Reputation as a Building Block for Scalable DAOs
DAOs currently don’t have a native way to ascribe reputation to their contributors. Creating a way for DAO contributors to accumulate reputation in web3 is critical for DAOs to fulfill their promise. Assigning reputation to DAO members helps DAOs set its organizational hierarchy, advances decision making in protocol governance, and informs nuanced conversations around compensation.
Reputation as a primitive to creating organizational hierarchy
As a collective scales to thousands or even millions of individuals, we’ve codified reputation into hierarchy. In the military a soldier builds their reputation from skills that they master, and missions that they accomplish. The accomplishments and accolades that a soldier accumulates throughout their career is formalized via promotions through the military ranks. Military hierarchy is shorthand to keep track of the reputation of each soldier.
The hierarchy that is established allows the military to coordinate large groups of individuals with minimal coordination costs. When a soldier introduces themself as a 2nd Lieutenant, 101st airborne, in the Army, a peer can quickly get a sense for their status, specialty and reputation within the army. Soldiers can contextualize and coordinate with any compatriot that they meet in the battlefield without having had to follow their entire career.
Most DAOs today do not have a clear way to track a contributor's reputation. Consequently, DAOs become overwhelmed by coordination costs as their community grows due to lack of hierarchy. The lack of organizational structure makes it difficult for contributors to deduce what projects teams are working on and how they relate to each other. Existing contributors who could be working on DAO initiatives are instead pulled away to onboard new contributors. On-chain reputation is important to building an organizational hierarchy that lowers the costs of onboarding new contributors, and makes it easier for existing contributors to work together.
Reputation as a tool for governance
Bridgewater Associates, the largest hedge fund in the world, developed a framework as a tool for making decisions called Believability Weighted Decision Making. The idea is during decision making, a team leans more heavily on the opinions of individuals who have established a positive track record in the area of the decision to be made. At Bridgewater they track each individual’s believability and track record for making different types of decisions. The believability rating that Bridgewater assigns to each individual is a programmatic way of assigning reputation, which is an input that helps the firm make decisions.
Similarly in DAOs it should be individuals with the most context and applicable expertise that have the louder voices during decision making. Today’s DAO decision-making relies on numerous voices weighing in that may not have the full context to make the best decision for the DAO. DAOs also use token weighted voting, which gives the most voting power to the individuals with the most tokens. The existing process makes decision-making longer, more cumbersome, and more prone to bad decisions.
Members of the community who are deep in the weeds with full understanding of the tradeoffs of a decision should be the louder voices in the room. A meritocratic way to assign reputation to individuals allows us to listen to the contributors who are best equipped to make each decision.
Reputation as input for compensation
The Contributor Acquisition Funnel categorizes the different types of contributors in a DAO community. The “Active Contributor” is arguably the most valuable contributor that DAOs have in their community because the DAO has also spent considerable resources to convert them from a stranger into an active contributor. These loyal contributors usually have the context that helps them make nuanced decisions that a newer contributor can not match. These active contributors also multiply their impact by helping convert other passive contributors to active ones. It's important for the DAO to retain those impactful contributors in achieving their operational goals.
DAOs can use on-chain reputation to identify and properly compensate these “active contributors” who have proven their value to the community. The advantage that DAOs have over other open source-type projects, is the ability to align economic incentives for the contributors via their treasuries. DAOs have not yet fully capitalized on this advantage because it's been difficult to systematically identify and compensate contributors. In web3, talent is the scarce resource. Web3 native reputation will pave the way for DAOs to use their treasuries to fight and retain talent. DAOs that figure out how to pay contributors in a meritocratic way will have the most vibrant contributor communities in web3.
How on-chain reputation could manifest in DAOs
Here are some ideas on ways that DAOs can incorporate reputation into their community:
NFTs granted based on product usage: community members are airdropped NFTs for being an active user of the DAO’s product (ie. get an NFT for making at least 20 transactions on the platform, providing liquidity on the platform etc.)
NFTs granted based on contributions: community members are airdropped NFTs to reward the frequency and complexity of their contributions
NFTs granted based participation in governance: community members are airdropped NFTs for each governance proposal that they vote on
Reputation tokens: DAO members get tokens for joining the community, contributing in forums, completing bounties, participating in governance, and can tip other members of the community that they see who have made valuable contributions to the DAO
On-chain reputation as a resume for DAO contributors
Reputation is an essential ingredient to how we coordinate with one another in social groups. It helps us choose which relationships to invest in, who to do business with, and whose opinion to listen to. It’s pervasive where humans form communities to interact with one another – businesses have Yelp reviews, influencers have followers, redditors have karma etc. DAOs are communities missing a persistent way to track reputation.
When most active DAO contributors want to contribute to a new DAO, they have to build their reputation from scratch. Since on-chain reputation is public and visible across the web3 ecosystem, if DAOs start incorporating on-chain reputation into their communities, the contributor can leverage their reputation in other DAOs they join. This decreases the barrier for contributors to gain the trust of a new DAO community and start making meaningful contributions.
On-chain reputation unlocks a world where DAOs can coordinate communities of thousands, who freely work across multiple DAOs and are properly compensated for their labor. This is the real future of work.
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