Written by Yuan Han Li (@yuan_han_li) and BraveNewDeFi (@bravedefi).

There has been a cascade of talent flowing into DeFi in the last year. The DAO structure provides community members and contributors alike with greater autonomy and the freedom to work without the hindrance many of us have experienced in traditional workplaces that depend on cubicle culture and a panopticon-like approach to supervision.

Many DAOs are trying to onboard more non-technical contributors and scale their communities. No DAO uses the same approach, but it’s undeniable that small working groups empowered by token holders can more effectively scale a DAO than putting every decision to a governance vote.

Community-driven working groups are the most effective way for DAOs to engage their communities, tap into the talent lurking in their social channels, and give community members skin in the game and the resources needed for success.

Llama contributors have helped spin up a number of working groups, such as Aave’s Grants DAO, GitcoinDAO’s Public Goods Funding Workstream, Nexus’ Mutant Marketing, and PoolTogether’s Treasury Working Group. Below, we provide an overview of certain approaches, best practices, and ways in which DAOs can use specialized groups to tap the talent in their communities and put those skilled users to work for the community.

What’s the point of working groups anyway?

Scaling Governance Velocity

Depending on whether they have been imbued with executive power, working groups scale governance in one of two primary ways.

The first way working groups help scale governance is by directly removing voting overhead. Specifically, a DAO can empower working groups with the ability to execute, allowing dynamic working groups to move fast and execute without putting every decision to a vote. For example, Yearn’s Governace 2.0 proposal outlines a thoughtful way to delegate executive power to numerous working groups. Similarly, grants working groups at Aave, Uniswap, and Compound are allocated a budget every quarter to fund grants and report back to governance. If the working group has discretionary power, then this means that governance will no longer be burdened with making certain decisions. This reduces the voting overhead of tokenholders, allowing the DAO to work efficiently while voting less.

Working groups can also operate on a purely advisory basis without the need for executive power (e.g., PoolTogether’s Treasury Working Group or Nexus Mutual’s Investment Hub). A working group formed via governance receives its mandate from the community. Specifically, token holders vote to grant a working group legitimacy within the DAO and provide the group with a de facto mandate to investigate, research, and advise the DAO on certain decisions the DAO ought to take. Advisory working groups provide some form of expertise to their community, which empowers the community to make more informed decisions. There are a variety of DAOs that make important financial decisions without fully understanding the potential outcomes or impacts a vote may have. Creating an advisory working group scales governance by reducing the time it takes to achieve consensus among members of the DAO. Increasing the pace and quality of decision making is the key contribution these groups provide.

Put simply, good working groups reduce coordination costs within DAOs; they catalyze effective action with less bureaucracy.

Scaling Operations

DAOs can increase productivity by adding specialized working groups. Instead of taking a bottom-up approach to every decision, a DAO can form two-pizza teams to tackle many issues at once. It's a simple division of labor. Over time, these working groups will develop expertise, attract better contributors, and become more effective. Every DAO can achieve greater forward momentum this way.

Whether it's factories, semiconductors, corporations, or even blockchains, we have seen specialization and modularity win out time and time again. DAOs are no different.

Now that we are clear on how working groups can improve your DAO, let’s dive into a framework to help decide what powers and responsibilities DAOs ought to delegate to its working groups.

Powers and responsibilities to delegate to working groups

When a DAO is evaluating new working groups, there’s one sound principle to keep in mind: form follows function. Each working group should be granted only enough power to achieve their established objective and key results.

Working groups should always have a founding charter that the community can refer back to.

• What is the purpose and objective of the working group?
• Is the working group set up to be temporary or permanent?
• What degree of power is required?
• What type of skillsets/roles are required?
• How is decision making performed in working groups with executive power?

Let’s review PoolTogether’s Treasury Working Group (TWG) as an example.

During the formation process, the founding members of the TWG outlined their mandate and core deliverables. The mandate is to:

• Ensure safety and prudence go into every decision
• Drive future protocol growth
• Identify sustainable solutions
• Present objective data to the community

PoolTogether’s TWG acts in an advisory capacity but has access to enough funding to pay TWG contributors. This allows the TWG to attract skilled contributors but does not lead to counterparty risk issues with treasury funds.

Checks and Balances

Working groups are granted legitimacy by the DAO and held accountable by its members. This is why the founding documents are crucial to the long-term success of any community-driven team. Should incentives between the DAO and the working group become unaligned, then checks need to be carefully constructed to restrict or remove power from a working group.

For instance, Yearn’s Governance 2.0 uses the “constrained delegation” model, which allows YFI holders to grant yTeams (working groups) certain powers. If yTeam contributors are effective and act in alignment with YFI holders, then token holders need not take action. Should a yTeam become unaligned or misdirect their contributions, then the community can redirect them, restrict powers, remove team members, and even dissolve the team.

Best practices:

• Limit runway to 3-month or 6-month timeframes
• Give token holders power to restrict or remove powers
• Allow the DAO to redirect working groups
• Allow the DAO to dissolve working groups
• Though not a Check or a Balance, it is also important that the working group be filled with members with the right skills/roles

Transparency and Reporting

There should be formal and informal reporting requirements in place when working groups are established. After all, working groups should provide proof of work if they are receiving compensation from the treasury.

Examples of formal reporting:

• Quarterly/biannual performance reviews (see here for a performance review of Aave’s Grants DAO)
• Weekly working group updates (see here for an example of our work with PoolTogether)
• Regular budget expense analysis (Aave Grants provides a list of funded and outstanding grants that are updated in real-time)

Examples of informal reporting:

• Open discussion in community social channels (e.g., Discord, Telegram, etc.)
• Presence in forum discussions

Transparency in discussion is the best approach to informal reporting. PoolTogether’s TWG has read-only channels where TWG members can discuss deliverables with a general channel in the Discord server for community members to add comments and suggestions or ask questions.

While radical transparency is the goal, there are many different approaches that can work for each DAO. The point of transparency and reporting, at the end of the day, is so that the broader DAO can easily verify the work that working groups do without holding them back. Whatever form of reporting a DAO chooses should enable the community to evaluate a working group’s performance and determine whether or not to renew their funding, or possibly dissolve the working group altogether.

Budgets

As stated above, a working group should have a well defined set of objectives, key results, and deliverables outlined when requesting a budget. Each DAO should grant as much funding as necessary to allow a working group to achieve their objective.

The usual instinct is to start with a small amount of funding and scale up a working group; however, funding is the primary way to attract talent to a community-driven team. Constraining funding too much will likely constrain the ability to attract quality contributors. A DAO should strive to create a culture where talent and performance is rewarded.

Best practices:

• Budget funds should be held in a multisig
  • At least 4/7 signers to avoid any central point of failure
  • In special cases where many transactions require synchronous signing, a working group may opt for a lower threshold
• Regular budget analysis should be a requirement
  • Expenses should be tracked and justified
  • Gives token holders one way to evaluate performance
• Contributor payment should be at least 25% in native governance tokens
  • Stablecoin payments are necessary for cost of living, taxes
  • Skin in the game is necessary to align interests
  • Performance bonuses should be in additional governance token compensation

By the DAO, For the DAO

DAOs provide a powerful way to align interests around a common goal, but as communities grow, the goals become multifaceted. The heavier the burden on token holders, the greater the chance voter fatigue will plague a DAO. Allowing for specialization within a DAO and granting limited power to community-driven working groups will enable DAOs to scale, put talented contributors to work, and realize greater success. We see temporary or permanent working groups as the optimal way to sustainably scale a DAO without sacrificing the qualities that make DAOs such an effective way to coordinate around shared interests.