[Draft] Amendments to DAO Governance Structure

Authors: @mannyornothing @drop_knowledge @kempsterrrr
Supporting @stewards:

NOTE - We’re hoping for as much feedback and discussion on this proposal as possible. It’s important we strike the right balance between empowering Member to create value as Sub-DAO’s without overly restricting them but ensuring value some value flows back to the DAO for Members to reallocate to future Sub-DAO’s.

This proposal is a good faith attempt at achieving that and likely needs revision before being ready to be voted on by Members.

Summary

This proposal adds further clarity to the structures outlined in P-22: DAO Governance Structure Updagde based on feedback and observations as we rolled this changes out.

Specifically it further clarifies introduces the following:

  • Clarity on how Sub-DAO’s return value to the DAO
  • Rules for usage of the DAO’s brand(s)
  • How Sub-DAOs can amend their domain of operations and value return to the DAO

Motivations

P-22: DAO Governance Structure Upgrade saw Guilds and Projects replaced with Sub-DAOs, and claririty given to the Governance roles in the DAO: Member, Contributor and Steward. These changes simplified the DAO and empowered the small subset of Members who wanted to take on more responsibility as Contributors or Stewards, to do so with clearer roles and responsibilities.

The results have been positive, with more Contributors receiving USD rewards, a more sustainable pipeline of revenue for the DAO and an uptick in activity and community engagement. Whilst these results are very positive, many questions have come up as we’ve rolled Sub-DAO’s out that signal more guidelines are needed in areas such as: value return to the DAO, brand usage and amendments to Sub-DAOs.

This proposal seeks to provide that clarification so Members who seek to Contirbute can do so with more confidence.

Scope of work

Value Return to the DAO

In P-22: DAO Governance Structure Upgrade, how Sub-DAOs return value to the DAO was left very vague. This proposal amends those rules to add clearer guidelines for Sub-DAOs both inside and outside of the Foundation’s legal wrapper.

Both internal and external Sub-DAOs benefit in many direct tangible ways (Community Access, Marketing & Promotion) and intangible ways (i.e Brand association).

Internal Sub-DAOs specifically also benefit from the legal and operational support of the Foundation. There is a direct and scaling cost to providing these that needs to be accounted for in Governance…

Inside Foundation

A minimum of 15% of all revenue returned to the DAO. All other funds can be allocated how the Sub-DAO and its Contributors see fit, under internal Governance processes they determine.

Outside Foundation

Given Sub-DAO’s outside of the Foundation are assuming most of the associated risk and operational costs, the expectation for value return to the DAO is reduced. Exactly how the value return is implemented depends on the structure of the Sub-DAO (i.e. issuing a token, or not) but broadly speaking, the return should be minimum of 5%.

NB - This should either be achieved by an eqvuivilant equity stake, revenue share or token allocation.

Brand usage

All usage of the Developer DAO’s brand for commercial purposes must be either accounted for in a Sub-DAO Proposal or agreed in advance with the Stewards for one-off requests.

Amendments to Sub-DAOs

Assuming no impact to existing legal arrangements between the Foundation, Sub-DAO’s and/or Contributors, amendments may be made to Sub-DAOs domain of operations and value return to the DAO via DDIP.

Where there is a legal impact (i.e. breaks a contractual agreement that’s in place) these must be addressed prior to an amendment to a Sub-DAO being elevated to Snapshot. Any impact particles must agree before a vote can go live, the Stewards will represent the Members in these discussions.

Drawbacks

Primary drawback from tightening the rules under which Sub-DAOs can be formed and must operate may have an negative impact on the volume and variety of proposed Sub-DAOs.

Note - this proposal will impact ALL Sub-DAO’s. Pinging folks from those existing teams and those proposing new Sub-DAOs

Agency - @Gordo @Erik_Knobl @luan
Labs - @mannyornothing @Billyjitsu @kayprasla @allWiseee @Kay @PSkinnerTech
DDW - @krystal @meowy
Academy - @wolovim @Piablo @brianfive
P3RKS - @mannyornothing @pbillingsby.eth @Martin
Raisan Labs - @Crypdough.eth

I’m also aware know @Technoking is considering a Sub-DAO proposal soon.

