Launching a DAO, Decentralized Autonomous Organization

Origami talked with Aragon about the attack on the use of treasury funds.

https://joinOrigami.com

Decentralized autonomous organizations (DAOs) come with a unique set of tax implications. To help DAO members and creators navigate these implications, I talked to Matt Graham, a tax consultant and blockchain innovation lead at Moss Adams about DAO taxes.

This podcast will 

1. show you how to handle taxes for token purchases, 
2. explain how to calculate taxes for earnings from your contributions to DAOs, 
3. explain the sales tax implications of NFTs and other digital goods, and
4. list software that will ease the work involved.

Kift is using van life to create a new virtual city

Part of what I do at Origami is talk to new DAO creators who have great ideas, well-written white papers, and some money—but struggle to find members. web3 projects are hard to market because the ecosystem was built in response to the mistrust of institutions. 

To learn how to promote with respect to the community's ethos, I interviewed Emily Rasowski, founder of web3 marketing firm Pop Agency. Emily is a former Amazonian who built the go-to-market strategy for Amazon Care, the tech behemoth’s major healthcare initiative. 

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To connect with us, go to https://joinOrigami.com

Understanding the organizational and management structures of traditional corporations is considered so important that it was a required class when I studied business as an undergrad at NYU, as it is for business students around the world.

But when it comes to DAO management and organizational structure, many communities expect to lead with vibes and good intentions. talentDAO wants to replace that with a scientific approach to DAO leadership. I invited its founder, Renee Davis, about how it operates, what they learned about DAOs, and how she grew talentDAO.

Listen to the podcast interview or read my notes below.

Could you give me an example of the work talenDAO has done?

Gitcoin, the crypto-based fundraising platform for raising money for public goods and open-source projects, jumped into our Discord.

They essentially said, “We have a people operations team and we want to start surveying our contributors to better understand the health of our community and the progress we’re making on our goals. We want to make sure we’re boosting engagement overall.”

We developed the DAO Health Survey last year, funded by Ocean Protocol. We open-sourced it and hosted it on GitHub. Gitcoin forked that and asked us to facilitate it, which we did.

Ultimately, that’s what we want to do. We want DAOs to approach us after seeing the research we post or content we created and ask us to help apply it to their DAOs.

What would Gitcoin have done if they hadn’t worked with you?

The alternative is probably to create their own survey, which is more time intensive. And I think people miss good survey items. There are statistical analyses that go into building these instruments, it’s a whole field of science called psychometrics.

DAOs have created their own engagement surveys, but they’re not confident they’re measuring what they meant to measure. They’re not doing analyses to better understand whether their surveys are actually predicting performance. They’re not doing correlation research.

So without us, Gitcoin might have spent more time creating a survey that may not have measured and predicted what they aimed to. And six months later, they would have been disappointed that they implemented onboarding and other practices that didn’t move the needle on engagement.

What are some management techniques you’ve seen work in DAOs?

I think having a dedicated experimentation group is really important for organizations that want to be nimble and prepared for the future of work. I think the People Ops or HR team need to be embedded within tech and not isolated from it.

From my previous days at Deloitte Consulting, I learned that companies that want to be better tech companies need to be better people companies.

How do you do it?

At talentDAO, I ran every single onboarding call. I onboarded members and shared my knowledge and vision with them.

If you look at traditional organizations, the founder or CEO would never be the one to do employee onboarding, like personally sitting down and talking with every single person.

I did that for about the first thousand people. It helped us create a cohesive understanding of our North Star. Now, when I’m on a community call, I know people. I think that’s a level of intimacy that DAOs should pursue.

What changes have you noticed about how DAOs are perceived in the past year?

It went from “DAOs are the future of work! So exciting!,” to “DAOs are not the future of work, but they might be.”

Even my excitement changed. In my first article about crypto from a year or two ago I was very optimistic, maybe even naive. I still believe in the opportunity, but we have to build more for that to happen.

I have a lot of friends who were big in DAOs who just left. They went to academia or FinTech.

To build we need revenue. We can’t operate on good vibes and altruism.

How did you get your early members?

Two places: BanklessDAO, where I was an early contributor, and LinkedIn, where I spent 10 years telling my story about wanting to become an organizational researcher. At least a third of my network is organizational psychologists working in consulting. They thought it was cool and hopped in.

One talentDAO member leads data science at SpaceX. Another works at Microsoft. Another taught at the University of Minnesota. I came from Deloitte.

