A Beginner’s Guide To Understanding DAO Governance Models

DAOs are a new and evolving way of structuring organizations. These are organizations built on rules codified as computer programs that are usually transparent, managed by the organizational stakeholders, and uninfluenced by any central authority. Different DAO governance models exist, each with its advantages and drawbacks.

Which governance model is best for your DAO depends on several factors, including the size and complexity of the organization, the number of stakeholders, and the level of trust and transparency required. This blog will examine the most common DAO governance models and explain how they work.



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What is DAO Governance?

A DAO’s governance model is the system by which it makes decisions. This could be as simple as a democratic vote or as complex as a multi-stage decision-making process involving input from various stakeholders.

A few key things to remember regarding DAO governance models:

  • First, the governance model should be designed to reflect the organization’s values and goals.
  • Second, ensuring that everyone with a stake in the DAO has a say in its run is important.
  • Third, the governance model should be fair and transparent so everyone knows what’s going on and why decisions are being made.

Types of DAOs

Types of DAOs

Depending on the exact requirements that you have in your mind for your DAO, there are different types of DAOs available.

  • Operating system DAOs

The first type of DAO is an operating system DAO. This type of DAO is the foundation for all other DAOs and is responsible for creating, managing, and executing smart contracts. Operating system DAOs can be used to create any type of DAO, so they’re a great way to get started with decentralized governance.

  • Protocol DAOs

Protocol-based DAOs are the most common type responsible for the organization’s day-to-day operations. Protocol DAOs are responsible for developing the underlying protocol governing the blockchain network. An alternative to protocol DAOs is Application DAOs, which focus on creating decentralized applications.

  • Investment DAOs

There are different investment DAOs, but the most common is the pooled investment DAO. This is where members pool their funds together and then use them to invest in various assets.

Another type of investment DAO is the diversified investment DAO. This is similar to the pooled investment DAO, but instead of investing in various assets, members invest in several different DAOs. This provides members with greater diversity and reduces the risk of investing in a single decentralized autonomous organization.

  • Media DAOs

Translated literally, a media DAO is simply a decentralized autonomous organization focused on the media industry. These are platforms where content creators can collaborate to create content, collaborate on projects, and share ideas.

One of the benefits of a media DAO is that it helps to cut out the middleman. With traditional media organizations, the power lies in a few people who control what content gets shared and how it’s presented. But with a media DAO, the power is distributed evenly among different community members. This helps to create a more democratic system where everyone has a voice.

  • Collector DAOs

Collector DAOs are organizations that collect different types of data. For example, they might collect data from social media or form surveys. Then they utilize data to decide about investment or product development.

The great thing about Collector DAOs is that they’re completely transparent. Everyone who participates has access to the data that’s being collected, and everyone has a say in how it’s used. This is a big contrast to traditional centralized organizations, where the data is often kept hidden from the public.

  • Social DAOs

The idea behind a social DAO is to give people a voice and a say in how the organization is run. Everyone gets an equal vote, and decisions are made through consensus. This type of DAO is perfect for projects that need to be collaborative, like developing new software or creating a new product.

Because social DAOs are so community-focused, they can often be more successful than traditional businesses. Community members feel like they’re a part of something bigger and are more likely to stick around and help out.

  • Grants DAOs

Among the few different types of DAOs, one of them is grant DAO. This DAO distributes grants to other DAOs. The idea is that funding other DAOs supports the decentralization of the ecosystem as a whole. Plus, it’s a great way to spread your risk by diversifying your investment portfolio. There are different grant DAOs, but my favorite is grants.io. They have a robust system that makes applying for grants easier.

Each type of DAO has its weaknesses and strength. For example, protocol DAOs are good at creating new protocols but could be better at handling day-to-day operations. Whereas governance DAOs are good at managing day-to-day operations, they could be better at innovating new protocols. It’s important to become familiar with different DAOs to choose the best suited for your needs.

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Different types of DAO Governance Models

The main thing here is “Governance.” Imagine what would happen if decentralized organizations were also operated in an ungoverned way. There would be no way to order the anarchy ensuing, and the DAO would eventually fail.

The governance models listed below are the most commonly employed for forming DAOs. It should be noted that governance models are dynamic, and numerous new ones may evolve due to changing requirements.

  • ConstitutionDAO

A ConstitutionDAO is a document that sets out the rules and regulations for how the DAO operates. It can include voting, admitting new members, and what happens if someone breaks the rules. This type of governance model is popular because it provides stability and certainty for the DAO’s members. Everyone knows what’s expected of them, and there’s no ambiguity about how decisions are made.

  • Ethereum Name Service DAO

The Ethereum Name Service DAO is a great example of how things can work when a clear and concise governing body is in place. The ENS DAO manages the .eth domain name system and uses a voting system to make decisions. This means anyone who holds ETH can vote on proposals; the more ETH you hold, the more votes you get.

The ENS governance model has been quite successful for DAO insinuations and has been used for some excellent choices that have benefitted DAO communities.

  • Friends with Benefits DAO

Friends-with-benefits governance model. Yes, this exists. This is where the DAO is run by a core group of people who are friends or have a business relationship with each other. They make all the decisions together and share the profits equally.

This type of governance is great for small DAOs because it’s easy to get everyone on the same page. But it can also be problematic if someone in the core group decides to go rogue or if there’s a personality clash.

  • JuiceboxDAO

JuiceboxDAO is a great example of a decentralized autonomous organization that uses a merit-based voting system. This means that the members of the DAO get rewards for their value addition. 

This governance model is ideal for organizations looking to reward their members for their contributions. It also ensures that only the most qualified members make decisions for the DAO.

Why does it Matter?

But why does it matter? 

Well, it matters cause…good governance is essential for a successful organization formation, be it centralized or decentralized.

Think about it. If you don’t have a governance model in place? Or when someone tries to exploit the system? Chaos ensues, and the DAO falls apart. That’s why it’s so important to have a governance model that sets out the rules and procedures for how the DAO will operate.

So what makes for a good governance model? For years, experts have debated this question, and no single answer fits all cases. Some key principles are essential for any good DAO governance model. These include transparency, accountability, fairness, and consensus-building.

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How to choose the right DAO Governance Model for your needs 

So, you’re thinking of starting a DAO. Great! But before you do, you must decide on the right governance model for your needs. Here’s a guide to help you choose the right model for your DAO.

  • The first thing to consider is the size of your DAO. How many members will it have? This will help you determine the complexity required for your governance model.
  • Next, consider the decision-making process. What type of voting system will you use? Will it be based on one person, one vote, or something else?
  • Also, think about how you’ll handle conflict resolution. Will a committee handle disputes, or will the voting majority handle them?
  • Finally, consider how often you’ll need to update your governance model. Some models are more complex than other DAOs and may require more frequent updates.

Once you’ve understood enough to answer these questions, you’ll be able to choose the right governance model for your DAO.

Conclusion

We hope you now better understand the different types of DAO governance models and how they work. Decide on the model based on what would be best for your organization. Whichever governance model you choose, research it fully and understand the implications of adopting it before making it your final choice. With careful planning, your DAO can run smoothly and effectively for years to come.

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