Why decentralized capital flow will release a lot of opportunities for DAO？
We have given a case to prove that DAO is the future of working methods.
We are very convinced of this.
But for the DAO, it is too early for development. Related tools and infrastructure are still scarce. Most DAOs are still fairly centralized. And they are definitely not autonomous.
The good news is that we are making progress. We are learning how to advance DAO together.
If you can imagine, there is still a lot of work to be done-the community needs to migrate to on-chain governance, find better alternatives to token weighted voting, and so on.
But one thing is not really talked about: Decentralization of capital flows.
Most DAOs today rely on a centralized funding committee to allocate funds for their projects. These committees consist of a small number of members, and capital flows depend on them. In short, it is centralized.
Therefore, we need to find a better way to diversify the capital flow of DAO.
By doing this, the DAO can create a more resilient economy. They can multiply the value created by the capital they use. They can empower their contributors to build more sustainable work.
The newest member of the Bankless team, the core contributor to the Bankless DAO and the resident anonymous frogmonke will explain why in this article.
This article will be required reading for all DAO contributors.
DAO as an economic engine
If you stay in the DAO space long enough, then you will start to hear the same conversation like this:
We need to put social consensus on the chain!
We need to stop using token weighted voting!
We need to distribute power from the core founders!
We need [insert decentralization strategy here]!
Although all these views are valid, one thing I rarely hear is the allocation of capital flows.
How can DAO effectively allocate and allocate capital without causing bottlenecks and bureaucratic burdens to the system?
The answer may be: make decisions on the periphery rather than the center.
Decentralized capital flow
Capital is leverage. If applied properly, it will provide us with the right incentives and purchasing power to build.
In our current stage of development, capital usually comes from the centralized resource within the DAO-its treasury. If you look at all the major DAOs, each DAO has its own funding plan to fund projects and other programs that are valuable to the DAO. This is a useful primitive for allocating capital, but it centers on the core committee.
Like any centralized thing, committees like this face the challenge of scaling up. Their staff is limited, the channels for projects to be funded are blocked, requests from the community, and other bottlenecks that may hinder the start and operation of the plan.
The next stage of our development is to move capital flows to the edge and enable discrete groups to create their own standard operating procedures for working capital. DAO will evolve into a complex structure in which each node in the network interacts with other nodes to receive and distribute funds in the form of grants, income distribution, bounties, paid positions, etc.
This will not only release multiple sources of funds, each of which has been uniquely planned to meet specific capital needs, but will also form an elastic and scalable economic structure that can only be achieved through organic and decentralized governance.
Bankless DAO’s evolving capital flow
Bankless DAO is slowly moving towards the decentralized economic engine shown in the figure above.
We still have a seven-member appropriation committee, but we are beginning to see some innovative examples of marginal coordination, forming their own methods of obtaining and distributing funds.
Let us explore some of these methods.
Guild budget
Bankless DAO is organized into 13 guilds. These guilds are talent pools, representing different abilities that other members of the DAO can join or use-writers, developers, analysts, designers, legal professionals, etc.
Each guild has its own budget, which can be allocated according to its own situation.
As expected, many of these guilds have initiated and funded projects belonging to their fields, and in addition to a single funding committee, they have effectively created 14 total funding sources. These guilds have limited budgets and only account for a small part of the appropriation committee’s allocation. This makes the guilds very suitable for small grants, which can be aggregated into larger grants after showing some proofs of concept (PoC) or MVP.
The guild quickly seized the advantage of having its own funding pool instead of relying on the central funding flow of the funding committee, and began to look for ways to introduce the funding flow into their multi-signature.
For example, the Developers Guild negotiated a 10% revenue share for participating in the DAOpunks project, while the Writer Guild charged 10% of all paid external client work.
Expanded guild funds mean more election roles, bounties, small grants, and effective capital allocation for specific guild initiatives.
Standard operating procedures
In Bankless DAO, guilds often interact with each other, using the different skill sets of each guild, such as requesting AV guilds to produce videos, requesting marketing guilds’ Twitter activities, or entrusting design guilds to produce newsletter graphics.
So far, these delivered products are priced on demand, which is very helpful for price discovery, but it will inevitably create a bottleneck. To this end, we have seen the beginning of standardized deliverables.
