How the devil do I use a Moloch DAO?
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July 25th, 2022

10 governance patterns to crank up your community governance capabilities

Welcome back to our series about Moloch DAOs. In part 1, we asked What the Devil Are Moloch DAOs? We learned about the many attributes that make Moloch DAOs special, from their strong security to their ability to facilitate high quality coordination.

In part 2, we’ll further explore another of Moloch DAOs’ special properties: their flexibility and adaptability to a wide variety of community needs. We’ll cover ten governance patterns enabled by Moloch DAOs.

Along the way, we’ll build up the tools we need to create a better form of progressive decentralization that’s uniquely enabled by Moloch DAOs. Here’s a quick preview:

  • Start with a DAO with no funds and a few cofounders
  • Periodically give co-founders shares to reflect their contributions
  • Bring on additional contributors and periodically give them shares as well
  • Funds (e.g. from fundraising or revenue) go in a vault
  • Create a token and distribute an appropriate portion to the community by dropping it into the DAO treasury

How does this work? Keep reading to find out!

Moloch DAO Governance Patterns

Each section of this article examines a specific example of what is possible to achieve with Moloch DAOs.

  1. Pooling member funds
  2. When ragequit doesn’t make sense
  3. Using a token alongside a Moloch DAO
  4. Trustlessly track DAO member reputation
  5. Staking compensation for DAO shares
  6. Decrease DAO funder risk with exit rights
  7. Moloch DAO instead of a multisig
  8. Multiple membership tiers
  9. Delegated work streams with Minion Vaults
  10. (Better) progressive decentralization

1. Pooling member funds

The og Moloch DAO use case: members “tribute” funds into the DAO treasury and in return receive a proportional number of shares. This makes the funds available for collective use, and members allocate the funds by voting with their shares. And since shares also represent ragequit rights, members maintain custody over their fair share.

Shares also play a third role in this pattern, as a trustless and explicit tracker of ownership over the treasury (including future funds).

DAOs have followed this simple yet powerful pattern across a number of different use cases.

Examples of pooling member funds:

2. When ragequit doesn’t make sense

Ragequit is a beautiful thing. The ability for members to exit a DAO with their fair share of the treasury at any time – even before a proposal they don’t like is executed – provides strong protection for minority members and undergirds many of the mechanisms in Moloch DAOs. 

But what about the times when the DAO controls funds that haven’t been pooled by members? For example, many DAO act as stewards of funds raised from the community or external investors, or manage revenue earned by their product or protocol. In these cases, it doesn’t make sense for a member to exit with a portion of what might be a very large treasury.

Moloch DAOs can handle this too! 

Moloch DAOs can easily own and manage DAO funds in non-ragequittable vaults. Proposals work exactly the same way, but the funds can’t be exited by individual members. There are also a number of interesting variations on this, which we’ll see in subsequent sections.

3. Using a token alongside a Moloch DAO

Moloch DAO shares are not transferable. But that doesn’t mean a DAO can’t also have a token.

Here’s how it works. Just like in Pattern #1, DAO members tribute tokens into the DAO treasury in return for shares (i.e. voting power + exit rights). But instead of regular funds like ETH or DAI, the tokens are the DAO’s own tokens. This is essentially like staking tokens for voting rights, since members can ragequit their shares to un-stake their tokens.

Similar to Pattern #2, the DAO’s other funds are held in a non-ragequittable vault, controlled by proposals voted on with DAO shares.

A great example of this is with DAOhaus’ own DAOs. In both UberHaus (the DAO of DAOs that governs the DAOhaus ecosystem) and Warcamp (the core contributor DAO), members stake $HAUS tokens in return for shares.

Alpha alert: keep an eye out for a fun twist on this concept powered by Moloch V3. 😉

4. Trustlessly track DAO member reputation

The non-transferable nature of shares and loot make them excellent forms of context-specific reputation. Since each is stored on-chain and can only be changed by DAO proposal, the reputation is fully controlled by the community, without any trusted admins or intermediaries.

Using shares as reputation ties voting weight directly to community, peer-generated reputation. The community decides who influences how the community takes collective action.

5. Staking compensation for DAO shares

A powerful extension of Pattern #4 this concept incorporates Pattern #3. As contributors are compensated for the value they create for the DAO, they are periodically allowed to stake a portion of their compensation in return for DAO shares.

A number of DAOs – including Banyan DAO – have started using Coordinape to allocate tokens to contributors, who can then stake for additional shares. In this way, voting power in the DAO tracks with who the contributors collectively judge to have created the most value.

6. Decrease DAO funder risk with exit rights from loot shares

Traditionally, crowdfunders and investors are taking substantial risk when sending funds to a project. They typically have little to no say over how the funds are spent, and – apart from triggering long, drawn out legal battles – don’t have much recourse if they no longer think the project is worthy of their funds. This high barrier to capital formation depresses the total amount of funding available for worthy projects.

By giving funders loot shares in proportion to their capital contributions, Moloch DAOs can decrease funder risk even as the DAO itself maintains autonomy over how to spend those funds. While the core team has full shares for voting on proposals, funders’ loot shares give them ragequit rights, so they can exit with their fair share of the remaining funds if they no longer value the direction of the project.

