Contributor Payments experience in DAOs: Challenges and Opportunities
DAOs are the future of work: anyone, anywhere, and at any point in time can start contributing to a digital community and start earning money. This flexible nature of working has attracted many talented folks across the world and digital communities are maturing at a rapid pace. The best part is, talent is currently scarce in DAOs and all kinds of contributors are welcomed: Developers, Community Managers, Content Creators, Designers, Operators, and Treasury managers.
Apart from flexibility, you might be thinking, what else attracts contributors to this space? Yes, you are guessing it right — Crazy high compensation!💸
But, is this experience of earning money, really the best? If yes, there is a simple question: “Why do we see a huge number of talented contributors, still hesitant to work for DAOs?” All this, despite so much flexibility and an opportunity to work for a better future!
With this question in mind, in this piece, let’s first explore the existing payment tooling landscape, then the different compensation models, problems contributors face in DAOs, their specific pain points, and how all this can be solved significantly by elevating the payment experience for the contributors.
DAOs & the Payment tools🛠:
In 2021, DAOs started picking up rapidly, and there was a common narrative, DAOs would be huge and every web3 organization or even Web2 company will eventually be DAOs. We saw every kind of DAOs from Social DAOs to DeFi DAOs to Investment DAOs to Service DAOs, getting built. This led to the “Pick and Shovels” thesis, which was inspired by the famous gold rush of the mid-1800s. At that time, hundreds of thousands of hopeful gold miners headed west in the hope of making fortunes. This was a risky bet, as not all of them would be successful, but the best way to profit from this gold was to sell these prospective miners the tools, they will mine gold — “Pick and Shovels”. Similarly, crypto is the new gold rush, and DAOs being the hottest, everyone started building “Pick and Shovels” for DAOs by the end of 2021.
The result? In just a span of a few months, we came down to saying: “There are more DAO tools than DAOs!”. Fair enough, indeed there were many “DAO tooling landscapes” flowing around on Twitter, and yet DAOs are still struggling to manage even basic operations! In this “DAO rush”, we saw a few payment tools come up:
From a payments perspective, we have seen various kinds of tools getting initial traction, and they can be categorized into the following:
- Treasury Management: These are players like Gnosis Safe, who have built a multi-sig protocol, which is essentially a smart contract, where each transaction needs to go through the signatures of X or more wallets, before paying anyone. These become immensely popular in bigger DAOs, and hold more than $40 Billion worth of assets! Some players like Coinshift are also built on top of Gnosis Safe, giving DAOs a tooling layer-like mass payouts. Then, there are projects like Llama, which are solving treasury management-as-a-service.
- Payroll & Expense Management: These players are also similar to treasury management solutions, but are more focussed on Expense Management and Payroll. Think of them as Brex or Gusto for DAOs. While Utopia is completely building on-chain, Multis is also building off-chain along with on-chain and is launching corporate cards!
- Compensation/Rewards: Tools like Coordinape are bringing a shift in how contributors are rewarded for their work, where you can allocate rewards, give feedback and distribute it in the token of choice. Their rewards value map is really cool.
- Invoicing & Contributor Payouts: Request Finance has been solving for the Web3 native Invoicing, where any contributor can invoice in cryptocurrencies like ETH, and SOL and raise a payment request with an invoice and get paid. Similarly, Parcel and Paymagic are solving contributor payouts by building a financial OS for DAOs.
Despite tools getting built to solve Contributor-DAO payments, we still see DAOs and contributors struggling with payments, implying there is a bigger structural issue, not just a tooling issue.
Before looking at contributor pain points, Let’s explore first explore how contributors work at these DAOs and the different compensation models:
Different compensation mechanisms
- Full-time: Well-funded DAOs, particularly protocol DAOs, have started giving compensation as full-time contributors, just like any startup. Protocols like Yearn and Sushi offer stablecoin-based salaries (USDC/USDT) along with a hefty amount of the protocol’s native token (i.e. YFI and SUSHI). Think of their native token compensation as ESOPs in a startup. If the protocol keeps growing, you will have skin in the game and get rewarded for that.