It’s unheard of to have a founding team this big, from all over the world, without previous connections to each other. How many businesses can say they started that way? That’s what happened here.

Interviewer: Tell me about the people you’re helping.

Michael: Imagine someone with a notion that a DAO is global and frictionless. Then they want to do normal things, like rent an apartment, get health insurance or have benefits for like paternity or maternity leave. And they’re blocked.

When a landlord wants income verification, they can’t say, “look at my wallet.”

And then there’s health insurance, the #1 thing people look for.

A DAO can’t do all those real-world things, much less in over 100 countries, but that’s where the contributors are. So we step in and make sure those people are officially compensated.

So they could handle income verification, insurance and taxes.

People shouldn’t sacrifice interoperability with society just because they work for a DAO.

Interviewer: Can individuals join WorkDAO or just DAOs?

Michael: We actually can help some individuals.

We can’t always do it because sometimes the contributor isn’t really a contractor, by the local government’s definition. They’re an employee. In those cases, we need both the DAO and the contributor to sign on.

Interviewer: How do you handle taxes?

Michael: Our first product is Token Payroll, but it extends to fiat and includes cryptocurrencies like Ethereum and Doge, or a DAO’s native token. We allow an organization to compensate in any combination of payment options.

Governments generally expect some kind of withholding and don’t accept crypto. So we take tokens, assess how much taxes are owed to different authorities, and transmit that money.

We also handle all the forms.

All of that is our bread and butter.

Interviewer: What about token price fluctuations?

Michael: There’s an issue with compensation in assets that appreciate or depreciate.

Whenever there’s an income event, we immediately do what’s called “sell to cover.” We convert it into some fiat and withhold the amount that has to go to the government.

Interviewer: Doesn’t your business have a marketing problem because people only feel the pain once per year?

Michael: Typically, when people experience pain and look for a solution, we can’t solve their problem. We can solve future problems.

But that’s damaging to a DAO because the contributor who experiences this pain could say, “forget this. I don’t want to ever contribute again.”

We market to DAOs because individuals could have this problem once, but DAOs that are aligned with their members will experience it many times and in many different countries.

Interviewer: Your name has “DAO” in it and there’s a whitepaper on your site that explains the mechanics of a DAO, but WorkDAO isn’t a DAO, right?

Michael: We intended to be a DAO, but in the process of being one, we realized we need a progressive approach to becoming a DAO. We have one of the most expansive corporate structures in web3. We have over 100 corporations right now. We’re trying to get to every country.

Everywhere there is or could be web3 talent, we have to have a corporation, a bank account, and a license. We have to comply with all local regulations.

The most important part of our business right now is real-world corporate compliance.

Interviewer: Why aren’t there clients on your site? Who uses WorkDAO?

Michael: We haven’t been focusing on marketing, but we have well-known clients, like Gitcoin, mStable DAO, Astar, dYdX, and API3.

A highly-edited interview:

Andrew: Why can’t I see your face in this interview?

We don’t want people to focus on who we are. We want them to focus on what we built. People can trust us through our actions.

Cult invested in an anonymous founder who claimed to have previously created a multi-million dollar business. He later disappeared with your investment. Wouldn’t knowing his name have prevented that theft?

One thing that’s so beautiful about the blockchain is that not having someone’s face doesn’t mean you can’t follow the breadcrumbs.

We were able to see what happened to the funds, and despite not knowing who the person was, we were able to reach out and effectively reverse what happened and get the funds back.

And you’ve improved from that experience?

It was almost a turning point. We were able to create something like a template of how we want proposals for funding to work. Although it’s not required, we want people to come to Discord to talk to the community. We open up a workshop on every investment now. People who want funding basically pitch the DAO.

We streamlined the process so members can make more informed investment decisions.

How many projects have you funded?

105 different projects. That’s in the span of 6 months. So we’re looking at one every 3 days, on average.

That has equated to just a touch over $2 million worth of investments.

We launched February 1, 2022. All we’ve ever seen is a downward-trending market. That meant the prices we got were way lower than actual value.

We’re not investing in projects at the peak of their popularity.

Your token is called CULT. I can buy and sell anything with it. Every time I spend CULT, 0.4% of the transaction goes to the DAO’s treasury, to be invested.

Absolutely right.

And to invest, CULT holders convert their CULT token to dCULT tokens, which allow them to vote on investment proposals.

