On-chain organizations need social operating systems
The flaws of DAOs; on chain social operating systems; badges; reputation; pseudonymous and private identities; Otterspace investment.
On-chain organizations (aka DAOs) have been an experiment in new forms of social coordination to achieve a variety of purposes (decision making, collaborative work, incentive alignment etc). In web3, organizations have the potential to be permissionless, trustless, distributed, and transparent. In traditional design spaces (web2), however, trust and permissioning are cornerstones of social coordination and even privacy is often a key function. In order to achieve their full potential, on-chain organizations will eventually need to be able to incorporate concepts such as trust networks and reputation. One key component that will aid the evolution of on-chain organizations is the social operating system. Such a system would entail (1) programmatic governance, (2) on-chain reputations, (3) pseudonymous or selectively private identities, and (4) tokenized roles and rights within the organization.
Some of the organizational problems such an operating system would solve (or at least improve):
(2) Plutocratic governance
(3) Excessive centralization
(4) Inefficient workflows
This is not an exhaustive list and also there is no silver bullet. The most important takeaway is that we must continue to improve and iterate. Web3 projects made several leaps in experimenting with on-chain organizational structures early on. These early examples were very successful at yielding new outcomes and creating value. As a result, many new projects simply replicated these existing structures (often with literal forks of the governance codebase). It is time now, however, for the industry to continue the pace of innovation in this dimension as well as the many others being worked on. Web3 needs better governance models, improved organizational structures, and ultimately an updated version of a social operating system.
Dissecting the problem set
Let’s take a look at the role of a social operating system in tackling some of the above problems:
Most DeFi users would probably agree that the space has trended toward a lot of speculative use cases. Tokenization has been a central concept for many projects. Also, most major governance systems have been inexorably tethered to conversations of liquidity and profitability due to the nature of their governance tokens also being value-accrual assets. This has been particularly relevant for some DeFi protocols dealing with governance growing pains or design challenges. Financial use cases and governance may at times overlap, but from a first principles standpoint do not have to be inseparable. As mentioned earlier, this is primarily a result of convenience, skeuomorphism and technical debt. It is hard to create new models and audit them for security risks; it’s often much easier and safer to fork an existing model. As such, monolithic do-it-all governance tokens and the 1-token-1-vote model have propagated to the vast majority of on-chain organizations. With alternative governance models (eg NFT based voting) we could break down these legacy assumptions, separate functionality as needed, and explore less egregiously financialized mechanisms. This could either be a replacement or, more likely, a supplement to existing models. For example, financial layers could always be overlaid on top of non-liquid governance structures. Perhaps this would free up web3 organizations or teams within them to focus a bit more on value creation and a bit less on value capture.
Another aspect of 1-token-1-vote models is that they often result in uneven distributions of voting power (such as plutocracy). This can also result in a knock-on effect of discouraged or disincentivized voters. Often, there is misalignment between those that do the work, research problems and solutions, and stay up to date with the latest developments within an org and those that have the power to vote on key decisions. One solution that we have stumbled upon as an industry is vote delegation. This is helpful, but may only be a stopgap to resolving this delta. This is where on-chain badges (NFTs) to represent roles, rights, and permissions with an on-chain organization can become quite critical. Additionally, this ties to the idea of pseudonymous or selectively-private on-chain identities and the associated reputation systems. For example, imagine a world where your wallet (or other identity primitive) is associated with every role you’ve ever held in an organization (and the associated permissions). Of course, such a system would have to be non-transferable as mentioned by Vitalik earlier this year. This could allow an organization to, for example, upweight the votes of project contributors or restrict access to submitting proposals to members with an “investor” role in an on-chain investment org. Most importantly, such actions could be independent from dilution or distortion of value flows and ownership. Greater flexibility, customizability, and articulation of these kinds of tools could allow organizations to better avoid misalignment of power and individual contribution.
