In the span of just six years, the once-nascent concept of the decentralized autonomous organization (DAO) has grown into a rich tapestry of fluid organizations and token-powered communities. Today, DAO governance is considered to be a new universal primitive for value generation and capture across digital markets and industries. The thinking is that, in all instances in which value is generated by networks of prosumers and consumers, a DAO model has the potential to reallocate value capture to the network.

To date, several DAOs manage multi-billion-dollar treasuries and, at the time of this writing, collectively administer more than US $55 billion within decentralized financial (DeFi) applications controlled via token-weighted voting. The sheer size and volume of the cashflows generated by these organizations offer the promise of rapid future growth, a point noted by venture capitalists who, seemingly undeterred by price volatility, continue pouring money into the rapidly growing industry.

Although we are just six years into the making of these new vehicles for human organization, early ventures lay out a pattern of innovation that, if managed correctly, may have fundamental implications for the way business is conducted in the 21st century.

Despite high hopes for the disruptive potential of these concepts and technologies, participating in a DAO is far from easy. Hopeful contributors often find themselves dissuaded by technical challenges while onboarding the DAO alongside steep financial barriers to entry. In practice, DAO governance happens through three channels: (1) governance forums where proposals are submitted and discussed, (2) a voting tool where proposals are voted on by holders of governance tokens, and/or (3) weekly or monthly stakeholder Zoom calls that are recorded and uploaded to YouTube for playback.

Although these communication channels have been successful in facilitating the first generation of DAO governance, it is not immediately obvious how these ad hoc attempts at asynchronous coordination will scale to the next million stakeholders.

We believe that Web3 social media will serve as an accelerant for innovation in DAO governance by introducing the concept of co-ownership to digital economies. This will promote a new level of accessibility for decentralized technologies, unlocking new commercial incentives and driving adoption among creators and consumers.

How Will Web3 Social Media Drive Innovation in DAO Governance?

Although the still-abstract concept of Web3 social media may not immediately appear relevant for the current generation of DAOs, we believe this tooling will emerge as a force multiplier for the growth of token-powered organizations. We think Web3 social media will:

1. Promote accessibility in the decentralized technology stack

2. Bring commercial incentives for value capture to the forefront

3. Create a new standard for identity on the blockchain

First, the concept of social media delineates an entirely new set of requirements for the decentralized technology stack, for which a commercial incentive is not yet present. Although most DeFi users and stakeholders in existing DAOs may find the mandatory signing actions required in allocating funds or voting for proposals cumbersome, signing actions are sensible at a fundamental level and mimic the behavioral patterns required to move funds in traditional banking.

This will never be the case for Web3 social. The current state of Web3 social solutions still requires frequent signing operations, but the drive to introduce keyless signing will create a new level of usability for decentralized technologies. Coupled with the release of smartphones that can store and secure private keys and new techniques for comfortable and easy key recovery, DAOs will become far more accessible to the average user. There are several emerging solutions to private key encryption and social recovery on the market today, and drivers to reduce requirements for signing operations further will multiply as demand accelerates.

Second, as the obstacles related to private key generation and storage are mitigated, the commercial incentives for content producers will become increasingly relevant. Not only will content producers on Web3 own their content, data, and followers, but they may derive a far better negotiation position from their ability to move to an alternative platform. This will return negotiation power to content producers, as Web3 social media platforms will compete to attract the most popular personalities by offering token-based incentives alongside larger cuts of advertising revenues.

This development will attract first movers, to whom the commercial incentives of owning their content while becoming an early token holder in the DAO managing the platform will appear extremely attractive.  

Similarly, consumers will be able to leverage their resources by selecting what advertisements they are exposed to and the extent to which advertisements can be targeted to their specific profile. Calculating the average revenue generated per user on leading social media platforms today provides a sorry indication of how advertisers price consumer attention, but the introduction of a bilateral model for advertisement is likely to increase both the price and returns for targeted advertisements (and opens the door to new commercial models on which Web3 social media platforms may seek to compete).

On one hand, a platform may look to create a high-quality supply of content by offering token-based incentives for creators, allowing users to opt in for selected advertisements. If consumers are empowered to select categories of advertisements they are willing to consider, advertisers will be incentivized to pay far higher rates for what are, essentially, qualified sales leads. As there are no intermediaries extracting rent from the transaction, the total time spent browsing social media may become redundant, creating a tacit incentive for quality over quantity in the moderation of content and advertisement. On the other hand, platforms may push to create new demand by attracting users with token-based incentives for time spent consuming content and watching ads.

In both cases, the DAOs forming to govern these platforms will grow as a consequence of their ability to successfully create value by matching demand- and supply-side incentives, without extracting rent.

Third, the presence of a verifiable social history is a powerful enabler for the notion of identity in token-powered decision making. By referring to the existence of a vast network of followers and connections, some of whom will have a verifiable physical presence, proving your abilities and commitment as a newcomer in an existing or young DAO becomes significantly easier.

The existence of verifiable reputation extends beyond the use of DAO reputation into the notion of credit scoring for protocol users, which may unlock new areas of risk management for DeFi applications, as lending protocols may accept risk on individuals with a long-standing social presence across multiple communities.

One might even imagine a future in which DAOs compete to attract talent and users across verticals by appealing directly to users with an extensive on-chain social history of interacting with a variety of communities and producing content and proposals. The concept of “user acquisition” may take a literal turn, as DAOs compete by rapidly delegating ownership to passionate prosumers in the race to remain relevant.

[For more from the authors on this topic, see: “Retooling DAOs with Web3 Social Media.”]