Sure, I’ve missed some folks. Please forgive me if so and tag them :slight_smile:

How do folks feel about hosting a Twitter Space to discuss this topic in an open forum?

1 Like

This should not be based on a percentage of revenue, which has the potential to put any subDAO under water financially. Moreover, a demand for 15% of a company’s revenue without a substantial financial investment seems predatory. $CODE allocations do not represent a financial investment in a sub-DAO – if it was, valuations would be hurt dramatically.

2 Likes

I couldn’t agree more for folks starting their own business. 15% is ridiculous. However, to confirm, the 15% of revenue here is for Sub-DAOs that sit within the Foundation’s legal scope (i.e. don’t have a separate entity) and thus are not setting up a business and don’t have to pay for accounting (tax, bookkeeping), legal (contracts, advice), operations (payroll, tooling), etc. nor are they absorbing the personal liability via fiduciary duty as a Director of said entity - the 15% suggested here covers those costs and any other benefits of being a Sub-DAO.

Does that change your view? If no, what do you think is reasonable and why?

For Sub-DAOs that have their entity, it suggests 5% of either revenue, equity or token allocation. I prefer equity/token > revenue here, also. Equity position ensures that the Foundation would get its “fair share” of any value taken out of the business as profit or during a financing event, but not hurt the business’s operations until it’s successful & only benefits if the project is successful so intrinsically motivated to make it so.

I’m unsure if profit can be used in either situation as it’s too easy to manipulate this - i.e. raise salaries to reduce profit.

cc @Crypdough.eth

Also happy to be way off the mark here and love alternative models / suggestions - mainly getting the conversation started :slight_smile:

Agree with the general idea, but there is one issue I think we need to understand more before going to snapshot: How does the interaction between tokens + LLCs work, both in the side of the sub-DAO and on the side of D_D?
Reached out to the guys of OtoCo. Will try to clarify this issue.

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This does not change my view very much. To clarify, I think the DAO is justified in taking a percentage of profit, but taking a percentage of revenue is very abnormal in this type of relationship. I don’t expect the DAO to take any losses associated with taking on overhead for internal sub DAOs, so we can provision for that more specifically (like having a sub-DAO pay the difference out of operations costs if there isn’t enough ROI to cover or carry as debt). Venture funds and accredited investors are paid out after cost of operations in a firm are handled, never before. The only exception is some types of venture debt where a per unit tax is imposed on sales – but again, this required substantial monetary investment & is explicitly considered debt. Moreover, it’s not like all sub-DAOs will have the same valuation, so the equity may be even more expensive, creating a larger disparity between value given and value received. So, I think it also might be more appropriate to evaluate sub-DAOs on a per-case basis rather than mandatory minimums. In a healthy company, 15-30% of revenue is reserved for payroll, I don’t see how this could be particularly unreliable given the contemporary conventions.

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I’m not sure I follow - Sub-DAOs in the Foundation’s legal scope are essentially just teams operating inside the foundation’s legal wrapper, so the normal considerations around investments don’t apply in the same way. I could see why the number might be considered too high, but we’re essentially talking about empowering a team in an existing company (internal sub-DAO in the Foundation’s legal wrapper) vs a group of people creating a new company (external Sub-DAO).

For internal Sub-DAOs (essentially team /workstream/project inside foundation legal scope) there is no conversation about valuations, debt etc., as those things don’t / can’t exist. It’s impossible for them to take investment, profit etc. as it’s a non-profit and has no beneficial owners, it’s just their contributor payments from the margin on the revenue they bring in.

Lots of healthy discussion is needed. :slight_smile: Not sure I follow your question here re how tokens work. Could you try to elaborate?

Don’t know enough about the specific structures you’re referring to in OtoCo and the agency groundwork you’ve been laying there (great efforts btw :saluting_face: ) to fully comment but my simple assumption is project issues tokens, and a % of those tokens go to the treasury. Maybe with some terms that need to be defined at the proposal stage.

