From Traditional Businesses to DAOs: Opportunities for Product Owners

Remco Loup. -

Introduction

I am already for a while intrigued by transforming a business into a DAO (Decentralized autonomous organisation). Thinking of my role as a Product Owner i thought of a way that can work very well when transforming a part of our business into a DAO. We can benefit from Scrum, Agile and leveraging a DAO altogether this way.

In my personal case below, a hybrid approach is preferable, where certain aspects of our business are managed by a DAO, while the rest remains under traditional management for now. My DAO would be used to manage our Front/Mid/Backoffice system called BOSS to make decisions of what to develop next, while the broader business continues to operate in a more conventional manner. This approach allows our business to benefit from the advantages of a DAO, while mitigating some of the risks and challenges.

Our goal is to develop this system into a SaaS product within the travel industry. And use a DAO for example to get our stakeholders involved. But you will read more about my idea if you carry on.

What is a DAO?

a DAO, or Decentralized Autonomous Organization, is a type of organization represented by rules encoded as a computer program (called a smart contract) that is transparent, controlled by the organization members, and not influenced by a central government.

A DAO's financial transactions and rules are maintained on a blockchain, which is a type of distributed ledger. This makes it completely autonomous and independent from any external or centralized control.

Imagine it like a digital company, where all the rules and regulations are coded into a smart contract. For instance, let's say there is a rule in a DAO that a certain proposal requires 60% of votes to pass. This rule is coded into the smart contract, and the blockchain will ensure that this rule is strictly followed, and can't be manipulated or bypassed by anyone.

Members of a DAO can make decisions about the rules or direction of the organization by proposing and voting on proposals, each having a vote proportional to their stake or shares in the DAO. In this way, a DAO is a bit like a traditional company but managed in a fully democratic and decentralized way.

To sum it up, a DAO leverages blockchain technology to ensure that the organization is governed in a completely transparent, democratic and decentralized way, free from any central or external control.

Tokens

Creating a unique token for a Decentralized Autonomous Organization (DAO) can be beneficial, and is a common practice, whether it's the "best" practice depends on the specific goals and context of the DAO. Here's why DAOs often issue their own tokens:

  1. Voting Rights: Tokens can be used to represent voting power within the DAO. The more tokens a member holds, the more influence they have over the DAO's decisions.
  2. Incentives: Tokens can be used to incentivize certain behaviors or contributions to the DAO. For example, tokens can be given as rewards for completing tasks that benefit the DAO, such as coding, designing, or managing projects.
  3. Fundraising: Issuing tokens can be a method of raising funds. Potential participants can purchase tokens, effectively becoming investors in the DAO.
  4. Community Building: Having a unique token can help to build a sense of community among members. It can foster a feeling of shared ownership and mutual investment in the DAO's success.

However, there are also challenges and considerations to keep in mind:

  1. Regulatory Issues: Depending on the jurisdiction, issuing a token might be considered as issuing a security, which can have regulatory implications and legal requirements.
  2. Token Distribution: Deciding on how to initially distribute the tokens can be challenging and controversial. The distribution method needs to be fair and align with the DAO's goals and values.
  3. Token Value Fluctuation: If the token is traded on the open market, its value can fluctuate, which can lead to instability and potential manipulation.
  4. Complexity: Issuing and managing a token adds complexity to running the DAO. Not every DAO might need its own token, especially if its operations are simple or if it can effectively use an existing token.

How to leverage a DAO as a Product Owner

Imagine running a Decentralized Autonomous Organization (DAO) where your customers or interested parties are able to invest directly in your product. They're granted stakes or tokens, which gives them a voice in your development process which is run in a Scrum/Agile way.

Let's say these potential customers want a specific function, X or Y, added to your product. They can cast votes for that function using their tokens, directly influencing the development priorities. This voting mechanism can draw potential customers closer to your brand and empower existing customers to shape the product they use regularly.

In effect, the features that top their wishlist become the focal point of your development strategy. The beauty of this approach lies in its transparency. By allowing your users to vote on potential additions to your product, you're showing them why certain features are prioritized over others. It's a democracy where voting requires knowing the "why" behind each decision, leading to a detailed understanding of product evolution.

This approach is a boon not only for Product Owners but also for your business at large. Instead of cloaking your development process in secrecy, you're inviting your users to be part of it. This participative approach can foster faster trust-building among customers and potential users than traditional methods.

As a Product Owner, you're still essential in filtering and interpreting customer wishes, converting them into comprehensible stories that both technical and non-technical folks can grasp.

When it comes time to select top priorities, your roadmap is already outlined by the democratic vote. This interaction allows you to engage and learn from your customer base quicker than relying on personas or other traditional tools to decide what comes next. Majority votes could define your sprint goals, guiding your focus for the next development cycle.

What better way to foster transparency and customer input using Agile/Scrum in this way? This process integrates the principles of adapt, inspect, and learn in a tightly-knit manner. With a DAO-like approach, your product evolution truly becomes a community-driven endeavor.

Caveats

There are also caveats of course.