So far, we have seen the marketing association standardize the pricing of Twitter events.
The Marketing Association is the first of many standardized products, just as companies and services do in the wider economy. Transparent pricing and deliverables will make it easier for other associations and projects to budget for future expenditures and improve the efficiency of capital use.
Rethinking the cost center
Thinking further here, DAO as an economic engine is a useful framework for rethinking organizational cost centers. Take First Quest as an example. First Quest is the onboarding project of Bankless DAO.
Members enter the Discord server and complete a series of “tasks”, briefly introducing the mission, culture, tools, and operations of Bankless DAO.
In the end, you will directly enter the guild workflow through First Quest. Just like a funnel with multiple exits, new members can find a guild that they resonate most, and then jump directly to the first guild-specific task. For example, the first task of the writers’ guild is to complete editing or writing tasks to measure abilities and familiarize new members with how the writer’s guild works.
Like most tasks, these tasks have associated bounties. When building the DAO as an economy, I can foresee that the First Quest team will draw a portion of the writers’ guild’s first mission bounty (or the first mission of any guild) for each new member who mentions the guild. In this way, First Quest has the inflow of capital flows, rather than acting as a pure cost center.
The benefits of decentralized capital flows
The above example is just a hint of what a functioning DAO economy might look like, where each working group/guild/project/initiative/committee operates as an independent economic component and trades with the rest of the DAO To obtain goods and services.
At first glance, relative to the central capital pipeline (see Figure 1), the interconnected economic network seems puzzling — in fact, a distributed economy is much more complicated.
But there are countless benefits worth prioritizing.
Decentralization and resilience
The main benefit of capital flow from centralization to decentralization is…decentralization! The creation of an economic engine will ultimately reduce reliance on central intermediaries, such as appropriations committees.
The transition to distributed capital flows also creates a resilient economic structure that does not rely on centralized funding sources and is not susceptible to corruption, bottlenecks, and inefficient practices.
Another additional benefit is that allocating capital to each instance in a smaller pool, such as each of the 13 guilds, creates experiments that run in parallel. Each guild has developed to use their capital pool in its own way, and best practices influence each other, which further improves the flexibility of the entire DAO.
Velocity of money
The DAO economy with distributed capital flows will increase the currency speed of internal transactions.
In economics, the velocity of money refers to the number of times a unit of currency changes hands-the more transactions, the higher the velocity of circulation. Velocity is a useful heuristic that can be used to understand how much value a single currency unit can create. A single USDC from the central treasury is only worth 1 USDC, but if the single USDC is exchanged 5 times a week, it will have a greater economic impact.
For example, Bankless DAO recently funded the Writers Association. Assume that 600 $BANK tokens will be used to compensate new members who have completed the first mission of the Writers Guild. One-third of this sum was redirected to the First Quest team, who then used $200 to pay the designer to create new graphics. Although it is the same 200 $BANK, the 200 $BANK has now changed hands 3 times.
In this way, the DAO can increase the impact of its native tokens by promoting an internal economy where tokens change hands more frequently.
The future of working methods
What excites me most about Dao as an economic engine is the potential of self-sustaining work.
We are still in the early stages of Dao evolution, but I firmly believe that Dao is the future of the way we work. As a unit in a larger economy, each initiative can generate income in a variety of ways and become a self-sufficient group (see rethinking cost centers again).
As the Dao economy becomes more advanced, we will see the emergence of economic models that will uniquely suit the goals of their creators. As an economy, Dao builds each plan into a set of modular tools to generate capital inflows and outflows, and ultimately maintains the underlying team as a source of revenue.
The way ahead
DAO still has a long way to go before it achieves its idealized form. We have almost no decentralization and almost no autonomy, but we are achieving this goal. The roadmap for gradual decentralization must include methods to achieve decentralization of capital flows.
In our current state, most DAOs distribute funds to recipients from a centralized source.
The next stage of our development will mean that the DAO looks more like an economy, where decentralized units have their own operating procedures and methods to capture inflows and distribute outflows. DAO will inevitably evolve into a complex ecosystem, where each edge can trade with other edges.
Doing so will create a resilient economic system, exponentially increase the economic impact of capital, and enable creators to establish self-sustaining plans to appropriately compensate for their work.
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