Author: Ryan Holloway, Messari Analyst
Compiled by: Felix, PANews
Key Takeaways With the evolution of DAOs, many have adopted a workgroup structure to allocate internal labor. Among the 10 DAOs covered, more than $100 million was allocated to internal DAO labor in 2022. Of this $100 million, 55% was used for product and development plans. To remain competitive with traditional organizations in attracting and retaining top talent, DAOs should explore innovative funding approaches. Introduction
Decentralized Autonomous Organizations (DAOs) have emerged as a more decentralized and democratic alternative to traditional organizational governance and decision-making. DAOs are made up of token holders who manage protocols, elect workgroup contributors or leaders, and allocate protocol funds. The DAO treasury holds funds from the initial allocation of native tokens and protocol fees, which are used to finance DAO activities.
Like any other organization, a DAO must allocate resources effectively to achieve its long-term vision. This report studies DAO workgroups, a general term that covers the structures DAOs use to organize labor, including subDAOs, workflows, core units, guilds, and more. The report aggregates DAO budget disbursements across 10 DAOs and 5 categories, and examines the funded sub-units currently supported to outline how and where DAOs distributed resources in 2022.
(Disclaimer: This report is intended to provide a comprehensive overview of DAO compensation. However, in some cases, the lack of publicly available information may limit Messari’s ability to provide this data.)
Definition of DAO workgroups
As DAOs evolve, many adopt similar workgroup structures to distribute tasks effectively. The names, responsibilities, contributors, and terminology of workgroups vary. But in general, each workgroup is a lean, autonomous group of contributors focused on defined tasks within the DAO. In return for their contributions, the DAO pays workgroup compensation using resources from the community treasury.
Because protocols are contracts stored on the blockchain, they are designed to run autonomously and permanently. By definition, they do not require maintenance or repairs—unlike many traditional software products today. However, like traditional products, they typically benefit from upgrades, parameter optimization, and marketing.
Additionally, protocols are often created by small teams. DAOs use workgroups, workflows, subDAOs, and other mechanisms to transfer tasks from these initial core teams to a broader community. Workgroups facilitate gradual decentralization while ensuring contributors adhere to the same strict standards as the founding core teams.
Pros and cons of workgroups
Workgroups were one of the earliest attempts to organize DAO labor in a decentralized way, and they remain effective due to some of the advantages they bring. These small teams provide the ability to respond quickly to the rapidly changing crypto landscape. By concentrating resources on specific challenges or problems, DAOs can use workgroups to optimize their strategy in pursuit of their evolving vision. Another important advantage is that workgroups are employed by the DAO rather than any centralized entity, helping to resist oversight and create an open competitive environment for new contributors.
However, workgroups can also be challenging for contributors. Contributors’ performance is usually subject to DAO scrutiny, and contributors must regularly prove their value to the DAO through budget update proposals. This setup has a few drawbacks:
Naive DAO members may underestimate or fail to appreciate contributors’ work. Market volatility can hinder DAOs’ willingness to deploy more funds. Workgroups may compete aggressively for resources. Because DAOs’ needs change continuously, contributors may become outdated.
Messari collected 2022 payment data from DAOs to their respective workgroups to analyze funding. The DAOs Messari selected are based on their structures, aiming for DAOs that operate through internal workgroups. Despite these criteria, some historical data are incomplete due to newly introduced organizational structures and processes among the covered DAOs. For example, not all DAOs report or keep historical records of full-time employees when disbursing compensation. Some DAOs lack accounting transparency and agree on an amount in off-chain votes, then pay in an undisclosed quantity of stablecoins and/or native tokens at an undisclosed time.
However, it is worth noting that some DAOs have fully transparent internal funding—for example, Gitcoin’s workflows. In Gitcoin’s workflows, amounts are proposed in budget proposals; the proposals must pass on-chain voting and provide accurate historical payment data. In addition, the workflows provide extensive documentation on their concept pages, specifying roles, accounting, plans, and more.
After selecting the 10 DAOs to cover, Messari categorized these expense disbursements into five categories: product and development, growth plans, operations, marketing, and community.
(For the full breakdown of specific workgroups in each category and source, see the Miro Board)
Funded by category
Throughout 2022, $102 million was allocated from DAOs’ treasuries to internal DAO labor. Of this funding, more than 58% went to product and development; the second-highest category was DAO growth plans (22%). Each category and its specific components play a crucial role in determining a DAO’s long-term success.
Product and development
The product and development category focuses on the protocol’s technical aspects. It is responsible for protocol development, security, reliability, and scalability. This workgroup category ensures the protocol runs smoothly, which is critical to a DAO’s longevity.