A number of projects have used this pattern, including crowdfunds like Raid Brood as well as projects using Community Contribution Opportunities.

This pattern is also composable with DAO voting tools like Snapshot, allowing funders to signal their preferences via off-chain votes in proportion to their loot shares. Gasless signaling with strong exit rights is a governance pattern worthy of its own section, if only this article didn’t already have a nice round ten sections!

7. Moloch DAO instead of a multisig

Multisigs are one of most widespread innovations in the web3 space, and for good reason – they are awesome! Multisigs offer significantly better security than placing trust in a single person, and they can move quickly to take action when there are enough signers present to approve a transaction.

Moloch DAOs can mimic multisig functionality with the use of Minion Vaults. The Minion component – which you can think of as a modifier on how Moloch DAO proposals work – has an early-execute feature which allows a proposal to be executed immediately once a configurable quorum of DAO shares has voted Yes.

So what’s the advantage of using a Moloch DAO in this way instead of a multisig? First, while multisigs can only use one-person-one-vote models, Moloch DAOs support variable voting weight among members. Second, while multisigs don’t scale well beyond ~15 signers, Moloch DAOs scale gracefully up to ~150 members.

Further, this pattern is a great fit for pods or subDAOs, especially in composition with Patterns 3-5: to join the subDAO, members stake their parent DAO tokens to receive shares in the subDAO, and can earn more shares as they create value within the subDAO.

8. Multiple membership tiers

Some DAOs need multiplier tiers of membership to, say, categorically distinguish between brand new contributors and those with more experience. A common method for creating membership tiers is to use different non-transferable NFTs for each tier.

This meets the basic requirement, but misses an important nuance: in a healthy DAO, membership between tiers is fluid, not static. In such a strict categorical structure, the high degree of friction involved in the step change required to move between tiers hampers mobility.

Moloch DAOs offer a better approach. Using shares thresholds (see example below), DAOs can establish tiers in much the same way as the NFT-tier approach, but with the significant advantage of creating a much smoother path to move between tiers. As DAO members earn more shares – such as via Pattern #4 or #5 – they gradually progress towards the next tier. Once they cross the threshold, they automatically join the next tier, without requiring a special approval from the DAO.

DAOs can even add loot in as a second dimension if they really want to get fancy with membership categories.

Example tiered membership in a Moloch DAO:

9. Delegated work streams with Minion Vaults

Minions are Moloch DAO middleware that enable a DAO to control a Vault, a side account that is not ragequittable. Vaults are typically Gnosis Safes, which means that a DAO has the option to either a) control the Vault itself, or b) delegate a set of individuals to act as multisig signers on the Vault.

(A) is essentially Pattern #2, but (B) is a whole new concept. The DAO can delegate responsibility to a subset of its members while retaining the ability to pull funds back into the DAO if the delegates go rogue or MIA.

The concept of shared control is a hallmark of Moloch-style governance, but the ability to concentrate responsibility for driving actions within a certain domain is a new tool to break through anti-action bias that can creep in with the free rider problem as a DAO scales.

10. (Better) Progressive Decentralization

The progressive decentralization playbook recommends that web3 projects begin with a small core team organized roughly as a traditional startup, then iteratively open up operations and decentralize governance. This is good, but it doesn’t grapple with just how hard it is to a) give up power once you have it, and b) jump immediately into decentralized governance practices after a token distribution event.

Moloch DAOs offer a better approach to progressive decentralization that is…well, more progressive. Instead of beginning as a traditional startup, start with a Moloch DAO. Even before you have funds and there are only a few team members (e.g. co-founders), it’s valuable to use Pattern #4 to recognize and track the value of contributions by the early team members with additional shares.

Most importantly, starting as a DAO from day one builds up your non-hierarchical decision-making and collective action practices and culture, increasing the odds that you’ll have the foundational processes and mechanisms in place once you’re ready to fully decentralize.

When the time comes for funding, having a DAO gives you the option to use Pattern #6 to broaden the type of person or organization willing to contribute funding. Pattern #7 can help hold and manage the funds as a DAO, while Pattern #5 can supercharge your contributor reputation incentives.

Finally, once your project and DAO are more mature, you can launch a token and incorporate it into your DAO with Pattern #3.

Alpha alert: this becomes even more integrated into the DAO with Moloch V3. 👀

The (better) progressive decentralization playbook:

  • Start with a DAO with no funds and a few cofounders
  • Periodically give co-founders shares to reflect their contributions – Pattern #4
  • Bring on additional contributors and periodically give them shares as well
  • Funds (e.g. from fundraising or revenue) go in a vault – Patterns #6 and #7
  • Create a token and distribute an appropriate portion to the community by dropping it into the DAO treasury – Pattern #3

Onwards

At DAOhaus, we are as bullish as ever on what Moloch DAOs enable communities to accomplish together, which is why we continue to invest in them as the foundation of our mission to build cultural and technological coordination tools for communities that reinforce the autonomy of their individual members.

If any of this excites you even a smidgeon as much it excites us, we’d love to talk! Drop us a line in discord and tell us Mirror sent you.

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