Decentralized Compensation of Labor in DAOs

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A critique by Adrien Book:

"DAOs today are composed of two classes of people: Core Contributors and Edge Contributors. The former are employees of sort, and earn a stable base pay from the organization. The latter are attracted to the organization’s mission, and volunteer their skills to perform tasks. They will usually expect a reward for their work. But the money set aside for salaries and rewards is not infinite, and must be shared fairly between contributors. Many DAOs have turned to tools such as Coordinape to tackle this challenge. This solution allows organizations to create “circles” of contributors (the equivalent of teams). Each member of the circle is given points and allocates them to other members of the circle over a certain period. The higher the perceived “value” of the work done, the higher the number of points received, and the higher the financial reward. If that seems too easy, trust your instincts.

DAOs are automated to ensure no funny business happens after the votes are cast (hence the “Autonomous”). However, point allocation requires that one trusts there is no collusion between actors in the team before the vote. This is strange, given that one of web3’s key selling points is the “decentralization of trust”. In fact, a point system begets constant feedback and transparency to avoid resentment and communication breakdowns. An argument can be made that this helps contributors concentrate on more value-adding tasks; but that’s some Invisible Hand/Neo-Classical Economics bullsh*t.

The Coordinape method also requires a common definition of “value”. This does not exist, trust me. Even if it did, while apps development can easily be itemized, a company strategy cannot. To say it another way, creating an API is a more concrete task than a marketing plan, but is less valuable. DAOs don’t account for this, which means two things. A) technical skills are better rewarded as easier to define, and B) less precise tasks will be either grossly over-estimated or under-estimated compared to market prices, leading to an unsustainable cash burn rate or contributor demotivation.

More worryingly, people who are the loudest in reputational systems are more likely to get paid the most. This has been repeatedly proven. We also know this overwhelmingly hurts minorities and women. Large companies have processes to fight this. In the case of DAOs, showmanship is reflected in compensation and thus baked into the organization’s DNA. The reproduction of existing power structures might become ever-more pervasive if not addressed head-on.

Finally, compensation often consists of Native Tokens (never smoke your own supplies, kids) or Stablecoins (which are worthless). As of this month, my landlord still only accepts fiat currency. As such, I theorize that only people that can afford to do so will participate in DAO projects, which will further bias the organization.

In summary, decentralizing pay is silly at best, and outright unethical at worst."