Building and Running a DAO: Why Governance Matters - a16z crypto

Yield farming Governance tokens could be distributed to users instead of developers and investors. Through yield farming, users receive tokens representing ownership for lending, borrowing, staking, or asset liquidity. Protocol owners can sell it in addition to accumulating it and hoping it will increase in value. If major banks gave you a small sh... See more

Ways to run a DAO “How can our community accomplish these three tasks?” As DAOs mature, a growing ecosystem of companies and protocols aim to ease the load on DAO members by automating asset and parameter selection and monitoring. DAOs can reduce complexity and allocate resources more efficiently. Here are some steps they can take:

Cultural DAOs and Gaming Guilds Although DeFi protocols have grown exponentially since financial incentives were developed, DAOs with token distribution models independent of usage and participation (unlike DeFi DAOs) are on the rise. I assisted in creating a commemorative video for Uniswap V3 by pplpleasr, née Emily Yang. Several DeFi developers a... See more

Retroactive airdrops New protocols are designed to incentivize users further, such as airdrops to spread awareness, foster ownership, or reward early adopters retroactively. As an example, Uniswap awarded the UNI token retroactively to all users.

Collective asset management DAOs are seeded with some initial capital in the form of governance tokens and assets used to buy governance tokens. The initial treasury of a DAO consists of 500 governance tokens and 100 ETH if it mints 1,000 governance tokens and sells 500 for 100 ETH to genesis members. When a DAO grows in terms of users or cash flow... See more

The three key governance areas Growing DAOs will likely reach the point where their communities demand governance structures for all three key needs. Below, I share a more detailed breakdown of each of them to help builders/protocol developers identify where they will have to put their focus if they want to build a successful DAO.

Risk management To fund future operations, DAOs must manage their currency exposure. Some DeFi and NFT DAOs have treasuries worth hundreds of millions or billions. In addition to funding development and audits, these assets provide insurance if underlying protocols fail and are used for user acquisition and growth. To achieve these goals, DAOs mana... See more

Partition into “subgroups” The first DAO to partition itself successfully was Yearn Finance. Subgroups can operate independently and focus on specific tasks (development, marketing, etc.). With Yearn's growth and constant product evolution, multiple teams needed to independently handle tasks like front-end UX, core protocol development, and marketi... See more

Experiments paved the way for modern DAOs Early DAOs were collective investment vehicles designed to function like decentralized venture funds. Tokens represented voting rights and economic interests in the DAO. Every participant was rewarded on Ethereum for their contribution regardless of their contribution. DAO winter coincided with the bear mar... See more

Growth incentives Compound, an on-chain lending protocol, decentralized itself in June 2020, with its core developers turning over the network's operation and ownership. Community members had control over the protocol's reserve assets generated by borrowers in a Compound Governance DAO. This was (at the time) the highest revenue generated by an on-... See more