  1. Governance Challenges: Implementing a DAO's governance model can be complex. Balancing the interests of all stakeholders in a fair and equitable manner is a significant challenge. It's not always the case that the majority's decision aligns with the best interest of the project or all the stakeholders.
  2. Smart Contract Security: DAOs operate on the basis of smart contracts, which are immutable once deployed. If there's a bug or vulnerability in the contract, it can lead to severe issues, including loss of funds. The infamous "The DAO" hack of 2016, where $50 million was siphoned due to a smart contract loophole, is an example.
  3. Regulatory Uncertainty: DAOs exist in a legal gray area in many jurisdictions. How they're classified and regulated by law is still uncertain in many parts of the world.
  4. Token Distribution: How tokens are initially distributed can also be a complex issue. If not done properly, it can lead to centralization or imbalance of power in the DAO.
  5. Low Participation Rates: DAOs rely on active participation from token holders. However, voter apathy can be a significant issue, leading to decisions being made by a small subset of stakeholders.
  6. Short-Termism: There's a risk that token holders who are only interested in short-term profit might vote for proposals that yield immediate gains but are detrimental in the long run.
  7. Interface between DAO and the Real World: DAOs are digital, but their decisions often have implications in the real world, where enforcement can be more complex.

Each of these challenges is surmountable, but they do require careful thought and design to address effectively. As with any system, the benefits should always be weighed against the potential risks and drawbacks.

The role of a Product Owner

This is where a good Product Owner comes into play and lets people not vote on your whole backlog but on clearly selected items that are already enough refined and ready to be developed to a degree of uncertainty. You are still supposed to know the overall market so you can preselect the items to be worked on and let people vote on them.

You still have stakeholders to keep happy and develop functions the market wants the most. Only by using a DAO and keeping people engaged you can adapt and learn your market way better then in other ways.

Even though a DAO is fundamentally democratic, it needs someone with a comprehensive understanding of the product to guide its development. A PO can offer insight into the feasibility and impact of features, helping to steer decision-making and prioritization.

Smart Contracts

A smart contract is a computer protocol that facilitates, verifies, or enforces the negotiation or performance of a digital contract. Smart contracts run on the blockchain, making them transparent, traceable, and irreversible. They're designed to automatically execute transactions or other specific actions when pre-set conditions are met.

Here are some key reasons why it's important to carefully design and implement smart contracts:

  1. Immutability: Once a smart contract is deployed on the blockchain, it cannot be altered or corrected. This immutability makes it crucial that a smart contract is thoroughly tested and reviewed before deployment to ensure that it operates as intended.
  2. Security: Smart contracts are vulnerable to bugs and exploits if they aren't correctly programmed. Given the value often transacted or managed through smart contracts, security is of the utmost importance. Exploits can lead to substantial losses, as seen in the infamous DAO hack in 2016 where around $50 million was lost due to a bug in the DAO's smart contract.
  3. Financial Implications: Smart contracts often manage, store, or facilitate the transfer of cryptocurrency, and errors or vulnerabilities in the contract could have significant financial repercussions.
  4. Trust and Reliability: The trust in a smart contract, and by extension, the entire operation or system it supports, heavily relies on the contract functioning as expected. Issues could compromise the perceived reliability of the system and discourage participation or usage.
  5. Complexity and Interoperability: Smart contracts often interact with other contracts or systems. It's important to think through these interactions to prevent unexpected behavior. Misunderstanding or neglecting the complexities of such interactions can lead to detrimental consequences.
  6. Regulatory Compliance: Depending on the jurisdiction and the specific use case, smart contracts need to be designed to comply with relevant laws and regulations, adding another layer of complexity to their design and implementation.

Therefore, the design, implementation, and review of smart contracts need to be taken very seriously and conducted with utmost diligence. In many cases, it's advisable to have smart contracts audited by a specialized security firm before they are deployed.

A written sample of a Smart Contract

So you need a good working contract on beforehand. The Product Owner can be the manager of such a smart contract for example. He adds the issues to the system. and the stakeholders can vote on these issues using their tokens.

Each vote raises the importance of the issues to be developed. After which you pick the highest ranked issues to develop on while keeping an eye of what you can work in a single sprint ofcourse.

You can also use two types of tokens for example. Normal tokens for your customers using your product and social tokens for potential customers for example.

Validity of tokens is also something to consider since wishes can become obsolete after time.

This all can become quite complicated and i might post a full sample of a smart contract written in Solidity in a later blog using the conditions above.

Conclusion

This has become a somewhat longer article then usual but it needed a lot of explanation to be able to understand what it means to leverage your role as a PO inside a DAO.

I hope this has helped a bit to clarify and explain what a DAO is and how it can be used especially from a SCRUM/Agile Product Owner point of view where both can really thrive.

Francois Fort wrote a article about this on scrum.org Are DAOs the future of Agile Organisations.

You need stakeholders to buy in and what is better then to have engaged stakeholders with stakes in your product leveraging a DAO? You get detailed and immediate responses from the market when you have a engaged diversified group of people wanting your product to succeed because they then also succeed .