top of page
  • Doo Wan Nam

The Challenges of Offboarding in DAOs

#26 Governance Series



Introduction

The tech market has suffered a massive wave of layoffs in 2022 and 2023. Less than a month ago, Google announced it would lay off 12,000 jobs with Amazon expected to follow shortly with 18,000 layoffs of their own.

Tech Layoffs Accelerate
Tech Layoffs Continue to Accelerate in Jan 2023

The crypto industry is not immune to such turbulence, especially with the recent unraveling and subsequent bankruptcies of several leading blockchain entities like FTX and Genesis. The interconnectedness that exists between various blockchain entities has meant that the impact spread far and wide. For example, since many third parties trusted FTX as a trading partner, this meant they were unable to access their funds when the centralized exchange imploded, leading some such as BlockFi to suffer a similar fate.


Web3 Layoffs in 2022
Centralized Layoffs in 2022

DAOs feel the same market downfalls, but they face unique challenges when downsizing their workforce because they lack Human Resources (HR) and enforcement.



Who Makes the Offboarding Decisions?

In traditional companies and even centralized web3 companies, Human Resources managers or executive members such as the CEO or COO are in charge of hiring and firing. However, in DAOs where there are no such roles, the hiring and firing decision-making process is a bit more complex.


For example, at MakerDAO, there is no CEO nor Human Resources team, and currently, the process to onboard or offboard contributors as Core Units is facilitated through governance proposals. While this means DAO community members can participate and voice their opinions, it can make the offboarding process more difficult as the voters may have emotional ties to affected Core Units, or even if not, they might not feel as motivated compared to HR managers who are more prepared to make these decisions.


There is actually both a philosophical and psychological element to this, which is a discussion about passive versus active “harm.” We have heard of the infamous 'Trolley Problem', but beyond the question of sacrificing one to save many, there’s also a question about allowing harm to happen versus actively causing harm. As one can guess, people feel more uncomfortable actively causing harm (such as: if you were a doctor and 5 patients each needed body parts, would you kill a person to take their body parts to save 5 patients? Most say no).


Trolley Problem in DAOs
The Trolley Problem

This applies to layoffs in DAOs as well. Most are okay with letting a Core Unit get offboarded but having to vote to offboard them with their own 'hands' via voting can be stressful. And there are also cases of affected Core Units questioning or holding ill feelings toward the ones that voted to offboard them. This makes offboarding Core Units more difficult.


In addition, even if the vote to offboard Core Units fails, it can severely demoralize and add more uncertainty to the workforce.


Example of passed offboarding vote on MakerDAO, which was quite controversial
Example of passed offboarding vote on MakerDAO, which was quite controversial

ENS is another DAO that faced a similar dilemma. In February of 2022, Brantly Millegan of the ENS foundation was stripped of his centralized role after old hateful tweets surfaced. However, a separate controversial vote was held in the community that would have removed Brantly as director of the ENS foundation, but it ultimately failed to pass.

Brantly still acts as a Delegate for ENS
Brantly still acts as a Delegate for ENS

Who Resolves Offboarding Conflicts?

Of course, it would be incredibly time-consuming to onboard and offboard every contributor at MakerDAO through voting. Therefore, each Core Unit has a Facilitator who is granted the power to add or remove contributors. However, without the presence of an HR, there can be situations where conflict between facilitators and contributors starts to spill over. At MakerDAO, the facilitator for Real World Finance (RWF), a core unit focused on bridging Maker into the traditional finance world, ended up firing most of the Core Unit members, and the affected members proposed starting a competing Real World Finance Core Unit.


The new proposed RWF Core Unit was not approved and the existing RWF Core Unit was also offboarded. While the conflict would have happened even if there was a Human Resource team, the situation was unfortunately exacerbated as both sides launched public accusations (the Facilitator accused the laid-off RWF members of acting unprofessionally) to convince token voters. If HR existed in this example, it could have possibly resolved the issue in a private setting.


Another issue that arose within the RWF Core Unit and similarly offboarded MakerDAO members was the unfair severance packages they were offered, and since there’s no HR, it was difficult for voters to negotiate (mainly because among voters, some are more sympathetic and actually prefer to increase severance package rather than reducing). This brought forward the issue of unequal severance packages among the different offboarded Core Units, making resolving conflicts more difficult.


RWF splitting in MakerDAO
MIP to Split the RWF CU

Who Enforces Offboarding?

In traditional companies, when an employee or team is being laid off, there are many ways to ensure the departing employee returns an unspent budget and/or used equipment. But at DAOs such as MakerDAO, there is no entity to take legal actions against Core Units if they act maliciously while being off-boarded. For example, after the Content Production Core Unit was offboarded, another Maker Core Unit member had to actually buy important websites from the offboarded team instead of simply transferring them like in most normal cases.


MKT Core Unit Offboarded in MakerDAO
MKT-001 Offboarded the Content Production Core Unit

Is It All Bad?

Ironically, these same offboarding challenges in DAOs provide resilience. For example, since many of the offboarding decisions are decided by the community, contributors and teams are much more transparent about their work.


Moreover, having HR poses challenges of its own including the preferential treatment by a manager to favor certain groups. Going back to the issue of the severance package at MakerDAO, while it’s true that it has brought questions of unfairness, in many traditional companies, this information is often sensitive or even classified, therefore the discussion of fairness is complex.


DAOs also evolve and learn from their mistakes. Although the process is not easy, various DAOs have succeeded in reducing their workforce or offering grants to ensure survival during uncertain market conditions.



Conclusion

DAO structure continues to evolve and both the process of onboarding and offboarding contributors remain a challenge. Up until recently, most of the focus has been on onboarding. However, DAOs should remember that offboarding is also a crucial part of building sustainable governance systems and we should not shy away from it even if it's a painful process.


 
Get in touch,
  • If you would like to support us in our governance efforts,

  • If you and your team need guidance on governance-related matters, or

  • If you are a founder who is building something interesting in web3

ctabanner-bg.png

Building Decentralized Governance?

bottom of page