- Grants-based: Grants are the heart of any major DAO, which not just attracts builders but also aims to improve the protocol, and build a unique product or a public good that accrues value to the ecosystem. Generally, these grants are governed by a small committee appointed by the founding team, who reviews and allocates capital to builders. There are many contributors in the space, who are earning a living by just building products and getting grants from different DAOs/Protocols.
- Revenue-sharing: Community members can earn a portion of the revenue generated from the merch, NFT sales, or sponsorship received in content. The community provides a platform/reach while the creators get to build a service. For example, Index Coop allows anyone to create indexes and earn money as performance fees.
- Bounties: Typically, these are discrete tasks that allow community members, usually those who are new to the community to participate, add value, and get rewarded for their efforts. This is one of the best ways to attract contributors, however, with the lack of efficient bounty management tools and sustainable sponsorship models, these are still nascent, but have significant potential to make work more fluid.
- Projects or Gig-based: These are a typical freelancing type of work, where you are paid $$ for the definite task you perform for a project. For instance, someone can get paid 2000 USDC for a UI/UX design task, they are involved in or the working group/guild’s project, they are part of.
Now that we have an understanding of different types of compensation models, let’s see what problems are faced by contributors in receiving payments:
Payments Experience in DAOs for Contributors:
To understand this, let’s go step-by-step to understand the payment process and the Needs for each of the steps:
To get started with contributing to any DAOs, either full-time or part-time, a payment term must be set up, which must involve:
- Timeline: This is essentially the schedule of the payments disbursed by the DAOs, and it can be anything from one-time advance payments to deliverable-based payments to full payment, once the work is completed. For instance, a full-time contributor will receive it once a month.
- Duration of Engagement: A full-time contributor will have an indefinite duration of engagement, while short-term contractual contributors generally have an engagement duration of a few months. The duration of engagement also decides the frequency of payments.
- Amount and Type of Tokens/currency: While the majority of DAOs want to pay in form of their native tokens, stablecoins as a means of payment are getting significant traction for an obvious stable nature. Deciding the type of payment currency and the amount is critical to avoid any kinds of ambiguity.
Once the payment terms have been set and the disbursal of payments from DAOs to contributors starts kicking in:
Disbursal of Payments:
A simple way of doing this would be to just transfer from DAO’s wallet to the contributor’s wallet. But, in real-world, there are a lot of nuances around this:
- Wallet Infrastructure and Tools: DAOs can either have a single-sig wallet, just like any other normal wallet, which is by nature controlled by a single person, mostly a founder, or a multi-sig wallet, which is controlled by DAO’s core members. Setting up these wallets, and determining which infrastructure to choose for storing and transferring their assets is an essential part of their finances.
- Communication and Coordination: For the most optimal experience, a contributor would expect payment to be received exactly as per the payment terms, but this is ideally not the case. A contributor has to raise a payment request via Discord or Telegram or fill a form, follow up multiple times, give out their wallet address and then finally receive the payment. Coordination among contributors is inefficient in most cases.
- Payroll and Payouts: For DAOs with <50 contributors, this is pretty straightforward, simple wallet transfers can be performed as and when required. However, with a larger set of contributors, simple wallet transfers can be a tedious task on their own. Managing multiple payment requests, making payments pipeline, and they pay them on time is a huge operational process in itself.
Problems & Solutions in Payments:
Now, that we have understood the process, let’s now understand the different challenges faced particularly by the contributors:
Problem 1: DAO tokens are volatile
Most DAOs pay contributors in the form of DAO native tokens and the contributors keep liquidating, whenever they need money. However, in times of a crypto crash, these tokens can be down even 80%, wiping their earnings in no time. Even, blue-chip tokens like ETH, and SOL can be down more than 20%. Moreover, the value of the compensation decided keeps changing, which brings a lot of uncertainty for both DAOs and contributors.
Potential Solutions: Few DAOs have now started experimenting on a mix of Stablecoins and DAO native tokens. For example, a salary can be structured in the form of 80% stablecoins and 20% DAO tokens, giving contributors liquidity and stability as well as skin in the game. In countries like LATAM (Latin America), where currencies are volatile and there is high inflation, USD-based stablecoins have found a strong product fit. Further, with Circle now introducing EURO stablecoins, we will see a lot of innovations happening in local stablecoins, with deeper liquidity. This will certainly boost the adoption of stablecoins for making contributor payments.