Product and development costs cover a variety of product-centric areas within DAOs. These small groups, for example, include Gitcoin’s Gitcoin Product Collective (GPC) workflow, MakerDAO’s development and user experience core unit, and ShapeShift’s engineering workflow.
MakerDAO’s protocol engineering core unit
In 2022, MakerDAO granted $38 million for its product and development program. Programs related to product accounted for 75% of MakerDAO’s total $51 million allocated to its core units for 2022 (note: some funding is earned over time and not paid immediately). The Protocol Engineering (PE) core unit received the most funding among MakerDAO’s product and development spending, with $11 million allocated in 2022.
The PE department is made up of 16 full-time employees. Its core responsibility is “to expand the functionality of the Maker protocol, help maintain and operate existing smart contracts, and ensure the security and correctness of the protocol’s design and implementation.”
(Source)
The PE’s main responsibilities include:
Expanding the protocol’s functionality through new smart contracts and other anti-censorship mechanisms. Assisting with the maintenance and operation of existing smart contracts. Ensuring the security and correctness of the protocol at the design and implementation layers, from bytecode to game theory.
Growth plans
The growth category covers a range of programs designed to increase protocol usage. Examples include Balancer’s Grants program, MakerDAO’s Growth Core Unit, and ENS and Gitcoin’s public goods programs.
Funding to develop innovative ideas is a necessary expense for many DAOs. While growth plans may have different strategies, they usually revolve around increasing the use of integrations and partnerships, and deepening dApp-based dependencies. Many protocols also promote broader ecosystem growth by actively funding public goods and donating to ecosystem core developers.
Balancer’s grants program
Balancer’s grants program is one of two programs funded by Balancer under the growth category; the other is Orb. This grant program funds innovative projects and teams that contribute to the Balancer ecosystem. It is designed to support projects across various areas, including development, research, education, and community building. The program operates through decentralized and transparent processes, where all proposals are evaluated by the Balancer community and the Balancer Grants Committee. Successful applicants receive Balancer’s native token BAL.
Operations
Although it is the third-largest category, operations are crucial to how a DAO functions. This category covers legal and corporate compliance, DAO processes, and day-to-day operations. Operating expenses include the foundation, the compliance team, and the funds management team.
In 2022, 9 DAOs allocated funding to operations, making it the most frequently funded category.
Gitcoin’s DAO Ops workflow
Gitcoin’s DAO Ops workflow is an important part of its operating expenses. It is responsible for accounting, hiring, onboarding new contributors, tools, and community governance.
The DAO Ops workflow handles a large volume of operational tasks. To keep different contributing groups aligned with Gitcoin’s mission, Gitcoin’s cross-stream operations emphasize collaboration between workflows. DAO Ops also works to increase Gitcoin Stewards’ involvement in DAOs, handle personnel operations, ensure contributors can grow in their roles, provide support for Gitcoin Grantees, and manage all DAO tool requirements.
Marketing
The marketing category includes working groups dedicated to promoting the platform and increasing user engagement. For example, Gitcoin’s swag, memes [2], and marketing workflows, ShapeShift’s marketing guild, and Balancer’s Orb marketing service providers. To grow their respective protocols, these working groups host events, attend conferences, sponsor hackathons, and run social media campaigns.
In 2022, Gitcoin’s swag, memes, and marketing workflows received the highest allocation of DAO marketing funding, totaling $1.9 million.
ShapeShift’s marketing workflow
ShapeShift’s marketing workflow ranked second in the marketing category with $1.1 million. The workflow is responsible for promoting the platform and increasing user engagement. It uses a range of marketing initiatives, including:
executing marketing campaigns to support product launches, partnership agreements, and project integrations. Creating and distributing high-quality marketing content for the community.
Community
Groups in the community category focus on fostering a strong and inclusive community centered around a DAO protocol. They also promote member participation and provide education and support to the community. Examples of these groups include Balancer’s Balancer Maxis, MakerDAO’s ambassador program, mStable’s community subDAO, Bankless DAO’s education and translation guild, and PoolTogether’s community team.
A strong community is essential to a DAO’s success. It not only helps attract new users and contributors, but also encourages existing members to take on more significant roles within the organization. Community-focused initiatives typically include educational workshops, webinars, and meetups to both enhance and educate users about the protocol’s complexities.
Bankless DAO’s community-focused guild
Bankless DAO’s education and translation associations received $69,000 and $73,000 in funding, respectively—good examples of how a DAO can prioritize inclusive communities and education.