Decentralization is not a monolith. There is no one property that is decentralization. There are many different aspects of an organization that can be decentralized to greater or lesser degrees including but not limited to: governance, ownership, operations, and technical architecture. As mentioned above, a system of on-chain badges and reputation can be very helpful for organizations to improve decentralization of governance but that is not where it stops. As on-chain organizations scale, anti-sybil protections become increasingly important for ensuring proper decentralization of ownership and operations and avoiding decentralization theater. This is also where non-transferable tokens can play a role. As the value of someone’s reputation and roles grows and as on-chain histories become more important, the cost (equivalent to economic friction) of “rotating” or selling that wallet, ENS, or other associated identity also increases (and thus we can expect it to happen less often). Though nothing is perfect, this does mean we can reasonably expect a robust social operating system to reduce sybil issues and allow on-chain organizations to more easily decentralize.
A big part of the efficiency of web2 “off-chain” organizations is that they are primarily structured as top-down tiered management systems. This is a very social model that rests heavily on assumptions of trust and permissions. As mentioned earlier, on-chain organizations excel at decentralizing location and operations but this is often at the expense of efficiency and individual accountability. Without clear on-chain records of outcomes and reputational components, it is hard to hold individuals accountable to those outcomes and thus organizations in the web3 space (particularly where mixed with flat org structures) will tend toward only positive feedback loops and not negative feedback loops as well. It is a well documented systems design principle that you can better optimize a system when you have both tools available. As such, the on-chain reputation (with outcome tracking) and the identity aspect of social operating systems should improve productivity and efficiency via accountability. Additionally, as NFT-badges and associated rights (including the right to distribute rights) become more programmatic and reliable, it should become easier to decentralize and delegate operations as well. Additionally, we mentioned the idea that badges and on-chain roles and rights associated therein improve the ability to delegate and distribute work within an organization. If a core team lead is able to pick 5 delegates and programmatically define the rights and responsibilities of those delegates, then they can more reliably distribute work rather than taking it on themselves for lack of supporting infrastructure (e.g. Superrare space curators), improving total productivity of the org.
Introducing: Otterspace, a social operating system for on-chain organizations
We are happy to announce our investment into Otterspace, a social operating system enabling on-chain organizations to codify roles and rights, onboard and reward community members, distribute badges and track achievements, manage and curate project contributors, and apply anti-sybil protections. We've been co-leading their $3.7M pre seed round alongside Cherry Crypto and with participation from Coinbase Ventures, Bessemer Venture Partners, btov Partners, Paua Ventures and several knowledgeable angel investors including Mats & Fredrik (Dune cofounders), Sandeep Nailwal (Polygon cofounder), Will Papper (SyndicateDAO), NiMA (SeedClub), Quickrider (FlamingoDAO), Abbey Titcomb (RadicleDAO), and Sarah Drinkwater (Gitcoin).
Their first product is a protocol for issuing badges as soulbound (or non-transferrable) NFTs. This is a critical initial piece in the above outlined vision of a true social operating system. NFT-based badges provide a data layer on top of which organizations can program logic, rights, and responsibilities for doing work, making decisions, and distributing value. Web3 organizations currently struggle with onboarding and growing their communities, tracking and rewarding off-chain contributions, coordinating and curating human talent, and managing access and control 2-3 layers deep. Otterspace’s system of badges and infra for using them as composable logic primitives in configuring rights within on-chain organizations will help push web3 forward toward achieving the true potential originally promised by the DAO model.
Otterspace is in a private beta stage with 16 DAOs participating, including: Radicle, Bankless and Token Engineering Academy. These organizations are able to integrate the protocol natively into their own infrastructure. Integrations with Snapshot, Guild.xyz, and Gnosis Safe allow communities to use the badges for governance, social access (Twitter, Discord, Telegram), permissioning, and more.
One day soon, on-chain organizations will be able to use such social operating systems to manage and organize themselves with greater efficiency and productivity while maintaining the transparency and resilience that comes from operating a decentralized on-chain organization. They have the potential to combine the best parts of social coordination/curation and programmatic logic. Of course, this is an optimistic projection and depends on how well companies like Otterspace build these tools and how well organizations implement them. That said, we are hopeful and the future of on-chain organizations looks brighter than ever.
If you are interested in joining the Otterspace community and learning more: check out their website or twitter page. Here you can find their launch and funding announcement.