a16z, the famous venture capital company, is entering the DAO field through investments into DAO projects, such as the recent investments in social DAO project, FWB.

Source: https://a16z.com/2021/10/27/investing-in-friends-with-benefits-a-dao/

Since 2020, DAOs have become more well-known and have gradually become mainstream players in the blockchain industry. Recently, we have seen major venture capital institutions disclosing their investments in DAO projects, which has attracted the attention of major blockchain media. Therefore, some people think that “2022 will be the first year of DAO.”

What is it about DAOs that attracts the interest of these market-leading investment institutions and the associated media??

Understanding DAOs

Human beings have entered the DAO era, and all this cannot be avoided.

— Stephenson, the Father of the Metaverse

Everyone has their interpretation of what a DAO is, but they all share a common logic: members vote with tokens, and open-source codes automatically run voting results. This trustless system eliminates human error and members can manage community finances as a collective. 

Source: The DAO landscape.

At present, DAOs have developed across many platforms, including social media, agreement platforms, project principles, and so on. Moreover, it is more like a bottom-up management company, where members rely on their personal abilities and subjective wishes to divide labor to build the entire DAO. The DAO will reward members based on their contribution value.

In the upcoming Metaverse, DAOs may well be at the core of governance models, as it returns the rulemaking and governance power to the public, promoting the complete decentralization of the Metaverse.

Still In Early Stages

Whilst the vision for DAOs is beautiful, the reality is still working towards fulfilling these goals. It is true that people in the decentralized field are increasingly interested in DAOs, but the development of DAOs still faces difficulties. These hurdles include:

Low Member participation

Most DAOs use the digital assets of their members as key indicators. For example, voting is based on the number of tokens, and rewards are based on the proportion of digital assets. This approach not only inhibits the voice of DAO members but also makes members with a small proportion of tokens unwilling to invest time and energy in governance, due to the imbalance of investment returns.

Centralization crisis

The above-mentioned system employed by DAOs can easily lead to the emergence of a mindset that “the rich will always be rich, and the strong will always be strong”. The simple reality is that with the right to speak, comes the right to set rules that are more beneficial to you, and you can get greater benefits. This has pushed many DAOs into an unwanted centralized situation.

Decisions are difficult to balance

In a fully autonomous DAO system, the decision should be based on the number of votes. But sometimes there are conflicts between the opinions of the development team and the interests of community members. How to maintain a good balance is a headache for many DAO organizations. Sometimes the DAO development team will directly ignore the community opinions, resulting in accusations of centralization. The alternative is to completely follow the DAO community, which may result in constructive opinions not being adopted.

Which Brings Us to Reputation

The above problems essentially have a key point: what kind of incentives should be set up? The incentives should not only satisfy decentralization and fairness but also promote proactive DAO members that actively participate in governance. 

Based on its own technology and past service experience, Ontology proposes the following solution: Set up a DID with a reputation scoring system for each DAO member.

Verification

When you enter a DAO, you need to first register/own a DID and submit certain verifications (authorization through encryption to protect privacy), such as on-chain/off-chain assets, whether you have similar experience or capabilities, and so on. After verification, you will be given an initial value and mark to help you better participate in DAO.

Record

When participating in DAO governance, DID will record the amount time spent in the DAO and your contributions after joining. Contributions would include voting, suggestions, operational work, and so on. If you also use this DID to participate in the governance of other DAOs, those data will also be recorded in the same DID, increasing your data diversity.

Reputation Score

The reputation system will make a comprehensive score based on the above records. For example, the more DAOs you participate in, and the longer, and the more active you are, the higher your score will be. In addition, corresponding weights can be set when designing the reputation scoring model, such as reducing the weight of digital assets and increasing the weight of participation.

Decentralization

With reputation value, DAO can dynamically divide rights based on reputation. The higher the reputation value, the greater the power. This power could be manifested in the right to more votes (right to speak) and the right to more DAO dividends.

Participation

Based on this, we can imagine a completely decentralized DAO organization as:

• The acquisition of rights and benefits is no longer difficult for ordinary members.
• The development team, like ordinary members, needs to rely on contribution to gain the right to speak.
• It has become very important to increase your participation and enthusiasm.

To Summarize

Implanting DID in DAOs can eliminate “centralization” based on digital assets to a certain extent. DID can encourage DAO members to become more active, and balanced decision-making between the development team and ordinary members.

Whilst DID can help to solve some of the current DAO problems, this is still only the beginning.

In the future, DAOs will inevitably become the organizational form of the decentralized world, with more blockchain technologies being absorbed by DAOs, allowing for the quick and healthy development of ecosystems.