Flip to DAO: decentralize your project with a Community Contribution Opportunity (CCO)
A plan for turning a centralized project into a decentralized, community-led, sustainable dApp via "Community Contribution Opportunity"
DAOs are a powerful new tool for human coordination. More DAOs are popping up, and they are trying to solve all kinds of problems. But, a DAO is also an interesting option for existing companies. The following is our guide for “flipping” your existing project or company into a sustainable, decentralized, DAO-led dApp.
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What is a DAO?
A DAO is a “decentralized autonomous organization.” That’s a fancy way of saying it’s a group of people who have decided to pool resources into a smart contract and then use some sort of decision-making mechanism (usually voting) for allocating those resources. In structure, A DAO is pretty similar to existing organizations like limited liability companies and cooperatives. In ethos, they look like holocracies and flat organizations. DAOs differ from these organizations by virtue of the fact that the organization’s resources are stored in a smart contract on the blockchain and access to those resources is determined by the rules of that (or another) smart contract, hence the “decentralized” and “autonomous.” Over the past few years, we’ve seen DAOs emerge as preferred structures for managing grant giving and investments in the Ethereum ecosystem. We’ve also seen a growing number of projects or products that are managed via a DAO.
Seeing projects and products being DAO managed is an exciting evolution because this path stands at stark contrast to the more traditional VC backed startup models, which tend to be highly centralized and much more hierarchical by nature. The most exciting contrast between DAOs and traditional companies, however, is the ability for DAOs to truly live the ethos of stakeholder capitalism by including the builders, funders, and users all in the governance of the product. The first part of this article will focus on how currently centralized projects or product teams can transition to a DAO structure with an eye towards sustainability for that project or product.
What is a CCO?
A CCO is a term we’ve come up with to describe the process of a community forming a DAO around a particular project / product in order to support its ongoing development or survival as a community owned resource. CCO stands for “Community Contribution Opportunity.” A CCO is different from an ICO or DAICO, because it’s all about community and the contributions don’t have to take the form of money or ETH. The end result of a CCO is a product managed by a community rather than a small team and their investors.
ICOs (and DAICOs to a lesser extent) were pretty highly centralized exercises. Investors in the ICO boom invested in product teams building new protocols and technology, but usually had little-to-no say in the project or even rights equivalent to those usually granted to stockholders in a traditional corporation. It might have been a founder’s dream–money with few strings–but resulted in a lot of disappointment and a fair amount of fraud.
Traditional VC funding comes with different issues like having a class of shareholders with special rights and incentives that might not align with the product team or, especially, the users. In the usuals VCs’ portfolio approach they expect a few investments to rapidly scale and exit and most to falter, which doesn’t necessarily lead to optimal outcomes for teams or users. Our thesis is that CCOs can be a better fit for a lot of early-stage teams with a growing community aligned around their products. That’s why the second part of this article will focus on the mechanics / process of launching your own CCO, especially if you’re an existing product team.
Preparing to Flip
We expect that most project / products that are right for a CCO will be early-stage products with an alpha or beta that already has some traction. Ideally, the project / product won’t have raised much money from outside sources, or, alternatively, have crypto-friendly investors who are committed to decentralization)–the greater number of people on a cap table, the greater possibility of someone not accepting the CCO plans. Whether your community already has a token or not doesn’t matter a ton, but you will likely need the flexibility to issue a token for governance purposes to those who participate in the CCO.
Once you’ve decided flipping into a DAO might be the right path, there are a few things you should do to prepare for this process and a few important questions you should ask.
Let’s start with the important questions to ask:
Do you have enough of a well developed community to sustain the project or product after it’s taken over by the DAO? For a CCO to work you need a community that will take advantage of the contribution opportunity. This doesn’t mean having a bunch of whales ready to contribute crypto, but having community members ready to commit the resources you need for the project to continue whether that’s $ETH or $DAI or personal tokens representing work like $ALEX or $RCLE.