Yes, and the 50 people who have the most dCULT get to submit investment proposals, but they cannot vote. That’s an attempt to fix the issue of the top holder having the largest sway, an issue faced by a number of other DAOs.

And what happens with investment profits?

The returns are used to buy CULT on the market. 50% of that is sent to a dead wallet, burned forever. The other 50% is sent to dCULT holders, stakers, as rewards that they can claim.

Why is 50% burned?

For the same reason that for every 15.5 ETH invested following a proposal, 2.5 ETH worth of CULT is burned.

We’re deflating the supply of CULT.

There’s less available, which makes buyers have to pay more for CULT.

What does Cult believe?

Many people read the Cult Manifesto and invested because it’s such a powerful piece of literature. One of the things I really like about the manifesto is that there are a number of different issues with society.

The whole point of Cult is that we can do better. We, as individuals, should be able to make decisions for ourselves. That’s the reason DAOs came about.

If individuals invested their hard-earned money into a project, they should be allowed to make their own decisions.

How did Cult start?

Up to the point of launch, it was funded by an unknown person who goes by the name Mr. O’Modulus.

He messaged me on Twitter and said, “Read this Manifesto.” I read it and wanted to be a part of it. That was the beginning of January 2022.

We launched a presale on February 1st. We raised 178 ETH out of 250 ETH goal. It was a very, very slow start for us.

We were under $1 million market capitalization for a full 6 weeks before word got around about us. Then it took off.

What about the guardians?

Mr. O’Modulus reached out to public decentralization advocates. The idea was that these 15 figures would be some of the initial guardians of Cult.

People like David Hoffman of BanklessDAO and Kris Jones of Gitcoin.

How did you get more people involved?

It was a struggle. One reason is that with web3, there are regulations that stop you from using mainstream advertising venues.

So the number 1 rule of Cult was to talk about Cult.

We had a loyal community that would go out on Twitter. There were people making YouTube videos.

Plus there’s a bit of a shock factor with our name and logo. It’s quite strong branding.

There were also rumors flying around about the identity of Mr. O’Modulus That kind of mystery seemed to catch poeple’s imaginations.

Origami's highly-edited transcript:

Interviewer: Why did you suggest that Bankless launch a DAO?

Lucas: I was the first employee at BanklessHQ, in June 2020. I took over the newsletter to help it scale, so founders Ryan Sean Adams and David Hoffman could focus on the podcast.

We built a passionate community. Hundreds of thousands of people were passively consuming our content. I said, “Can we turn these passive people into active contributors?”

Interviewer: What does BanklessDAO do to BanklessHQ’s mission?

Lucas: It gives us scale.

Interviewer: It also gives you a token, BANK. It’s given to DAO members in return for their contributions and it comes with governance power. What’s an idea the community came up with using that power?

Lucas: BanklessDAO launched 4 or 5 media publications.

Maybe 2 to 4 podcasts.

It’s hard to keep track of everything. But they create lots more content.

They also created novel products, like Bankless Academy, which offers lessons about crypto. It’s absolutely gorgeous.

Another idea worth highlighting is Bankless Consulting. They have tons of clients, including BanklessHQ.

Interviewer: How did you distribute ownership of the DAO?

Lucas: We rewarded two groups:

Premium subscribers. When someone subscribed, we gave them a POAP (Proof of Attendance Protocol). So there was a 2020 badge and a 2021 badge. We gave tokens to those badge holders

Gitcoin Grant contributors. In the early days, BanklessHQ was completely funded by Gitcoin Grants. Anyone who contributed there was airdropped our tokens.

Interviewer: What was BanklessHQ’s revenue before the DAO was created?

Lucas: I’m not sure I could speak to it.

We had 50,000 free subscribers, and maybe 5,000 paid subscribers.

Interviewer: I think you charged $22 per month, so I calculate about $110,000 per month in revenue. Plus advertising.

Where are the numbers now?

Lucas: We saw a massive spike in free signups, paid signups, everything.

Free signups jumped 5X. Paid grew 3X - 5X.

Interviewer: Will BanklessDAO be more valuable than BanklessHQ?

Lucas: That’s the goal. I think at some point the goal is for BanklessDAO to eat HQ. HQ should be a subsidiary of the DAO

The full interview also has:

• Why BanklessDAO did well when other media DAOs didn’t.
• What happened to the community when BanklessDAO’s token, BANK, dropped in value.
• How BanklessHQ is thinking about its next move: software for web3.