Building Products for DAOs
If DAOs are more like governments than corporations, then DAOs are not your customer.October 11, 2022 | 5 minute read
Vitalik recently made the argument that DAOs will be more like governments than corporations. This insight has some interesting second order effects for DAOs. Here, I want to discus a third order effect: what does this mean for teams building products for DAOs?
The first insight I can offer is: if DAOs are more like governments, then the DAO (itself) is probably not your customer. It’s more likely that some sub-structure (pods or even individuals) are your customer.
Why the DAO is (probably) not your customer
A lot of web3 product company founders would say that they’re building for DAOs
- that the DAO is the customer. If you describe your category as “DAO Tools”, then this is true for you. However, I think this is generally incorrect and probably something founders want to avoid anyway. It is generally incorrect because the DAO often isn’t in a position to be your customer. You want to avoid that anyway because you’re putting yourself in this sales-cycle that isn’t too different from selling to a government.
As an example, Chaos Labs is a security service provider (they replay attacks on your infrastructure to see if you’re vulnerable) and their founder drafted a full governance proposal to get Aave as a client. This is an example where the DAO really is the customer: they have the need and the ability to make the purchase. Aave (the DAO) maintains the infrastructure and that includes making and funding decisions about how to best secure it. However, this example illustrates why you might want to avoid having DAOs as your customer: your sale hinges on what might be considered analogous to an Act of Congress. Having experienced the procurement process for the US government, I’d even go so far as to say that I hope the DAO isn’t really your customer.
The other point to be made here is that you probably don’t need the DAO as your customer. Think about it this way: the Internet (as in, ICANN) isn’t Twitter’s customer, you are. After securing a domain name, Twitter doesn’t need to interface with ICANN at all - just operate within the environment that it maintains to find customers. The same is true for Quickbooks - they register a domain name, and then find businesses on the internet to provide an internet-based service (accounting). Something like this will probably be true for you and your product. You might operate and find customers within an environment created by a DAO. But the DAO itself wont be your customer.
If the DAO isn’t your customer, who is?
If the DAO is no longer your customer, then we’ve created a vacuum: who is your customer? The answer is either (a) the pods servicing the DAO or (b) the individuals working for those pods.
For example, many web3 payroll and accounting tools are aimed at DAOs. This means there’s some representation of the DAO in the product. If you want to pay someone, the idea is that you do so from the DAO treasury and annotate the transaction with what pod the individual works in. A better approach, which Utopia Labs is moving towards, is any multi-sig (i.e. pod) can use Utopia for their accounting and payroll, regardless of what any other pod is using, regardless of where they are in the DAO, and even regardless of which DAO they’re servicing. Now, Utopia can work directly with service providers. This increases the number of possible Utopia customers and puts the product in a position to more easily acquire those customers.
That covers how to shift focus from the DAO to the pods servicing the DAO. What about shifting from the DAO to the individuals? Opolis is a great example here: the customer is, “individuals working in web3” and Opolis provides benefits, like health care, and helps with filing taxes. DAOs can be represented as partners in Opolis, but this is really part of Opolis’ growth loop. DAOs refer individuals working for them to Opolis and benefit from the referral. An individual doesn’t have to use Opolis, just because the DAO they’re working for is a partner. Similarly, an individual can use Opolis even if the DAO they’re working for doesn’t have a relationship with Opolis.
There will of course be cases where the DAO is the customer, but that isn’t going to be the case for the vast majority of web3 products that get built.
When is the DAO actually your customer?
All of this is not to say that it’s impossible for the DAO to be your customer, just that it’s very unlikely given where most of the build-attention is focused in the space right now.
There is a huge industry in the US around how the government gives out the money it’s decided to spend, with companies servicing every step of that process (and there are many steps). This industry is entirely distinct from actually fulfilling grants and contracts and covers things like finding and matchmaking for grants and contracts, vetting and evaluating service providers, and tracking and managing grant applications.
Moreover, this is an area of the DAO/web3 ecosystem that is relatively stagnant: DeFi DAOs use Compound’s Governor Bravo, there’s an ecosystem of DAO Haus and Moloch DAOs (mostly confined to Gnosis chain), and most newer DAOs use Snapshot. NounsDAO’s new governance process is maybe the most exciting recent development in DAO governance and it’s just a fork of Governor Bravo for ERC721s (instead of ERC20s). There are a lot of opportunities here for more interesting and modular governance systems. And that is just around the very specific use-case for how DAOs make really big treasury decisions, what will become just one category of DAO governance.
This article made the argument that, for the vast majority of teams building tooling for the DAO ecosystem, the DAO (itself) is not the customer. Instead, the customer is pods or individuals. My hope is that this insight (1) reorients a lot of the energy and funding in the ecosystem and (2) opens up the design space and tooling for collective decision making.
These two aims may seem contradictory: on the one hand, I’m arguing most DAO tooling providers need to shift their focus away from DAOs and towards pods and individuals, while also arguing that the DAO governance ecosystem needs more attention. To resolve this tension, I’d like to add a final dimension to this conversation, which is time: what will the world look like in 5 years if Vitalik is right about DAOs? Who will your customers be and what will they need?
DAOs are still small and so there isn’t the demand to support some product categories yet, which is why we have the “DAO Tool” misnomer. But you can (and should) start to think about what those categories will be and how you can start building for them now.