The Otters go Soulbound (Part I)

A long time ago, in a galaxy far, far away, the Otternauts lived peacefully – floating on their backs from planet to planet. The Otterverse was distributed equally between planets, and they used their special floating powers to travel and collaborate with each other...

The Otternauts have been bringing humans into the Otterverse, and away from the tyrannical regime of the FAANG creatures, but the number of new Otternauts has made coordination difficult...

Mint your Soul Otter and join the mission!

The Otterverse is now coming under attack from a new creature – Moloch 👹

Over the past week, we have been excited to see a lot of conversation happening around the topic of identity, reputation and Soulbound tokens. The paper published on May 11th by Vitalik, Glen and Puja begins with a clear declaration that “Web3 lacks the primitives to represent such social identity” and is therefore dependent on Web2 structures.

At DAO camp last week, we went deep discussing reputation systems in DAOs with Zakk, rafathebuilder, Shreyas, Chase Chapman, Jon Hillis, Spencer Graham, Evin, Aaron Soskin, Will Papper, Richie Bonilla and DrNickA, among others 🤝 🏕

At Otterspace, we have spent the past months working with many DAOs to deeply understand their challenges with contributor journeys, onboarding, engagement and membership. We want to call out and thank Tim Daub, Rafa from Mirror, Abbey from Radicle, Zeugh/Zom from Juicebox, Alp/Ata from PrimeDAO, David/Werdnalpha from Metastreet, Mitzy from Gitcoin, Coltron from ENS, AD/Konstantin from Lido, NiMA from SeedClubVC, Matt from Synthetix, Shreyas from Llama and Bau/Ξ2T from DAO Haus, who were all instrumental in sharing their ideas and allowing us to learn from them. We are in the process of synthesizing and open sourcing our learnings so that together we can tackle this problem and slay Moloch. 🗡👹

Similar to many of you, we have come to believe that a new primitive is needed for better incentives, membership, and coordination within DAOs, and we’re excited to share that we have been working on a protocol to address this need. We hope to bring together a community of like-minded Otternauts on board this mission. 🛸

This is part one of a two-part blog post that will summarize some of our learnings and reflections of the challenges within DAOs specifically that we hope to address. Part two will focus on laying out the details of the Otter Protocol and will be published in the coming week, so stay tuned! 👀

The Otterverse needs new primitives

As the Otterverse grows and the population of planets is increasing, the Otternauts quickly realized that the rocks ($ROC) they give each new Otternaut are a useful currency for trading space fish and star shrimp, but not good enough for running the Otter Societies. Moloch started rearing his head...

I. One Otter ≠ One Otter

Currently, individual members of a DAO are only distinguished from one another by how many tokens they own. In most cases a boundary is drawn between owning zero tokens (not a member), owning some tokens (community member) and owning more than N tokens (full/voting member). Looking at the current on-chain representation of a DAO’s members, all we see is different wallets holding different amounts of a DAO’s token.

But in reality, membership of a DAO is far more nuanced – with some individuals contributing to the DAO full time, others just attending events or participating as a guest on a project.

The limited representation of DAO membership is problematic because important decisions about DAO governance, equity and operations can only take single-dimension token ownership as input, or else rely on manual human assessment. Apps like Snapshot and Clarity that use token ownership to grant access or action permissions can only take the degree of ownership of a single token type as input. More complex permissions rely on human intervention/assignment. A group lead might manually grant the new project lead a Discord role or access to the repo, for example.

If DAO membership were represented by more specific units, decisions about the rights, permissions and powers of individual members could be differentiated. A Web2 analogy is the concept of roles and associated permissions – someone with the HR role in a company has the right to publish job postings. However, our hypothesis is that roles are not the right atomic membership units of Web3, and that membership should be emergent rather than designed and represented as a role. The Otter Protocol allows the nature of someone’s membership in a DAO to be inferred and emerge from the badges they hold, and for specific badges or combinations of badges to be used to assert powers and permissions.

II. Otters want to show off who they are, not just collect rocks

DAOs that operate on a single-token model are restricted to rewarding behaviors, tasks, contribution and commitment by paying people in their DAO native token or a different fungible token. Individuals who need the money to pay their bills are forced to sell the tokens, removing any accrual of value/influence/power in the community as a result of their contribution and creating downward pressure on the token price. The fact that they have contributed is not captured, recognized, saved or otherwise permanently visible or accessible.

This is a missed opportunity, because recognition and other non-financial benefits can be powerful rewards (and therefore incentives) for providing long-term value within a space. Vitalik makes a great analogy to soulbound items in World of Warcraft, which keeps the game interesting. In the DAO space, Cabin has been exploring this concept with their Passports and Stamps, whereby members earn stamps to add to their collection and display in their passports.