This is an area where the DAO don’t have clarity, and we are assuming a sub-DAO outside Foundation can just use tokens without any issues. And we may be right on that assumption.
We just need to be certain that there are no legal troubles. I will continue pressing the guys from OtoCo, and try to get more clarity in the issue.

In theory, sounds okay-ish. Specifically:

If Developer DAO provides a material value to a SubDAO, then the SubDAO should return a percentage of value (i.e. profit) generated, back to the DAO.

The issue for me, is I don’t know what value Developer DAO provides to Agency, for example. Material value, not presumed. If I look at the work I’ve done so far, that’s literally all been me. I’ve not relied on Developer DAO for anything. Even if we were to consider the legal structure/foundation… I don’t know how Agency is currently benefitting from that in a material way.

Speaking to prospective clients, I mention how Agency began (in the DAO), and then I go on to mention my own work in Developer DAO. But that’s my worknot some benefit I derived from the DAO. And that’s been enough to move discussions forward. So on my end, I don’t benefit from Developer DAO and do not currently see why I’d relinquish a percentage of anything back to it. Or more specifically, a percentage as high as what has been proposed.

The question that should be asked here, is:

What value has Developer DAO provided to a SubDAO, and what has it materially translated into?

With something like Eden Protocol, that benefit was very clear. They got to workshop their idea by being deeply embedded into the onboarding process, among a host of other things. But even then (outside of Alex and Ty who are on the Eden team), that value was partly because of myself. I facilitated those discussions, spent several months going into depth, proving feedback and consultation. So does that value return to the DAO or to me?

It’s a rhetorical question.

The point is, a blanketed percentage doesn’t make sense. People providing said value should realize the value being returned. If it’s a structural thing at the DAO-level, then that returns to the treasury. But if individuals in Developer DAO are providing that value, there’s no justification for why the DAO wants to reap the rewards of that work. So there needs to be better stipulations in place.

There also needs to be logic applied when listing the benefits that the DAO can provide to SubDAO’s vs the things that a SubDAO has actually, materially benefitted from. If a SubDAO under the foundation did not have need for the legal stuff, but they were simply inside the DAO; that should realistically be considered.

Also:

If we consider $CODE budgets for SubDAO’s, the percentages being proposed above, are not remotely commensurate to the $CODE allocations themselves. Developer DAO’s token isn’t worth a lot. The token has very little liquidity; which means that the price per-token x multiplied by the total no. of tokens in circulation are not reflective of how much people can actually exchange for fiat currencies. As such, more logic needs to be applied to what’s being proposed here. The underlying premise makes sense. The outline (to me) does not.

  1. Developer DAO needs to provide material value that can actually be listed and pointed to

  2. There needs to be provisions for people who provide that value to SubDAOs, rather than Developer DAO simply being the sole beneficiary. Particularly in instances where it’s been of no impact.

  3. Percentages need to better reflect the value derived from Developer DAO. $CODE token budgets/allocations are definitely a value, but logic should be applied and the context should always be considered: the price per-token is peanuts right now, and it’s worth even less due to the very low liquidity. Having channels in the Discord server is a value, but not 5% or 15% type of value. A lot less engagement in Discord, Twitter.

  4. Nuance should be considered. Agency began in Developer DAO. One could argue that the DAO’s existence is a type of benefit, because it allowed for the Agency team to come together. But context is important. Logic, too. Developer DAO has been instrumental to Agency, much in the same way that an educational institution has been instrumental to future co-founders who happened to meet in an economics class. Stanford, Harvard etc only served as a common ground — they are not responsible for the ideas that people came up with, or the work that they did. Not by default, through their existence. So this really reiterates my 1st and 3rd points.

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Some fair points in here, and I don’t know what the numbers ultimately should be, but in the case of Agency, it feels like the impact or potential impact of being connected to D_D is very undervalued. Anyone can spin up an org that does contract work, but the Developer DAO name offers instant credibility, networks, and I’d expect could open doors not accessible to a fledgeling team otherwise. Additionally, being able to screen applicants from a pool of talent available in the DAO, and scale up or down to meet opportunities is uniquely awesome.


