A Framework for DAOs
Decentralized Autonomous Organizations, or DAOs, are a new way to organize work and learning. This Cambrian explosion of decentralized organization creates unparalleled opportunity to solve major challenges, create innovative ideas, learn together, and simply have fun with likeminded friends. But, the growth in DAOs inevitably means competition - competition for both the attention and skill of members.
DAOs will need to be more specific about their audience and their topic in order to attract members and keep them coming back and working with the DAO.
The Meyer Matrix (who doesn’t love a good self-referencing alliteration) provides a framework for categorizing DAOs and identifying future opportunities for DAOs. As the Smiling DAO Curve shows, DAOs will be more successful when they are differentiated by subject matter expertise or when they are industry aggregators that offer the best way to discover people, ideas, and work opportunities.
The Cambrian DAO Explosion
The first DAO was founded, ultimately unsuccessfully, in 2016. The real growth in DAOs however happened in 2021 as the technology, financial instruments of crypto currency, and hype created a perfect flywheel for the growth of DAOs.
After months, or sometimes years, of lockdowns and working online, DAOs were just less weird to people. Of course we would coordinate, work, learn, share, socialize, and build online together! By the beginning of 2021, DAOs collectively had about a million members and the top 20 groups had $14B in digital assets.
In September of 2021, Crypto Culture and Society (CCS) blazed the trail and coined the term “learning DAO,” building "liberal arts for crypto." Numerous DAOs followed suit.
This model of organizing education points to a future where new centers of learning could be launched and owned by learners, opening up the benefits of education to all, including the 93% of the world that has not studied past high school.
Similar decentralized models are forcing a rethinking of industries from venture capital to sports and real estate to music. But the question is: where is this all heading?
As anyone active in DAOs know, the fatigue of DAO membership is real. Having dozens of Discord icons and a stream of messages from disparate communities is distracting at best and tiring at worst.
As the twoplus blog notes:
Good design of DAO tools should start with our brains and body cycles in mind. For example, accounting for our strengths in tackling complex tasks but also our limits in processing vast amounts of information and our need to tune-off regularly.
Good design of DAO environments and cultures should start with our deepest psychological needs at the core. For example our need to socialize and connect with others. As much as our need for things like stability and freedom.
Instead of forcing people into unsustainable and dangerous environments, designing DAOs for people will be a winning strategy. What’s good for contributors is good for your DAO.
People are DAOs first and last differentiator. Because the Web3 world is open-source, technical edges are less defensible. Eventually it all comes down to an engaged community, a pool of talented contributors and a great work environment.
In the global competition for people, only DAOs that manage to craft good contributor experiences will attract, engage, and retain the people they need to thrive.
As we hit our capacity to focus and begin to lose interest in constant experimentation, DAOs will become more competitive.
DAOs will refine and clarify the audience they want to attract and the topic they are working in. The Meyer Matrix creates a framework for categorizing DAOs on these two criteria.
The Meyer Matrix - a Framework for Categorizing DAOs
Organizing by Audience
People are the most important element of a DAO. That's why the audience of a DAO is an essential place to start in categorizing their work. Let’s use the example of learning DAOs.
Some DAOs will focus on a very specific audience. The k20 DAO, for example, works specifically with educators and administrators in education. The Shiny Object Social Club (Shiny) focuses on tech builders. (While not a traditional learning DAO, it’s where I learned much of what I know about web3.)
Other DAOs focus on a broad audience. Invisible College is for anyone curious about getting started with web3. CCS offers a community exploring web3's societal impact and "[grappling] with what it means to truly live our lives online — to be our ‘digital selves."
Organizing by Topic
DAOs are further differentiated by their topic - what they discuss, learn about, work on, and get excited about.
Some DAOs focus on a niche topic. Using the learning DAOs, k20 DAO focuses on education in the web3 space. Invisible College is also focused on a niche, looking specifically at web3 including crypto, NFTs, DeFi, and DAOs.
Other DAOs take a broader approach to their topic. Shiny covers all things web3 in addition to: no-code, automation, the creator economy, play-to-earn games, hardware and software, and even a bit of friendly chat about whiskey.