Is your whole community onboard with your plans? Going decentralized is a big decision to make that will affect your relationship with the project, as well as that of any employees, investors, and current users. You need to make sure these groups are largely supportive of the move.
Is the founding team ready? This is more a matter of emotional readiness. You’re about to give a lot of power to your users and others to decide its future–that can be hard as a founder or small team who are used to setting the vision and strategy on their own.
When you and the rest of the community is ready, it’s time to start preparations for flipping into a DAO. Every project / product will have a slightly different path, but in general we recommend:
Open source your technology, which includes making repos public, switching to open-source licenses, and trying to move to open-source and free tools wherever possible.
Collect keys, passwords, etc. and prepare them to be owned and controlled by a DAO. This doesn’t mean you should expose any secret keys, etc., just that they should be accessible to the DAO.
Make sure your current haus is in order when it comes to cap table, corporate approvals, etc. for making this move–ie probably talk to your lawyer.
Once you’ve made these preparations, it’s time to move on to the process of further decentralizing your product.
The Flippin’ Process
The CCO / DAOification process will differ from project to project. Below are some suggestions and lessons we’ve taken from DAOhaus moving from a project supported by a small team in their spare time and through hackathons to a project supported by a CCO and managed via DAO.
The first part of flipping your project into a DAO is to go through the CCO process. The end goal of the CCO is to gather resources from your community to support ongoing development and maintenance, while distributing governance to a wider group of people via a DAO. Basically a CCO will follow these steps:
The existing product team will work with the community to collect commitments from those community members to provide the resources needed to sustain and grow the product over the next phase of its life.
The product team (or ideally community) will set up a DAO where the CCO resources are deposited (i.e. funding tokens, personal tokens, etc.) in exchange for voting or non-voting shares.
As the CCO resources are expended by the product team (with the CCO DAO’s approval), the tokens contributed as part of the CCO (“CCO tokens”) will be replaced in the DAO by the product token.
Once the DAO has spent all of the CCO tokens and is full of the product tokens, all of the members of the CCO DAO will ragequit their shares and recieve their product tokens.
A new DAO will be set up (again, ideally, by the community) where product token holders will stake their product tokens in exchange for voting shares. This DAO will control the future of the product.
With DAOhaus the CCO process is taking the form of a 6 mon. gradual progression from a pretty decentralized team of contributors to a fully decentralized community governed via a to-be-formed DAO called UberHAUS. More info on the DAOhaus CCO process is here. We expect, however, that each CCO will take a slightly different path depending on the current state of the community and product.
When planning out your CCO process, it’s worth thinking about the following decisions:
Will the CCO DAO or Governance DAO have a legal wrapper? There is a lot greater certainty when adding a legal wrapper to your DAO(s), but the legal entities will need to figure out taxes, whether it will have employees (or only contractors), and, of course, any applicable securities laws. Depending on the current legal status of your product / project, it might be worth setting up your DAOs as LLCs or cooperatives to better navigate legal risks like transferring IP and other assets from one legal entity to another.
Will the DAOs give the same governance rights to all contributors? With DAOhaus, we decided that people actively working on development tasks would get voting shares and all others would get non-voting shares, though can still exercise governance rights via ragequit. We also decided that only other DAOs could join UberHAUS, while individuals could participate through non-binding advisory votes.
How will this new DAO deal with long-term sustainability? This may involve doing future CCOs via the main governance DAO, figuring out how the DAO can monetize the project, or using product tokens as a rewards currency to incentivize further support.
Again, these decisions will largely depend on factors like the current stage of the product and the size of the community. The nice thing is that, after flipping into a DAO, it won’t be your decision to make alone, you’ll have an entire community that’s incentivized to support and champion the product.
If you have further questions or think a CCO is right for you, the DAOhaus team is more than willing to talk to you about this process and help guide you through the technical pieces of pulling off your own flip into a DAO.
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