[VenturePunk #4] You're DAOing Me Crazy
If you’ve spent time in web3, you’ll agree each month spent in the space is like a year in any other industry. I’m not sure it’s been articulated this exact way, but it’s the best wording I’ve been able to find. The pace of things is too fast to think anything otherwise. What happened this year alone with Luna, 3AC, Celsius, Voyager, Genesis, BlockFi, and FTX are decades worth of fall outs. For us, it was a Tuesday. All that to say, after having spent the past year working in DAOs, I feel like a seasoned veteran. And while I wouldn’t go so far as calling myself an expert, I’ve had my fair share of time to understand the pros and cons of working with and in them. When it comes to coverage of DAOs what we often find in crypto media is blanket praise, and because of that I will instead focus on some of the major issues I’ve encountered thus far.
Before I begin - a bit about my DAO background - I’m a Partnerships and Fundraising Lead at Gitcoin and a contributor to social DAO, Friends With Benefits (FWB). At Gitcoin, we’ve deployed over $72 million in grant funding to open source developers over the past few years using quadratic funding, a mechanism that allows democratic capital allocation by getting the community to vote with their dollars. The experiment has been successful since many of the top web3 projects such as Uniswap, Yearn Finance, Dune Analytics, and Optimism were grantees at one point. Because of my role, I get to work with decision makers at many of the popular DAOs, and have spoken at length with them about DAOs and where we go from here.
When it comes to issues in DAOs, let’s start with the elephant in the room: taxes.
We all know taxes are the only thing guaranteed in life, other than death. And on that note, understanding how to pay the right amount for your taxes, even when you want to, is a nightmare. Partly because there’s no way to be an expert in taxes, when the laws are gray at best, in an industry where things are rapidly changing. This is setting people up for some serious trouble later on. I’ve personally seen so many contributors who didn’t handle their taxes correctly and had to face bankruptcy, despite having been in a position where they were making almost $500,000 per year. If we don’t address the taxes issue soon, I can see this industry, as a whole, losing a ton of talent.
Next, I’d say governance is a major issue that’s not talked about with honesty. Go to any Snapshot vote - what you’re going to find is majority of the proposals either pass, or get rejected, with 99% votes one way or the other. Are we really working in a place with fair and legitimate voting if there’s almost no contention? Maybe people just don’t care to vote like the rest of the world, which is my personal hunch, but we’re doing a poor job at enabling intelligent voters right now.
To counter myself a bit, I will say I’ve heard things in NounsDAO work differently- with proper voter turnout and disagreements in whether proposals pass. But to be entirely fair, there’s only a few hundred voters there. On top of that, everyone who bought one of those NFTs spent serious money, so it’s not surprising they want to be very involved in how things like a treasury are spent.
An aspect of this space that’s also been mind numbing for me is hiring talent. This is something that’s getting better with time, but it’s extremely difficult to find people who’ve done real business in the regular world and who also happen to have a deep knowledge of web3. This leaves you in a position of having a much bigger pool of people who may have the skills, but are completely unaware of the web3 ecosystem. Your other option is to go for web3 native young people, who don’t yet know that you’re supposed to answer an email in a prompt manner- which is a different headache in itself. Of course, these are extreme examples, but if you really step back, the majority of hiring is being done with these very divergent candidates.
What I say next may sound like heresy to some of you but there’s serious truth to it. How are we supposed to go about having organizational principles if we don’t believe in any sort of hierarchy? I understand the need for not creating excess forms of it, but the reality is zero hierarchy just tends to lead to massive inefficiencies across the board. And whether or not DAOs are saying it out loud, they’re starting to set up hierarchies anyway. What’s most dangerous here is that if we don’t set up clear hierarchies, unclear ones will develop anyway. We all know the feeling of seeing what seems like a clique in this space, and if you can’t break in you’re essentially screwed. But on paper, there’s no centralization at all, so what can you do?
Also, please tell me if I’m the only one here, but communication hasn’t been figured out in DAOs - at least not in a way that is actually scalable. All we’ve heard about for the past two years are how DAO tooling companies are raising money, but where are they in practice? I’d love for some tools to streamline multiple aspects of what we need to do instead of app switching. Can we agree Discord is a hot mess? The amount of notifications we all get- they aren’t an amount a normal human brain can handle. Add to that needing to be on Twitter, Telegram, email, and potentially a few other platforms, to get just the messaging part handled. You’re sitting in what's a future burnout scenario for a lot of people. My personal experiences with this led me to put my phone on Do Not Disturb at all times of day. It’s not that I won’t get to the notifications, but I simply can’t have my phone buzzing all the time. It was driving me insane.
One of the more boring things to follow in this space, despite its importance, is legal compliance. It’s also extremely difficult because even the most well-paid people in this space, who are supposed to know everything, will admit it’s a mess. The crypto-regulatory environment leaves everyone working in DAOs in a strange place. This past September, there were some things passed by the CFTC that gave personal liability to voters of DAOs. Without even going to these extremes of facing personal liability though, there’s not even a simple understanding of being an actual employee in a DAO- from a legal standpoint. There aren’t any 1099 or W2 contracts at DAOs, and it’s even more confusing when contributors are in different countries. It’s problematic from a protection standpoint for both employer and employee. Selfishly, I really want this problem fixed by someone.
Finally, this last piece is one I’ve honestly found to be the most difficult overall: there are no contributor protections and nothing is standardized across DAOs. How does doing something like taking maternity leave work when you’re at a DAO ? That’s enough of a problem in well established organizations across the United States, let alone DAOs and in web3. Even simpler things like taking paid time off or sick days is a strange thing to figure out. Another thing I think about a lot is how most DAOs are analogous to working in startups, but where is the startup equity to be long-term incentivized? I touched on this earlier but the idea of simple contracts doesn't exist either. Why be in a position where you have all the downsides of a startup, but none of the upsides? And how’s this work if we’re looking to expand this space as a whole?
Look, I’ll be the first to say this, this likely is not the most exhaustive list of issues that DAOs face. They’re just issues I’ve personally dealt with since I’ve been spending the majority of my time on them. And it’s also not to say there aren’t solutions being developed to each of these issues. But, if we aren’t the ones being self-critical and starting conversations to improve things - then we can’t be upset when people from outside our space point out what’s wrong in it. Changing things in any space requires having upfront uncomfortable conversations. And as someone who truly loves web3, I’m willing to have the uncomfortable conversations, to help lead us to a place where the core issues get solved simply because I don’t want others in the future to deal with them. Don’t you agree?
About the author: Azeem Khan is a Fundraising & Partnerships Lead at Gitcoin. He has been working at the intersection of culture, entertainment, and blockchain since 2013.
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Disclaimer: Not financial or tax advice. This newsletter is strictly educational and is not intended to be investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Do your own research.