At a high level, I do think any sub-dao – operating under or outside of the foundation umbrella – needs to be given a fighting chance, though. At this stage, my gut is that it would be better to:

  1. start modestly - err on the side of asking for too little of a return to the DAO than too much, and
  2. revisit regularly - commit to treating this equation as an experiment, where all parties agree to revisit the numbers within a few months. If a given sub-dao is operating comfortably and benefitting from its relationship with the DAO, expect a conversation about a modest increase in the return to the DAO. By the same token, this invites more conversation about how best the DAO can support each sub-dao.
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Definitely hear @luan points here and understand where they’re coming from. Right now tangible/quantifiable value from the DAO isn’t totally clear, but I echo @wolovim’s points about the less quantifiable value being provided I suspect has made Agency possible for the folks who have put in the hard work creating it (i.e. one wouldn’t exist without the other)

Also worth noting Agency received 54,400 $CODE in Season 1, which at its current price (ignoring the issues around liquidity) is 54,400 * $0.145 = $7,888. I also spoke with @Erik_Knobl on Friday about how the agency budget for S2 had slipped the cracks, which the @stewards will queue this week. That is another 46,600, which at the same prize = $6,757

In total, that’s 101,000 $CODE which s %1 of the total supply and at the current price equals $14,645 USD.

To the point about liquidity, I’d like to propose an extended vision on how we can address the lack of liquidity in the $CODE token and its value.

  1. Members allocate $CODE from the treasury to support Sub-DAOs which are self-sustaining (maybe mins some set-up costs and core operations i.e. accounting etc.)
  2. Sub-DAOs that generate a return give a % of that return back to the treasury
  3. The treasury uses a % of those funds to buy $CODE back from the open market to generate a demand for the Token.
  4. Members can choose to hold or sell the token in the market the DAO has now created

This visual may illustrate this better…

This model is very common amongst DAOs and could address many of the issues raised in this thread thus far regarding no value or liquidity in $CODE and, thus no value in it being issued as budgets beyond governance.

Whilst also situations are nuanced, without some minimum expectations on value return for the DAO I have observed and predict we’ll continue to see the following issues:

  1. Proposals get stuck as it’s not clear what the decision framework is for yes/no (i.e. who is negotiating the baseline value return, the stewards? everyone?)
  2. Fewer proposals are made due to uncertainty. Therefore, fewer opportunities to grow the DAOs’ and Member’s impact and put them on the table for Members to consider.

Returning value back to the DAO also allows us to grow the resources from which we can invest in other Members with other ideas beyond the Sub-DAOs we currently have in place. It is my view more nodes in the network of value created by the DAO will always trump the sizes of a few early nodes and the DAO needs a way to grow its resources to support more nodes to be established.

An important question in this for me is “What can be a Sub-DAO?” - should we as a DAO accept proposals for any ideas or rather should we place some restrictions on what can be proposed?

I’d be very interested to hear some viewpoints on this…

NB - we need to re-clarify we’re legally OK to do this but I believe we are.

sorry I missed the tag @kempsterrrr

I couldn’t agree more with the following. Our resources are invaluable:

What the DAO right up until today has achieved is create a goldmine. Just because we’re in what folks call a bear-market, doesn’t reduce the value of our DAO one iota comparative to the rest of web3, I would say it reinforces it, we’re more resilient than most entities out there, and with the deep and widening base that we have. It would be short-sighted to think otherwise. To maintain something as valuable as we have needs a regenerative mindset, not one of grab and run, or plunder. We don’t need this in our DAO: Earth Overshoot Day - Global Footprint Network.

Beautifully put:

Everyone has done their piece voluntarily to date to make the DAO what it is. A lot of laughs, blood, sweat and tears. Whether that started yesterday or September 2021. Let’s honour that, and rewind and start the conversation about ‘what we have’. After that, we can start talking about figures, money and percentages after that. I would say those are two separate conversations, and it’s too chaotic to try and conflate them - like chalk and cheese. Better to have two satisfactory processes than one unsatisfactory.

Let’s change the question to 'What does the DAO do to benefit any potential sub-DAO?"
My 2 gwei.
:seedling: