# DAO2DAO Workcycle #2
*This piece is an output of the 2nd DAO2DAO research workcycle between [Token Kitchen](https://), [BlockScience](https://) and [Curve Labs](https://), funded by [PrimeDAO](https://). While our previous [research digest](https://) and associated [literature review](https://medium.com/curve-labs/d2d-towards-decentralized-negotiation-protocols-e37d164e91e6) and [community report](https://www.notion.so/D2D-Community-Report-Phase-I-396f5d1935a94108989da8e8cb322f6f) focused on an early exploration of DAO conceptual models and real-world precedents in foreign relations, this workcycle focused more on exploring recurring systems patterns, selecting a few for further detailed review and potential implementation.*

The structure of this research digest is as follows:
**1. Recap of D2D Research Workcycle #1
2. Interaction Patterns & Theory of the Firm
3. Recurring Systems Patterns & Mechanism Design
3.1. Conditional Tokens Framework
3.2. Proposal Inverter
4. Power Structures in DAOs**

# 1. Recap of Phase 1 (Shermin)

In our first research cycle we examined conceptual frameworks for DAOs using different metaphors:

* **DAOs as a non-state actor in a nation state framework**
Taking a nation state perspective of the world, we identified DAOs as a new class of non-state actor in the context of [international relations](https://en.wikipedia.org/wiki/International_relations). We proposed that "DAOs, in their institutional structure, have more resemblances with nation states and global markets than with companies or firms. This resemblance has less to do with size or scale of DAOs than the fact that they can operate without being embedded in a higher-level institution that enforces particular interaction patterns, for example a shared legal jurisdiction to serve as a backstop for conflict resolution."
* **DAOs as an Island**
DAOs can also be described as new form of automated virtual islands that have a social formation within their island and with other islands, and who “despite their isolated context, catalysts of trade, cultural exchange and hosts of parallel financial systems."

Describing phenomena in a new web3 world with a set of metaphors from the old web2/analogue world is necessary, so we can do justice to the range of opportunities that arise with a any new technology that might be hard to describe using metaphors of the old world only.

In the first phase of our research we focused on scoping the overall research framework in the broad sense, not only identifying suitable analogies and terminologies but also identifying a set of frameworks and primitives applicable for ongoing applied research.


Any research process requires a lot of work to go from theory to implementation which means that the necessary theoretical research process is more lengthy until meaningful implementation can result from it. However, on community request, we were asked to step back from theoretical analysis and aim to deliver more implementable primitives which we have been focusing on in this research phase.

**- (Jeff) Samo Burja reference to knowledge creation & intellectual production**

Before we deep dive into the findings of Phase2 of our research, as a reminder, here a summary of the finidings of Phase1:

## Summary of [Conceptual Models for DAO2DAO Relations](https://medium.com/token-kitchen/conceptual-models-for-dao2dao-relations-bfbf2efcd2bd)
We first described the history of DAOs from a cybernetics and Web3 perspective defining terms such as autonomy, automation, automatons, and decentralization. We then proposed a few conceptual models to understand DAOs from an institutional economics perspective introducing an interscale model for institutions (the micro-, meso-, and macro level and their feedback loops) and defining the type of relationships between agents (DAO members) and institutions (inter-DAO or DAO2DAO). We also introduced a conceptual framework for idendentifying different types of DAOs by quantifying their qualitative phenomena on a spectrum (from 0 to 1). We looked at **characterizing DAOs on a spectrum of five attributes: (i) transaction costs, (ii) information availability, (iii) sovereignty, (iv) trust level, and (v) rigidity**. We also stated that this framework lacks an important attribute relevant in the context of DAOs: **Power Structures** - as the concept of power structures did not fit into the spectrum framing of the model presented for identitfying a type of DAO. Power structures are “relational” and not well modeled as a spectrum. **Inter- and Intra-DAO power structures** can be represented with the directed graph formalism. We will adress this topic in more detail **in Section 4 of this digest**.

## Summary of [D2D: Towards Decentralized Negotiation Protocols](https://medium.com/curve-labs/d2d-towards-decentralized-negotiation-protocols-e37d164e91e6)
Curve Labs based their research on the concept of negotiation, the reduction of negotiation through formalized or non formalized norms, rules, and institutional frameworks such as firms and bureaucratic institutions, or - as applicable in the Web3 - distributed and automated consensus protocols as in the case of DAOs. They further identified a number of coordination mechanisms between DAOs for various purposes such as (i) Strategic communication, (ii) Co-funding of research (not necessary to have state funding agencies or only inhouse research), (iii) Co-funding of development, (iv) any other type of joint venture, or (v) a common monetary policy, (vi) polycentric governance/policy design. They identified that the [Conditional Tokens Framework (CTF)](https://docs.gnosis.io/conditionaltokens/) introduced by Gnosis (which has been mainly deployed in the context of prediction markets) can also be adapted to the context of complex D2D collaborations. They outlined a protocol for D2D collaboration that allows for iterative negotiations and shared funding via an escrow smart contract, a prototype of which will be presented in this research cycle (**read more in Section 3 of this digest**). As topics of further research, they identified the need for an oracle taxonomy or third party oracle services for common good scenarios or futarchy use cases which might arise if multi-outcome conditions are to be utilized by the mechanism. They also identified security concerns and safety mechanism of larger D2D interactions "utilizing conditions relating to (e.g.) the price of different assets may open up attack vectors akin to those seen over the past year involving flash loans, negatively impacting the wider ecosystem." And they identified the need for "insurance primitives" or capping conditional payouts in D2D agreements which may help to mitigate these risks, proper modelling of the creation and mitigation of honeypots and wider vulnerabilities has yet to be carried out.

# 2. Interaction Patterns & Theory of the Firm

As we know from the field of [institutional economics](https://en.wikipedia.org/wiki/Institutional_economics), rules, norms and protocols allow for the redution of negotiation overheads. According to the [theory of the firm](https://en.wikipedia.org/wiki/Theory_of_the_firm) companies were formed (especially in the age of industrialization) to reduce transaction costs of bargaining for goods, services and labour in the open market. The firm itself can be seen as an institutionalized “negotiation protocol.” For those who are interested in more in depth reading on these two topics, members of our research team have explored them in great detail in publications prior to this D2D research which were mentioned in our [previous research digest](https://medium.com/token-kitchen/conceptual-models-for-dao2dao-relations-bfbf2efcd2bd).

- Three sided market diagram (sentence or two + link)
- Three sided market repo: https://github.com/BlockScience/cadCAD-Tutorials/tree/master/02%20Reference%20Models/ThreeSidedBasic

In the context of this research digest it is important to point out that DAOs are redefining the concept of exclusivity when it comes to being part of an organization, especially as employees. DAOs are formed by multiple individuals, but individuals can also be members of different DAOs. This diversification of organizational membership was catalyzed with the advent of the Internet, especially since the rise of the Web2 where more and more individuals are members of a growing range of socio-economic networks.

This tendency will only grow in Web3 and might lead to a further defragmentation of what we define as labor and capital today. DAOs relinquish monopoly over individuals (compared with firms). This unlocks synergy of work being beneficial to multiple centralized organizations, decentralized organizations, or decentralized autonomous organizations. This has many effects but also the potential to cut down on shared resource costs for open science research, open source development and ultimately an open society.

DOs and DAOs today use automated (market or community) mechanisms to coordinate internal community action. In addition to implicit D2D relations (agent interacting with multiple DAOs or multiDAO sponsorships) there are also explicit D2D relations (DAO1 & DAO2 interact through mutual staking).