CCS is similarly broad in their approach. Their upcoming Season II includes topics as varied as: multichain scaling strategy, public goods, music and web3, comparative organization structures, art history, communications in the digital world, and community management.
With these two categories as the anchors, we can build out The Meyer Matrix and place DAOs on the spectrum of niche to broad audience and niche to broad topic areas.
Using the Meyer Matrix
The Meyer Matrix highlights opportunities in the DAO landscape. When there is an opening in one of the quadrants, it points to an opportunity for new and existing DAOs.
While the above example was creating with learning DAOs, the same could be done with any topic area or for all DAOs. For example, here's how I would categorize DAOs related to arts and culture.
- Water & Music - niche audience (music industry professional) and broad topic (the intersection of music and technology)
- Friends with Benefits - broad audience (people who support culture) and broad topic (arts and culture generally)
- PleasrDAO - broad audience (DeFi leaders, NFT collectors, and artists) and niche topic (purchasing culturally significant digital art)
- mxtter DAO - niche audience (artists) and niche topic (generative art)
This matrix can be helpful for both DAO creators as well as individuals looking to get involved with a DAO.
New and emerging DAOs will want to carve out their own identity. They might want to look first at DAOs working on a similar topic. With this comparison, they can decide if they should get more specific on the topic or try to become an aggregator, connecting disparate individuals all somewhat interested in the same broad topic.
They may also want to create a strategy based on the audience. If they can connect with a specific group of people, they can let the topics be wide and varied. Alternatively, they may see an opportunity to become the DAO aggregator, attracting a broad audience interested in a wide variety of topics.
We can label these four quadrants based on their characteristics:
- DAOs with niche audiences and niche topics are subject matter experts
- DAOs with a broad audience and niche topics are subject matter aggregators
- DAOs with a niche audience and broad topics are industry matter experts
- DAOs with a broad audience and broad topics are industry matter aggregators
While there is market opportunities for DAOs in all four quadrants, experience from other industries show that the greatest value will accrue towards subject matter experts and industry matter aggregators. This is known as the Smiling DAO Curve.
The Smiling DAO Curve
Industries as varied as technology manufacturing, online gaming, and media have shown that in a competitive environment, value accrues to the edges. This is what is known as The Smiling Curve.
The Smiling Curve was coined by Acer founder Stan Shih to explain where the profits were in technological manufacturing. According to Wikipedia:
A smiling curve is an illustration of value-adding potentials of different components of the value chain in an IT-related manufacturing industry…According to Shih’s observation, in the personal computer industry, both ends of the value chain command higher values added to the product than the middle part of the value chain. If this phenomenon is presented in a graph with a Y-axis for value-added and an X-axis for value chain (stage of production), the resulting curve appears like a “smile”.
Ben Thompson took this framework and applied it to the publishing industry, specifically thinking about news and the difference between news outlets and aggregators like Google and Facebook:
When people follow a link on Facebook (or Google or Twitter or even in an email), the page view that results is not generated because the viewer has any particular affinity for the publication that is hosting the link, and it is uncertain at best whether or not their affinity will increase once they’ve read the article. If anything, the reader is likely to ascribe any positive feelings to the author, perhaps taking a peek at their archives or Twitter feed.
Over time, as this cycle repeats itself and as people grow increasingly accustomed to getting most of their “news” from Facebook (or Google or Twitter), value moves to the ends, just like it did in the IT manufacturing industry or smartphone industry:
The Smiling Curve points to the future of DAOs. Just as happened in the publishing industry, it is likely that the majority of the value for DAO members will be found in either industry aggregators or subject matter experts.
Subject matter expert (SME) DAOs will attract the expert members who want to work with the best and become masters at their craft. There will be a pull within the community to become more and more niche as other DAOs emerge.
Just like a Substack author or well-known artist, these DAOs and contributors will produce expert content and products that others will use and reference. People who want to be surrounded by the best will be attracted to these communities because they can spend time with experts who will help them learn and find professional opportunities focused on their specific passion. In short, these SME DAOs are the content creators on the left end of the smiling curve.
