NoDW #6: DAOs & Structural Adaptation Theory

The Newsletter of Decentralized Work: Data-driven insights on the world of decentralized work

Curated by the talentDAO community. Complied by ItamarGo

In this edition:

1. Our feature article: What DAOs can learn from Structural Adaptation Theory - Part 1

2. Author Showcase: Gordon Brander

3. Elsewhere in Web3

What DAOs can learn from Structural Adaptation Theory: Part 1

By: Saulthorin

This is the first article in a two-part series. I will discuss organization design considerations in DAOs. There will be many topics covered so we will try to keep things simple. We will dive into concepts that have existed in organizational theory literature for some time, but the focus will be on how we might apply those learnings to DAOs in their current form. There may be some new terms introduced in this article, but I’ll do my best to not use jargon, will provide definitions, and will link to external resources for further reading. For further conversations on this topic, please join our community on Discord.

Let’s get started.

What makes DAO structure unique compared to traditional organizations?

This is a largely unanswered question to date. There are certainly many opinions from DAO savvy practitioners but very little empirical research I can find gives a definite answer. So it is worth noting these are my own observations of where I see differences. 

First off, what is structure? 

When I say structure I mean the structural components of building a DAO. Some people might call this DAO governance, but I see the concepts as related but distinct. 

There are three dimensions in organizational structure that need to be considered.

1. Task structure - How work is allocated and prioritized

2. Incentive structure - How work is rewarded

3. Decision-making structure - How decisions are made (DAO governance would fall here)

Now, what makes DAOs unique? 

The simple answer is the degree of decentralization and autonomy granted to individuals as a function of the structural decisions made. The graphic below provides some distinctions between traditional organization structure and DAOs. A more interesting answer is that DAOs are the next evolution of complex sociotechnical systems. DAOs currently operate much like a digital organization would but with the added benefit of democratic decision rights and autonomous work structures enabled by blockchain technologies. The incentive to participate in a DAO is also unique. Traditional orgs are not incentivized by network effects like DAOs are. 

Figure1 : Organization structure in traditional organizations vs. DAOs

As we can see above, there are many differences between the structure of traditional organizations and DAOs. So what is a model that more closely resembles DAOs for them to learn from? Enter sociotechnical systems.

What are sociotechnical systems?

Sociotechnical systems theory (STS) is a general systems theory that recognizes there is more than one type of dynamic system. A dynamic system is simply any system that changes over time. Social systems, cognitive systems, biological systems, and technology systems are all valid perspectives on which to view the world. Formally speaking, a sociotechnical system can be defined as a system of interactions between people and technology tools that are used to enhance knowledge, coordination, and communication (Liu et al., 2006). 

I believe it is important to start recognizing STS as an appropriate description to describe a DAO. This is mainly because most of the discussion to date on DAOs focuses much on the technological systems’ component. With STS theory we are interested in the interactions between technology and the social system; much more interesting if you ask me. 

In this article, I’m more interested in structural decentralization as it relates to people, communities, and organizations. We are talking about how to build coordination systems at the social layer. More simply stated, we are talking about people, not blockchains.

What are the characteristics of a well-designed STS?

There are several features common to all sociotechnical systems:

• Should be compatible with long-term objectives of people

• Both geographic and organizational boundaries should not impede information flow (precursor to network states?)

• Should provide some sort of feedback or information to people

• The social system (culture) should reinforce the organizational structure

• STS supports human needs and values

• Design is an iterative process

Using these characteristics, let’s apply STS to DAOs and see if it still holds.

If DAOs are akin to an STS then arguably the following statements should still remain relevant:

• DAOs should be compatible with the long-term objectives of people

• DAOs geographic and organizational boundaries should not impede information flow

• DAOs should provide some sort of feedback or information to people

• The social system (culture) should reinforce the DAO structure

• DAOs support human needs and values

• DAO design should be an iterative process

So far so good. Using STS we now expand our definition of a DAO.

Current talentDAO definitions:

• DAOs are a new form of organization that consists of a shared community, with a shared purpose, with shared capital, differentiated and enabled by blockchain technology (see What is a DAO)

• a DAO is a network of contributors coordinating in dynamic virtual teams toward a shared purpose by decentralizing authority and ownership (DAO Network Health) 

• Expanded definition: DAOs are a new form of sociotechnical system that is a network of autonomous individual contributors and decentralized community members, with shared capital and purpose, operating in a virtual environment enabled by blockchain technology.

Why is there no mention of Structural Adaptation Theory and the article is almost over?

I told you this was a two-part series! The title is a bit misleading but it will make sense soon. In this article, we established a few key things as pre-work. 