In the next section we will focus on two different (semi-)automated mechanisms (primitives) for coordinating active D2D collaborations: (i) The **conditional token framwork (CTF)** introduced in the last research phase. (ii) A second primitive we would like to introduce is the **proposal inverter** as a form of non-KPI driven, but yet outcome based project funding that relies on ongoing satisfaction by the funders with the overall achaivement rather than artificial KPIs that might be conterproductive to certain types of ongoing R&D.

## 3. Recurring Systems Patterns & Mechanism Design

**Jeff: We are exploring lots of assemblages and components to facilitate D2D, and will move forward on a select few tht show promise for advancement to applied research & potential development. Here is a table of lots of options, and we will further focus on two below:**

- update table above with new primitives/more columns (e.g. "key characteristics" column, add "delegation mechanism" of graph/streamr - ask Z)
**add factoring & proposal inverter to above table?**

As mentioned above we have identified a number of coordination mechanisms between DAOs for various purposes. We would like to outline specific examples such as:

* **Co-funding of Research**: How can we take advantage of automation technology to address autonomous work in research and development that is beneficial to more that just one DAO? Research is a particularly interesting area of funding, not only because classic academia falls short of the fast paced dev cycle of the Web3, and the Web3 needs to find proprietary mechanisms to fund research and researchers can use web3 primitives including DAOs for to form new types of research institutions that are more flexible and adequate for the needs of the Web3. Especially in this early stage of R&D. Ground our own experience with different DAOs with the same needs to fund the same type of research such as AMM (automated market maker research) privately, instead of colluding with other DAOs for shared funding of public research. Public R&D on AMMs could be much more beneficial than private investment. This could be a “Token operated research group.” We will introduce a minimum viable model we could actually use. A PoC implementation could be a future deliverable for an upcoming workcycle.

* **Joint Ventures**: In the analogue world a joint venture refers to a seperate legal entity that is created by two or more institutions where the parties to the venture have some form of shared governance, ownership, shared risks & returns. This could be done for various reasons of entering new geographical markets, lines of business, mutual research, by sharing risks and resources with other existing institutions. However setting up such ventures comes with considerable administrative overheads and legal costs involved to ensure contract security.

Here two primitives that could be useful for various D2D collaboration use cases mentioned above.

## 3.1. Conditional Tokens framework (@Cem & Max)
We already did the exec summary of previous research above, so the question is what do we write here. Probably exec summary of your input which we can link to, and maybe this graphic (or adapted versions of this graphic)
FYI, have not referred to that link yet or the content of the link: https://forum.gnosis.io/t/how-to-facilitate-dao-to-dao-co-operation-using-conditional-tokens/1043/2

https://www.youtube.com/watch?v=TeKA1mCOH-c&feature=emb_logo

- Facilitate DAO joint ventures
- Similar to real world concept of "factoring" in freight
- but not lopsided with capital, more agreeing on a method for fair agreements
- Falls prey to explicit "KPI" driven outcomes (makes the case for Proposal Inverter below)

## 3.2 Proposal Inverter Mechanism (Jeff, Z, assist from Shermin)

- Existing tools:
- Commune - allocate funds to N addresses: https://commune-client.vercel.app/
- Tokenlog - quadratic token weighted backlog grooming: https://tokenlog.xyz/commons-stack/iteration0

We have identitified the "proposal inverter" as another primitive that can be particularly useful for funding Web3 based research that is co funded by various COs, DOs or DAOs. This meachnisms can also be useful for other find of D2D collaborations. To help make the framework less abstarct we would like to focus on the research funding example.

Currently the funding of research in the Web3 requires a lot of work to manage consistent proposals, funds management, payroll, on multiple chains. The aim of the proposal inverter is to introduce a mechanism/primitive? that can reduce the administrative overhead in DAO participation, especially in support roles and research, where it is a lot of work to determine what work needs to be done.