By reducing all contributions to a mere financial value they become commodities and members are incentivized to maximize reward on a single dimension, rather than investing in a community long-term. If DAO members could accrue reputation and receive recognition, there would be stronger incentives to maintain long-standing and positive relationships with the communities they are part of.

The Otterspace App uses a model familiar from role playing games and communities like the Scouts to issue non-monetary rewards to represent achievements. Scout badges have been used for many years as a way for community members to progress in a self-directed way, and showcase their achievements, experiences and rewards as part of their identity. Displaying the collection of badges/trophies shows off a person’s standing in the community and can be used to infer their reputation, history, experience and social capital. Important to call out is the fact that reputation or social standing are not themselves part of the badge, but are inferred by the viewer from seeing the badges collected by a person.

III. Otters are autonomous

Because of the limited token model on which they operate, DAOs are forced to rely on implicit and interpersonal mechanics. For example, individuals refer and vouch for each other for their past work in other DAOs, manually assign roles based on social validation, manually distribute tasks based on conversations in meetings, and onboard new members by reviewing applications. Human intervention is necessary because there is not enough trusted information captured on-chain about an individual in a DAO. Humans must execute based on a combination of social and non-social signals, which reduces the autonomy and permissionlessness of the DAO.

Reputation, quality of work, social capital and experience are already being used by DAOs to make decisions about how to treat specific members, but if these qualities could be inferred from an on-chain record, DAOs would become more autonomous and permissionless. Decisions could be made automatically, such as unlocking new spaces or granting greater governance power.

By breaking DAO membership into smaller units and capturing these on chain, badges enable the DAO to automatically push power to the edges without human intervention, realizing the promise of both decentralization and autonomy.

IV. Whales are not Otters’ friends

The problems with coin voting have been widely explored, and are neatly summarized by Vitalik Buterin in a 2021 post:

  • Whales are more incentivized to vote than regular community members because they have more influence over the decision.
  • On the other hand, whales might have low incentive to participate because their stake in the DAO is a very small proportion of their total wealth.
  • Token-holder interests are over-valued relative to other stakeholders (such as DAO contributors).
  • There is a risk of over-exposure to conflict of interests faced by token-holder whales.
  • Coin voting is vulnerable to vote-buying.

However, one of the main benefits of coin voting is that it is very sybil resistant, as agents would need to accumulate 51% of the tokens to take control. Unfortunately, it is challenging to implement effective forms of non-coin voting without relying on Web2 infrastructure for sybil resistance. Proof-of-humanity is often suggested as a model for ensuring that one person has only one vote, but many communities want to keep pseudonymity possible.

The Otter Protocol does not directly tackle governance, but provides an additional primitive that governance frameworks can take into account. Governance power over specific domains could be distributed to holders of specific badges, or governance weight could increase based on ownership of a badge. Using badges for levels is a common use case we have explored with several DAOs and we expect will become an important element of governance. An even simpler version is where 1 vote is given to each account holding a badge issued by the DAO. Assuming that earning badges is less gameable, we have a sybil-resistant way of creating a 1-agent-1-vote system.

The promise of the Otterverse

Our vision is to give DAOs the tools to better represent the varying nature of membership, improve member engagement, coordination and distribution of power and permission. By doing so, we also aim to progressively improve their autonomy and permissionlessness, while surfacing clear paths and incentives for individual members to deepen their participation. 💪

We will soon be releasing the first version of the Otter protocol, allowing any DAO to use Soulbound tokens to generate badges for their members. The Otterspace App will provide an easy-to-use no-code interface for interacting with the protocol, enabling non-technical DAOs to participate.

The Otternauts are clever and curious creatures, and they will work together to find a new type of rock for better governance of the Otterverse. Join the mission and hold hands with the Otternauts as we float on our backs through Otterspace.

To be continued...


Check out our Soul Otter minter on Testnet to mint your own Soul Otter based on the EIP-4973.

Editor’s note:

Contrary to other widely shared NTT implementations, our Soul Otter minter doesn't use a regular EIP-721 token that reverts upon calling transfer. Instead, for weeks now, we've been busy drafting EIP-4973 and collaborating with the Ethereum community on integrating their feedback.

As wallet implementers are supposed to check an NFT's EIP-165 interface identifier dynamically and hence adjust their app's UI, we think reverting on transfers isn't a great solution. A machine can't interpret the reasons behind a revert.

Instead, we're proposing to only use EIP-721's ERC721Metadata (id: 0x5b5e139f) without ERC721 (id: 0x80ac58cd) to allow wallet implementers to lean on socially scalable feature detection via EIP-165. For more details, see our submission EIP-4973 on github:ethereum/eips.

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