DAOs that are industry aggregators (IA) will reduce the friction for members to get what they want.
Just like Google or Facebook make it easy to find information or entertainment, industry aggregator DAOs will help members join one DAO and find everything they need, from friends to bounty opportunities to learning opportunities. Much of what happens in an industry aggregator DAO will be uninteresting or irrelevant for most members, but that doesn't matter. What matters is there is always something from them to find that fits their interest. These IA DAOs are the content discovery platforms on the right end of the smiling curve.
Over time, then, DAOs will be pulled towards these two poles.
DAOs like Shiny will either want to become more broad in their audience, moving towards aggregator status. Or, they will want to become more niche in their topic, moving towards subject matter expert status.
As an active member in the Shiny community, it is easy to see this already at play. While the community started with around 100 or so active members, there are now tiered levels of membership. Shiny Feathers sold out, bringing with it access to a majority of the content. Additionally, a successful application with 250 $SHINY token grants membership to the community to enable a broader audience to join. Over time, I see Shiny becoming the content discovery platform for a broad range of topics, mostly connected with building and creating with technology.
DAOs like Invisible College will feel the same pull. They could become more niche and move towards k20 DAO, going deep on key topic areas. With their broad audience already in place, they may alternatively feel the pull towards aggregation, much like Shiny.
This pull towards aggregation seems most likely based on their short history. Recent events have included talks on the creator economy, the legal side of DAOs, token investment opportunities, and specific tutorials on how to use web3 tools. It would not be surprising to see them expand their offerings to include topics on mental health in web3, discussions on communications and digital identity, and even offering a broader array of educational opportunities as a new kind of college.
Riding the Smiling Curve
DAOs can use the Smiling Curve as a blueprint for its work. Fortunately, DAOs are much more fluid than a traditional business. This advantage could help them straddle the matrix and ride the smiling curve, acting as both an aggregator and expert with the right strategy.
If the goal is to become an aggregator or an expert, DAOs can get there in three different ways.
1. Seasonal Focus
Many DAOs operate on "seasons" as a way to focus their work, much like a company would have quarterly goals. DAOs could use these seasons to focus their efforts on broadening or niche-ing the topics they work on.
2. SubDAOs
One of the best ways to further niche and/or reach a broader audience is through SubDAO's. A SubDAO is a DAO that is spun out of a parent DAO. Think of it like a company creating a new product line.
SubDAOs allow DAOs to get more specific in their topic focus by having specific team members dedicated to a niche.
While a single SubDAO would help increase the expertise in a topic area, spinning out multiple SubDAOs would build a broader audience as well, helping a DAO to both create differentiated content while providing a platform for content discovery. The full smile! 😀
This model is in its infancy so it remains to be seen if a DAO can both spin out SubDAOs and still maintain communication and discovery across the multiple communities.
3. DAO Partnerships
DAO-to-DAO collaboration is lacking. It could be an important way for DAOs to increase expertise in niche areas while also reaching new audiences.
In The Meyer Matrix, it would make sense that aggregators would partner with experts. Invisible College could partner with k20. Invisible College gets the benefit of expertise for a segment of their community, while k20 gets additional exposure and reach, helping them to find more educators who would want to join their DAO.
Similarly, Shiny might benefit from a collaboration with CCS. CCS gets experts on a wide-range of topic areas that will help it better help members discover what they're looking for. Shiny gets exposure to new members to help it continue to build out its expertise.
The Strategic Future for DAOs
DAOs offer new opportunities but will face the same challenges of traditional businesses, namely the need to compete in a crowded marketplace. As talented contributors find their digital home in their favorite DAOs, there will be a consolidation around subject matter expertise and industry aggregation.
The Meyer Matrix can help DAOs find their focus to better make an impact. Similarly, The Smiling DAO Curve can help these DAOs build a strategy for long-term success.
A future where DAOs can create sustainable impact on industries ranging from education to culture to real estate is something to smile about.
Special thanks to hathr0 for feedback.