A Sunset Protocol for DAOs

All DAOs experience culture drift, periods of dormancy, rejuvination, and other things to be expected in a dynamic group. After the initial period of excitement, core members inevitably move on to other interests and newcomers begin to define the culture. Rather than combat culture drift, all DAOs should simply have an expiration date at which time all funds are frozen or dissolved.

Culture drift

DAOs combat culture drift in various ways.

• Lore building in hopes of achieving a mythology that outlasts any single member
• Closing off new memberships after an initial setup period
• Hiring operators to keep members engaged

Culture drift is natural, and combating it feels like trying to stay afloat in a riptide. What if we instead introduced a protocol that automatically freezes and dissolves all DAOs after a set period.

If all DAOs had an expiration date, we would not continue to build up baggage that results in treasury draining attacks, fatigue, and frustration.

A Sunset protocol

Upon creation, the summoners define the period in which the DAO will be active, and what happens once the expiration date is reached.

At expiration, a few things are possible:

• The treasury is frozen until a high quorum vote unfreezes it
• The treasury is dissolved and distributed proportionally to members
• The treasury is sent to a predefined beneficiary

Effects of an impending treasury freeze

If the freeze is reached before all funds are spent, it may be annoying to get turnout to unfreeze them. Therefore the incentive should be to spend or distribute funds prior to freeze

Automatic wind down

For liquid, fungible tokens, the treasury freeze is simpler. All members are free to withdraw their liquid portion of the treasury whenever they want, with no need to be paying attention at a specific time

Predefined beneficiary

The beneficiary of a sunset DAO could be a predefined operator that will distribute funds equally to members. It could also be a charity or other public goods fund.

What if the DAO really wants to continue?

In the Sunset Protocol we could include a provision where if we achieve some very high quorum (75%+), the DAO can push out the expiration date another full period. But if less than quorum is reached, the DAO can fork and members who lost track of the DAO are no longer just along for the ride.

The first DAOs with expiration dates

The Hydra investment DAO is the first DAO I am aware of that contains explicit expiration dates. After 3 years, the DAO will enter a dormant mode where no new investments are made and the operators will only harvest returns and make distributions