We therefore suggest a D2D payments primitive, where a whitelisted group of contractors are in agreement for continuous work that can be funded by multiple DAOs and allocated by a context-appropriate agreement. This inverts the current research funding process:
* Inverts the onus from the contractor to the DAO in proposal submission.
* Rather than humans collaborating to support a DAO, this tool allows DAOs to collaborate to support their humans.

The challenge of the current research funding system is that it is KPI driven. However, (quantitative?) KPIs can undermine certain types of research deliverable (explanation why? examples?). Furthermore funding specific research does not account for the overheads of KPI based labour such as marketing, support, community management, etc. The proposal inverter aims to adress this challenge which youz can see in this overview:


* **Left side of diagram**: Any (research) contractor can submit a tokenized stake to join whitelist. Contractors can reclaim their stake on exit provided it is within the agreement made (e.g. not reneging on work committed to)
* **Top right of diagram**: DAOs or individuals can top up the fund pool
* **Bottom right of diagram**: Funds are allocated to eligible contractor addresses on a $ or % per time period

How is this different from the current system?Every time a DAO needs to top up funds, it asks "Is this still working well?". If the funding entities (for example DAOs) come to the conclusion that the answer is: "Yes, let's keep the funds flowing" tokens will be topped up (based on the "this" that was defined by "who" and "when"?)

The advantage of such a system is:

- Flip to make smooth operation with trusted representatives normative
- This serves as an "adapter" to research group (so payers and payees experience different but predictable financial flows)
- Signalling for payers (reciepts for payments confer rights to signal but researchers provide the candidate projects)

## 4. Power Structures in DAOs (Shermin & Z)

- (Jeff) short ref & link to Prima's Extitutional Theory: https://medium.com/berkman-klein-center/an-introduction-to-extitutional-theory-e74b5a49ea53

In our first research phase we mentioned the necessity of exploring DAO power structures:

* In this research cycle we would like to introduce the need for measuring and visualizing power structures with weighted directed graphs and introduce a minimum research framework.
* In a future research cycle we also need to refine the metrics defined for identifying the types of DAOs which we already outlined in phase 1 of our research.

Why is it important to measure power structures? If we don't measure power structures we can’t act on them effectively and properly steer economic systems of DAOs in the direction desired by a member of a DAO and the community as a whole. However, it is difficult to go from theory to the practical implementation of visualizing such structures. Practical implementation would require a separate research cycle to make the outcome of the research not only theoretical but also tangible. This would require graph theory, combinatorials, weighted di-graphs. Questions that need to be considered:
* How do these compare with idealized orgs ‘flat’ / ‘hierarchical’ / etc
* Strong vs weakly connected graphs
* DAGs weakly connected
* The definition & core graph concepts
* Build basic foundations (di-graphs, why not bidirectional?), weights, how we choose them, etc

Information transparency about power structures is key to the co-steering of economic systems. The great challenge that we face in our research is that mainstram (orthodox) economics predominant in the industrialized world ([neoclassical economics](https://en.wikipedia.org/wiki/Neoclassical_economics)) does not properly account for the existence of power structures. Neoclassical economics - usually only referred to as "economics" - focuses on the market structures reducing human behaviour (referred to as "agent" behaviour) to the pursuit of profit maximizations aka the accumulation of capital.

Neoclassical Economics "dehumanizes" the members of an economy by referring to them as "agents" or "[homo economicus](https://en.wikipedia.org/wiki/Homo_economicus)". In spite of the dact that "[behavioural economics](https://en.wikipedia.org/wiki/Behavioral_economics)" or "[behavioural game theory](https://en.wikipedia.org/wiki/Behavioral_game_theory)" - which are both alternative thoughts of school of economics on the intersection with "[behavioural science](https://en.wikipedia.org/wiki/Behavioural_sciences)" - have identified many non-competetive and non-profix maximixing motivations for human action and are slowly gaining importance also in mainstram economics. However, they are still consideres as alternative or "heterodox".

