A Useful Way of Thinking for Governing a DAO: 1. Governance of a DAO – Benefits, Costs, and Risks

A useful way to talk about governance of DAOs is to focus on value and how a DAO maximizes it. This is value in the broad sense of something people care about. Money is one way to measure value, but it is not the only way.

Many approaches to governance miss this, which causes a lot of issues. In traditional organizations (tradorgs), governance is equated with committees, boards, and such. In much of the DAO space, governance is equated with voting. These ideas aren't wrong per se, but they are limited.

A useful formulation of value comes from a group called ISACA and their COBIT framework. They break value down into three components - benefits, resource costs, and risks. For our purposes, simple definitions suffice. A benefit is anything an entity deems good. A resource cost is anything with a limited supply that an entity can deploy towards something. A risk is anything that could reduce benefits or increase resource costs.

A successful DAO provides more collective benefits than it expends in resource costs, with a level of risk it can stand. Again, this is about more than finance. Benefits may also be physical, emotional, intellectual, spiritual, or a combination. Resources can be tokens, attention, expertise, and beyond. Whatever matters to its members.

COBIT also calls out 3 aspects of governance - evaluate, direct and monitor (EDM). While not as fun as electronic dance music, it is a useful framing that works in a cycle. At all times, a DAO:

  • Evaluates opportunities that may increase value and threats that may reduce value.

  • Directs resources and capabilities to increase benefits and/or reduce resource costs and risks.

  • Monitors risks, resource costs, and benefits delivered against expectations.

Each of these aspects supports the others, and when done well the result is success - however the DAO defines it.

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