Sacred Finance — Crafting our DAO

In the place of nation-states you will see enclaves of various kinds. These new, sovereignties will cater to different tastes, enforcing regulations within their spaces that appeal to the segments from which they draw their customers.
— The Sovereign Individual (1997), abridged

In order to create our DAO with the help of our community members, we need to establish the purpose of the DAO by first understanding why firms and organizations exist.

The origin of firms

Over centuries, humans have come together to accomplish goals that were otherwise impossible for individuals. More recently, firms have formed with walls, legal bindings and other boundaries.

In the 1800’s, economists began to study the efficiency of firms, including their sizes but also more importantly, why the were better than the free market in accomplishing goals. Why did an entrepreneur find workers and give them life time contracts instead of hiring and firing depending on the tasks his firm needed at each point in time?

Why do firms exist?

In 1837, Ronald Coase wrote on why firms came into being. Though simple, his proposal won him a Nobel prize in economics. In a nutshell, he concluded that firms (or companies) are better at reducing 3 types of costs:

1. Search and information costs (Finding skilled workers)
2. Bargaining and decision costs (Agreeing on compensation)
3. Policing and enforcement costs (Checking the quality of work)

Traditional firms are governed by an elite

In simple terms, when a company wants to complete a goal, such as writing a piece of code, they need to:

1. Find a coder
2. Agree on a fee
3. Ensure the code was delivered correctly.

Once it finds a good worker, it holds on to them to reduce future search, bargain and policing costs. These extra costs can be both excess time and money spent.

Although firms are superior to the free market, they are also controlled by the entrepreneur and workers have no share in the decision making process.

Credit: Medium

The firm has superior advantages to reducing costs, but also has the ultimate disadvantage of excessive centralization.

Enter the DAO

A DAO at its core is an organization that enables the collective management of community owned goods. These goods can be anything from a simple investment DAO that manages a treasury and investments, to a more complex set up with many moving parts.

All voices are equal in a DAO credit: Etsy

Bridging the Market and the Firm

Like a firm, a DAO tries to minimize its transaction costs by finding aligned, long-term members but also giving them the power to vote and choose the direction of the DAO. The key differentiator is that a DAO is co-owned by all of its contributors who all have skin and interest in the game.

While firms are bounded by walls, contracts and top down decisions, DAOs are decentralized.

However, in order to function like a firm but remain decentralized, DAOs need to solve the complexities of:

1. Communication — How do you enable different people in different time zones and jurisdictions to exchange ideas?
2. Coordination — How can you organize a decentralized group of people with different talents, cultures and skill levels?
3. Governance — How do you give them a voice so that they can vote on decisions of the DAO?

Crafting Sacred’s Dao

These functions need to be organized with both centralized and decentralized tools, to make sure the DAO can work efficiently. Centralized tools are a short term concession until more decentralized tools become available.

Communication

Two types of communication mediums (tools) are needed:

1. General communication (e.g. slack/ discord)
2. Pivotal communication (forums where each thread is geared to debating the pros and cons of a specific proposal). The goal of this communication medium is to ‘pivot’ on a decision finally through a vote.

Coordination

Cooperative work needs to be coordinated to succeed. Broadly, a DAO has ‘departments’ or workstreams that serve specific functions, such as product building, marketing and strategy/ business growth.

Each stream needs to coordinate within itself and also with other streams to achieve a specific purpose. Each stream also has:

1. Major projects that need several actors to complete
2. Minor tasks that can be done by an individual

For coordination to work, the following items need to be elaborated:

1. DAO Workstreams

• What workstreams are needed to fulfil the DAO’s overall purpose?

2. DAO Ways of Working

• How often should the DAO meet?
• In what way? (voice/ asynchronous)
• What tools should the DAO use (e.g. DeWork, Notion, etc.)

3. DAO Processes

Each task the DAO does needs to go through certain steps which need to be defined, such as:

• Ideation/ Planning
• Goal setting
• Task assignment
• Work approval
• Payment

Governance

1. Purpose (our why), Principles (our beliefs) and Process (how)
2. Org structure — What ‘departments’ does the DAO have and what functions to they serve?
3. Membership process — What entails membership into these departments?
4. Decision making — How are minor and major decisions made? Minor decisions can be passed unless vetoed within a short period, while major decisions could need a quorum to pass.
5. Arbitration & Conflict resolution — How are conflicts handled?
6. Dividend Distribution — How are permanent members compensated?
7. Contracting or hiring staff — Who decides when to hire and contract?
8. Record keeping — Where are meeting minutes stored?
9. On chain parts — Which parts should be on the blockchain?
10. Off chain parts — Which parts can stay on a forum?

Governing the Treasury

The treasury deserves special mention as a part of governance, since it finances the DAOs activities. The storage, diversification and management policies of the treasury all need to be agreed on.

Involving you, the Sacred community

We have entered the stage where we can begin to build out our DAO by considering and refining all of the parts above. We will soon open up discussions to help us refine the current ideas we have, and also open up to new ideas that can improve our DAO structure.

We welcome contributions from users who have had experience creating or contributing to other DAOs. If you are interested and do have the experience, jump on our discord and send a PM to JAM and let us know what experience you’ve had!