• The three types of organizational structure

• How DAO structure is different from traditional organizations

• What are sociotechnical systems and features of well-designed ones

• Why DAOs are sociotechnical systems

With this baseline, we can start talking about Structural Adaptation Theory and the implications for DAO design. DAOs still need to figure out the best way to organize their structure to optimize human coordination. Structural Adaptation Theory (SAT) provides some lessons on things to consider when making decisions related to decentralization. The core tenant of SAT is a structural change in organizations as an asymmetric process. This is a rather convoluted description so I will be breaking this down in part two of this series.

In part two I plan to cover four things:

• What is Structural Adaptation Theory (SAT)?

• What three lessons can we learn from SAT when designing organizational structure?

• What are the current strategies enacted today for DAO design?

• Where do we go from here?

Conclusion

A widely debated topic currently is, what are the best ways to design a DAO and there is no single answer. I’m not going to tell you there is one best way to design your DAO, but what I will tell you is the components of your DAO you choose to decentralize, and the order you do it, matters. And there are serious implications to not getting this right. 

There is an elephant in the room though many DAO snobs might point out, and for good reason. That is, how much of existing organizational research is actually applicable to DAOs? This is one thing we at talentDAO are trying to figure out. As we develop our research we will always consult the literature but be quick to challenge our assumptions. I look forward to the second part of this article to expand on this more. 

References

• K3nn.eth, nemo-phd.eth, Mr. Nobody, & Sherifoz. (April, 14th 2022). Developing the DAO Health Survey: an open-source tool for web3 organizational effectiveness. Retrieved from https://talentdao.mirror.xyz/1rT8KGt6wHzC03UQphG-upuW8HqRX6bP9YfFTtijl0Y 

• Liu, G., Shah, R., & Schroeder, R. G. (2006). Linking work design to mass customization: a sociotechnical systems perspective. Decision Sciences, 37(4), 519-545.

• Srinivasan, B. (July 4th, 2022).The Network State. Retrieved from https://thenetworkstate.com/ 

• Wocken, L. (January 13th, 2022). What is a DAO? Retrieved from https://mirror.xyz/lisawocken.eth/DQ0N2xywJvbnog4jTD80R5orvReuOO4veZq3Muy7IqM 

Author Showcase: Gordon Brander

We were so impressed with Gordon Brander’s newsletter-worthy materials that we decided to showcase them in their own section in this edition.

Centralization is inevitable

If you are a networks nerd (we are) - this is the post for you. Gordon defines centralization through network science, explains why many networks we see out “in the wild” are scale-free networks, and lays out a thesis for network evolution from distributed to centralized and back again.

Souldbinding like a state

In this post, Gordon offers his take on one of the hottest topics in Web3 right now - digital identity. He introduces a powerful distinction between identity and legibility, explains the risks that the latter bears, and sketches out a path for digital identity that keeps legibility under control.

Decentralization enables permissionless innovation

How might you design a system for survivability and change? by drawing on design patterns from nature. In this post, Gordon explores the key innovation of the internet in network design and extrapolates insights on broader patterns of decentralization and decentralization.

Elsewhere in Web3

Social Rules for DAOs / alisha.eth

DAOs are not simply a smart contract and a set of token holders. They are a robust social environment in which DAO participants interact. Alisha draws on her experience in ENS DAO to identify a series of social rules that enable healthy DAOs: governance (re: proposal flow), a DAO constitution, forum code of conduct, and rules related to social group formation (working groups, guilds, etc.).

Dissecting the DAO / Chainalysis Team

In this preview post to their “State of Web3” report, the Chainalysis team utilizes on-chain data to offer insightful observations on the current state of DAOs: how concentrated are governance tokens? where are DAOs most common? which ones are the most well-funded? what kind of assets do DAOs hold in their treasury? Answers to all these questions and more can be found in this post.

Strategies for Delegated Voting in DAOs / Samantha Marin

Voting delegation is gaining traction in DAO governance, but lessons from representative democracies suggest that it’s not without its pitfalls. In this post, Samantha offers 4 delegation design principles to create a healthier delegation system: term limits (preventing career delegates), percentage maximums and delegate minimums (preventing risky centralization), slashing and “socialware” (preventing delegate bribing or vote-skipping), and forking & quitting (preventing parties and factions).

The General Index and Decentralized Science

It is no secret to the readers of this newsletter that we are seeing big benefits in making science more decentralized. In this post, the authors make a compelling case for how the General Index, an open source repository collecting more than 107 million published articles, can serve as a fundamental building block in driving the shift towards Decentralized Science (DeSci).

Working in Web3: Liability, Benefits, Tax Compliance, Operations, and Accounting / David Hunt-Mateo

For the many of us who aspire to have more Web3 work in our professional lives, and for those of us who already accomplished that - look no further. This comprehensive guide by MantisClone offers useful solutions to many of the tax and legal pitfalls on the way to a Web3 career.