From a mainstream economics point of view, heterodox economics refers to basically every other school of economics that is not in line with neoclassical theory (from [austrian conomics](https://en.wikipedia.org/wiki/Austrian_School), [political economy](https://en.wikipedia.org/wiki/Political_economy), to [feminist economics](https://en.wikipedia.org/wiki/Feminist_economics), [ecological economics](https://en.wikipedia.org/wiki/Ecological_economics) or [behavioural economics](https://en.wikipedia.org/wiki/Behavioral_economics) and [keynesian economics](https://en.wikipedia.org/wiki/Keynesian_economics), [marxian economics](https://en.wikipedia.org/wiki/Marxian_economics)) many of which have little in common with each other.

"Power structures" are mostly a subject in the field of "[political economy](https://policyoptions.irpp.org/magazines/january-2017/why-we-need-political-economy/)" and other selected schools of thought in [heterodox economics](https://en.wikipedia.org/wiki/Heterodox_economics) that account for the symbiosis of politics and economics.

**(Jeff / Z enter info re: Samo Burja & subjective choice of objective measures: https://twitter.com/samoburja/status/1363888819406266368?s=21)**

Political economy studies economic interaction patterns on the intersection of socio-political phenomena. The discipline originated in "moral philosophy" around the 18th century. Adam Smith and David Ricardo are considered as some early researchers of this topic. However, over the 19th century and with the adoption of mathematical models in economics, the term "economics" gradually replaced the term "political economy."

*"Today, the term "economics" usually refers to the narrow study of the economy absent other political and social considerations while the term "political economy" represents a distinct and competing approach." ([Source](https://en.wikipedia.org/wiki/Politicaleconomy#citenote-1))*

But political economy has lived on as a separate school of economics over the scope of the 20th century and seen a renaissance over the last two decades, especially since the publication of Thomas Piketty's "[Capital in the 21st Century](https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century)" who tried to quantify the problem of power structures and went to the prainstriking challenge of collecting enough datapoints to do appropriate mathematical models and depice the power chalenges. Which is probably one of the reasons power structured could not be dealt with before the advent of computers, because the collection of datapoints was time consuming and expensive. Read more about political economy [here](https://policyoptions.irpp.org/magazines/january-2017/why-we-need-political-economy/).

In Web3 based data driven economic systems, we do not have the challenge (reference to our foundations paper and what we wrote about data driven economic systems?)

# Conclusion

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# Further Reading
* Bladen, Vincent: "An Introduction to Political Economy," University of Toronto Press, 1946
* Hour, W.; Meijerink F.: "Structures in the International Political Economy: World System Theory and Unequal Development," European Journal of International Relations. 1996;2(1):47-76. doi:10.1177/1354066196002001002
* Mill, John Stuart: "Principles of political economy, with some of their applications to social philosophy." 1806-1873. (2009). Read online: https://books.google.nl/books?id=7LUJAAAAIAAJ&printsec=frontcover&dq=Principles+of+political+economy,+with+some+of+their+applications+to+social+philosophy&hl=de&sa=X#v=onepage&q=Principles%20of%20political%20economy%2C%20with%20some%20of%20their%20applications%20to%20social%20philosophy&f=false
* Piketty, Thomas: "Capital in the 21st Century." Cambridge, MA: President and Fellows, Harvard College, 2013.
* Robbins, Mark: "Why we need political economy: The discipline of political economy views economics and politics as fundamentally inseparable, and today it is more relevant than ever." Policy Opinions, Jan 13, 2017: https://policyoptions.irpp.org/magazines/january-2017/why-we-need-political-economy/
* Samuels, Warren J.: "The present state of institutional economics," Cambridge Journal of Economics, Volume 19, Issue 4, August 1995, Pages 569–590: https://doi.org/10.1093/oxfordjournals.cje.a035331
* Exititutiions Video Primavera
* Disrupting Governance Paper
* Foundations Paper ()
* List of Past Medium Articles