Problem 2: Delayed Payments & Multiple Follow-ups
This has been a common challenge faced by contributors across various spectrums, they have to follow up multiple times and often get delayed payments, despite the fact that token payments are instant. This certainly exhausts both DAO and contributor to perform low ticket size contributions and against the ethos of DAOs. This is primarily due to operational challenges faced by DAOs and poor coordination between contributors and the management layer of DAOs.
Potential Solutions: Achieving operational efficiency is critical to solving this problem. This can be solved via Web3 native tools like escrow smart contracts, automated payouts, and payment links via apps like Request Finance. Apart from that, using simple Web2 no-code tools like Notion+Airtable can go a long way, in achieving automation and bringing transparency.
Problem 3: Off-ramps & Spending
Another concern faced by all contributors, particularly in countries like India, where off-ramp is unfriendly, is how they even spend their crypto earned. Using exchanges is becoming increasingly difficult along with high taxes, making it very difficult for contributors to earn solely just in crypto. In addition, crypto is still not recognized as a source of income and hinders many to enter full-time into Web3. Crypto is still not an acceptable means of payment, and crypto adoption by merchants is still peanuts, which means spending has to happen via Fiat only.
Potential Solutions: Off-ramps are easier in some crypto-friendly jurisdictions like Singapore, and Dubai while it’s not friendly in other jurisdictions. It’s a typical case for regulatory arbitrage, where the off-ramping happens in a crypto-friendly country in a compliant way, while the fiat is transferred from that country to a crypto-unfriendly country like India. This way it eliminates the need for any off-ramping for contributors, and they can earn these cryptos in peace.
Players like Wyre, are also offering crypto-to-cash payouts as a service, in partnership with remittance giants like Moneygram.
Corporate Cards are another solution, where all active contributors of DAO can be issued a card, and they can spend for all their business needs like SaaS expenses or Conference tickets, via the card itself. Raincard is one such project, solving this.
Problem 4: “Get a Real Job”
Let’s understand this with an example: A Developer with 2 years of experience from India works for a protocol DAO and is getting paid $60K per year, which is split between stablecoins worth $35K and Protocol native tokens worth $25K.
Now, this is an excellent package for an Indian, where the average pay is much lesser, however, they will face challenges like:
- They probably won’t get employed as an employee but as contractors. He will not get easily any Traditional finance services like credit cards, since they don’t have any “payslips” like a full-time employee.
- Navigating compliances for earning in crypto and paying taxes is a huge pain, as everyone wants to comply with their local laws and regulations, to make sure they don’t get into any legal troubles.
- Working for DAOs also means that, you will keep hearing from your family and friends that “Go get a real Job”, and let’s be honest, it also comes up with lots of Job insecurity.
Potential Solutions: In Web2, cross-border hiring is being solved by players like Deel or Remote, who ensure compliant hiring and pay-outs using Employee on Record (EOR) Models.
Similar solutions for Web3 need to be built which attract talent. A solution that helps any crypto protocol to hire anyone from anywhere in a compliant way can potentially be huge. With such solutions, contributors can now get employed full-time in their local country in a fully compliant manner, build a solid income history, and show their family and friends, that they work for just another startup. This will slowly build the credibility of Web3 companies, and ensures a faster talent transition from Web2 → Web3!
Conclusion: Elevating payments
Web3 serves us with internet-native money, and we are able to see, such fluid nature of work, where contributors can earn top-notch pay scale. However, there is still a lot of work to be done in both tooling experience as well as structural improvements, so that we see the next wave of talent enter web3, without any friction. Low-ticket size transactions are the ethos of Web3, and using efficient tooling infrastructure will be the way forward. For high ticket size transactions, Web3 has to go through structural transformations to ensure a higher % of contributors working full time for DAOs. Payments were one of the first use cases of cryptos, and we will continue to see a lot of innovation in this space!🚀