAOs success? Are they in alignment to its purpose? How should those metrics change as you change the purpose of your DAO?
Design an engagement process optimized for accountability, in order to ensure a return on investment from contributor expenses.
Managing accountability is a tricky task. Often, the agreements with teams who contribute work are not clear or well-followed. To tackle this, we need to think about what exactly we want these contributors to be responsible for. Is it about their overall goals, or specific tasks they need to complete? Also, we need to decide who will set these expectations, who will check if the work is being done right, and how we’ll make sure people stick to their commitments.
One big challenge is how to use payments or rewards to encourage people to be accountable. We need to find the right balance - enough reward to motivate people, but not so much that it’s wasteful. Deciding who gets to say how much reward is given can be complex. It’s also important to make sure that while we’re keeping an eye on different teams or individuals, we don’t end up repeating the same work or missing out on some important tasks.
Since DAOs can’t usually use legal actions to enforce rules, they often use payments as a way to make sure people do what they agreed to. But, teams often need some money upfront to start their work. The challenge here is to make sure the DAO doesn’t take too much risk, while also offering fair terms to the people doing the work.
A good solution is to use a system where payments are made based on reaching certain milestones or completing specific parts of the work. This makes it easier to keep track of who is doing what and if they’re doing it right. Having standard formats for project proposals, updates, and listing what needs to be done can help a lot. Also, having a central place, like a dashboard, where all this information can be seen and managed makes things clearer and simpler.
It’s important to have a common way of talking about and measuring accountability. This helps everyone understand what’s expected and makes things more open and efficient. Often, we don’t spend enough time figuring out what methods are working and why. Understanding why something was successful or not can help improve how things are done in the future.
The process for checking if work meets the standards should be straightforward and not too complicated. The information we ask for or collect should have a clear purpose. We should also regularly check if the work aligns with the overall goals and strategy of the DAO. This approach helps in making sure the DAO’s resources are used wisely and effectively.
Recognizing that some actors within the DAO may face liquidity challenges, unable to afford the upfront capital required for their operations, there could be a provision for a new kind of service provider. This entity (Operational Collateral Fund?) could evaluate the risk associated with these actors. Based on this assessment, the fund could provide the necessary upfront capital. This solution would enable smaller or less financially robust contributors to participate actively in the DAO, ensuring a more inclusive and diverse ecosystem. The establishment of such a fund would require careful planning and risk assessment but could significantly enhance the operational capabilities and reach of the DAO.
Shout out and huge thanks to all of the Governance Geeks who participated in the workshop and put together these summaries!
We invite others to continue the exercise or add their thoughts in response to this post using the following template! Choose one of the challenges from our mapping or come up with your own and run through the exercise. The hope is that this post can host a collection of knowledge and insights on how to understand and tackle governance challenges in 2024 and onwards!
Step 1: Problem Definition
Define the problem in your own words:
Try answering some of the following questions:
- How urgent is this problem?
- How “big” of a problem is it? (within your organization vs industry-wide)
- Why does this problem exist? What is the source of this problem?
- What market or industry conditions have contributed to the problem?
- Who is this problem affecting?
- Who is contributing to the problem?
Step 2: Solution Specification
- List some constraint to consider when thinking of solutions to your chosen problem:
- What knowledge/expertise is required to form solutions for this problem?
- What information or resources are missing?
- Who should be involved in forming solutions?
- Does this have to be a custom solution for each DAO, or is a blanket solution/tool possible?
- Why is it important to solve this problem?
- Take a minute to think about potential solutions for this problem. Try to answer the following questions:
- Are there any examples of existing solutions to this problem? If yes, why are they/are they not working?
- Do you have any ideas for solutions you could share?
- If you don’t have a clear vision of a solution for this problem, try going through a “I like, I wish,I wonder” exercise to better understand your vision for what a solution would look like.