The education association is responsible for: training new members, educating new members on how to use the DAO and its tools, and hosting information sessions for members.
The translation association is responsible for: creating and distributing content through translation to deepen the global understanding of crypto and the Bankless DAO mission.
Funding allocation comparison
Comparing funding allocations across different DAOs reveals some trends and patterns. Product and development is the highest-funded category overall, with the highest average payment in 2022 at $460,000. Close behind are growth plans, operations, marketing, and community. This pattern suggests DAOs are actively investing in building and maintaining a robust technical foundation.
The marketing category (total funding of $4.5 million) has a higher average payout than operations (total funding of $12 million), partly due to category granularity: the marketing category includes only 9 teams, while the operations category includes 28 teams.
These data provide a broad overview of the funding plans, intended as a benchmark for healthy funding allocation. However, these comparisons are limited: DAOs will optimize how they make payments over time based on their evolving missions and values. Even so, the data are still helpful for highlighting the most heavily funded categories and for understanding characteristics of successful strategies.
Evolving DAO funding
As the blockchain ecosystem evolves, funding mechanisms must also continually adapt. Although many DAO tools are already available, new innovations and strategies can attract talent by improving the working environment for contributors.
More focus on performance measurement and accountability
DAOs face challenges around accurately pricing contributions, performance measurement, and accountability. To ensure sustainability, DAOs must ensure resources are allocated effectively and that contributors fulfill their commitments.
To improve accountability, DAOs can seek stricter standardized performance metrics for workgroups. While the lack of performance metrics has not yet caused any major issues, in an environment of funding scarcity DAOs may need to become more stringent.
Focus on contributor retention rate and satisfaction
Full-time DAO contributors undoubtedly face significant career risk, because they are subject to the latest successful funded proposals. Many DAOs struggle to attract professionals who already have stable income and benefits and a clear career path. As the blockchain industry develops and competition for top talent increases, DAOs may need to place even greater emphasis on retaining and satisfying their contributors. These strategies may include:
Implement more attractive and competitive compensation packages, including mixed payments based on both tokens and stablecoins, plus additional stipends and benefits. Provide contributors with more certainty through signing bonus and severance agreement arrangements. Create comprehensive onboarding and support plans for new contributors to ensure they feel valued and integrate well into the DAO. Encourage and facilitate career growth and development within the DAO so that contributors can take on more important roles and responsibilities.
These changes will lead to more structured compensation packages, similar to those in traditional organizations, including fixed salaries, bonuses, and benefits. More competitive compensation may increase specialization between workgroups and contributors, creating a more efficient market.
Experiment with new compensation models
DAOs can also benefit from exploring and experimenting with new compensation models for their contributors. Some examples include:
Secondary funding mechanisms: Gitcoin’s quadratic funding and grant matching; reputation-based incentives; Element Council: Optimistic Funding; UMA Optimistic Grants
(Source)
Multi-DAO collaboration and compensation
As more DAOs join and begin collaborating in this space, they may one day become a central source of funding grants and ecosystem programs. DAOs can improve capital efficiency by co-sponsoring mutually beneficial grants, workgroups, or development, rather than working independently. For example, DAOs could create an ecosystem-wide public goods group, where DAOs co-fund the program and provide contributor input that reflects their specific missions and values.
This idea can be seen in the pilot program for a protocol guild. In that program, DAOs such as Lido, Uniswap, ENS, Nouns, and Moloch collectively donate to support developers building and implementing EIPs for Ethereum protocols.
(Source)
Balance decentralization with contributor retention
As DAOs continue to decentralize, they must balance decentralization with retaining high-quality contributors. Because workgroups increase contributors’ autonomy, DAOs must ensure their compensation models are fair, transparent, and competitive enough to retain talent.
To achieve this balance, DAOs should:
Regularly review and adjust their compensation models to ensure they remain competitive. Foster a culture that recognizes and appreciates contributors, rewarding their efforts and encouraging long-term commitment to the organization. Implement transparent performance evaluation systems and feedback mechanisms to reflect contributors’ impact and identify areas for growth. By prioritizing decentralization and contributor retention, DAOs can create a sustainable and thriving ecosystem that attracts and retains top talent while staying true to the values of decentralization and democracy. Conclusion
It is clear that funding product and development programs were the focus throughout 2022. However, as DAOs become more mature, this focus may change.
No matter the current trends, DAOs will continue to invest time in exploring ways to attract and retain top talent, because they have innovative tools available. As Antonio Juliano puts it:
“In the long run, our goal should be to make working on the protocol feel as good—or even more prestigious—than working at a big company.”