An anti-populist vision of DAOs
Some disorganized thoughts on DAO structure and governance
I fundamentally don’t believe in popular rule.
That’s not to say that I don’t believe in representative democracy, general voting rights, or other cornerstones of modern liberal democracies, but at a basic level I favor models of governance that are close to Singaporean rule-by-elites. I don’t trust the general public to make informed, high-quality decisions that optimize for collective outcomes over long time horizons.
This line of thought is in direct conflict with the principles embodied by most decentralized autonomous organizations (DAOs). Typical implementations allow anybody to buy a governance token and participate in voting. Within each DAO, organizational structures tend toward the flat rather than the hierarchical. Finally, executive decision-making is often jointly carried out by a relatively large group of people ‘at the top.’
All of these practices conflict with how I believe effective organizations at any level (companies, cities, countries) should be run. In this post, I’d like to outline my thoughts on:
The main problems with typical DAOs
The ideal use cases for on-chain governance and management
I don’t make any claims as to the originality or provenance of these thoughts. As a matter of fact, many people seem to essentially agree that DAOs as commonly conceived violate basic principles of organizational efficiency. That being said, there’s perhaps marginal value in collecting these thoughts here for future reference and as a way to stimulate discussion.
Don’t expect this article to be too carefully organized — I’m mostly making it up as I go!
(Note: Please also consider reading Kitsune’s article on DAO governance structures which partially inspired this post. Please also note that I am currently looking for employment; see the end of this post for further details.)
Large-scale voting doesn’t work
Many DAOs allow any person to purchase their governance token off a DEX and immediately begin participating in governance votes. Immediately apparent problems include:
The median token holder has very little context about the operational details of the DAO
The median token holder simply does not care about the DAO or any associated protocol or project
The median token holder will not participate in governance votes
The median token holder is not very smart and is with high probability less intelligent and less competent than DAO team members
The median token holder is not well equipped to make informed decisions about vote delegation
The median token holder is buying the governance token for short-term, speculative profits and will not vote in the long-term interests of the DAO
One natural objection is that if the median token holder does not participate in governance or perhaps only adds some noise to the process, then they essentially have zero effect. I don’t find this objection convincing. Even if it’s true that apathetic token holders have a small marginal effect, you’re still introducing an enormous amount of unnecessary on-chain structure and bureaucracy as well as introducing risk vectors (governance attacks, overconcentration of voting power) for little to no benefits.
Even as a check for abuse of executive powers, unless there is a fully automatic way for a community-led governance vote to programmatically modify multisig owners, collective voting rights does not make sense. Fundamentally, the results of governance votes rely on execution from DAO team members, so popular voting is simply not an effective solution for the prevention of treasury or protocol abuse.
Finally, there are of course a number of further problems with coin voting, which are described well by Vitalik. I won’t reiterate his arguments here.
At a basic and fundamental level, it seems reasonable to conclude that extending freely accessible, on-chain, token-based voting rights is a waste of effort. At most, publicly tradable tokens should be issued for the purposes of raising investment and team compensation, ideally with value-accrual mechanisms to allow for long-term incentive alignment.
Existing corporate structures are already well-optimized
Although specific organizational structure naturally varies from DAO to DAO, many (not all) DAOs are founded by teams with relatively strong communitarian tendencies and therefore tend to be organized in very “flat” or “hierarchy-free” ways. Teams are extremely fluid, leadership roles are not well defined, and decisions are often subject to multiple rounds of discussion with overlapping subsets of team members.
Put simply, this model does not work. It is a picture of extreme inefficiency. Why do things end up this way? I don’t believe there is a nice way of saying it. I believe that DAOs are formed by people in their early 20s with little-to-no experience working traditional jobs and therefore have zero experience with typical corporate structures or the challenges of scaling a growing organization.
Let me be very clear: I am not saying that Alphabet, Pfizer, and General Electric are maximally optimized in the sense of being as efficient as humanly conceivable. I am instead making a more subtle claim, which is that establishing and scaling up organizations are incredibly difficult tasks and that given the constraints of human imperfection traditional corporate structures have already undergone millennia of iterative operation and are probably reasonably close to the asymptote of current human possibility.
(Anyone who has ever been part of a rapidly growing startup will almost surely agree — you’ll watch as it metastasizes into an insane bureaucratic mess while simultaneously accepting that not even a Herculean effort could meaningfully halt that process and that at some level, operating at scale is impossible without acceptance of that bureaucratic cruft.)
By failing to draw on the accumulated wisdom of human experience, DAOs expose themselves to problems that we already know how to solve:
Lack of accountability due to uncertainty about key decision-making points
Unproductive and time-consuming discussions with unclear resolutions due to lack of top-down hierarchy
Poor overall execution due to lack of DAO-wide incentive alignment and focus
That’s not to say that these are always (or even often) appropriately addressed in a traditional corporation. They’re not. However, they are definitely unnecessarily magnified in most DAOs that I’ve seen.
One positive example is the Yearn organizational structure:
Setting aside the ability of YFI holders to vote (which I don’t generally believe is a value-add), we see that decision-making is compartmentalized into specific working groups (yDev, yFarm, etc.) which then clearly feed back into the central multisig. Additionally, each working group has clearly delineated, non-overlapping responsibilities. Anecdotally I’ve heard that this structure works very well for Yearn.
Typical DAOs have teams, but in the spirit of “decentralization,” the actual decision-making steps are often left vague:
Who within each team has the final say?
How are decisions escalated from one level to another level?
Exactly how much authority do executive team members hold?
In the absence of this clarity, decision-making devolves into an anarchic process. Without specific people who feel accountable for the output of a team or subteam’s decisions, the appropriate incentives to follow through and execute simply often aren’t there.
For DAOs which aim to actually accomplish specific goals, diffuse decision-making and executive structures are wholly counterproductive.
Am I betraying “Web3 values” — inclusivity, community participation, open-mindedness, and diversity of thought?
I don’t think so. To put it simply, if a DAO’s team is effective and competent, they will be receptive to high-quality community feedback and proposals. Open-mindedness, inclusion, kindness, and so on are not functions of organizational structure, token voting rights, etc., but are instead functions of people. There is no structure that can fix a bad team. However, there are structures that can enable good teams to function more effectively — which can include responding to the emergent needs of their community!
At the end of the day, there are simply better and worse ways to structure decision-making processes. Many DAOs are essentially equivalent to remote-only companies with several on-chain components and would likely benefit from reflecting on how typical remote-only companies operate.
What should be on-chain?
One natural question which I’d like to try to answer is: if we get rid of on-chain token voting and collective governance, then exactly what, if anything, should be on-chain? How should blockchains be incorporated into DAOs — or are they simply better off as regular corporations?
I suspect that one major benefit, and possibly the primary benefit, of DAOs is the ability to manage funds on-chain. Because treasury management is fully transparent to the wider public (and can be gated by multisig mechanisms), this allows people a greater measure of confidence that funds raised won’t be squandered on frivolous expenses. Naturally, some degree of embezzlement is always possible, and teams need not publish detailed financial or expenses reports, but at the end of the day it’s possible to inspect the on-chain data and get a broad sense of how funds are being utilized.
As a direct consequence, I feel that DAOs enable international collaborations that wouldn’t otherwise be possible. Currently there’s a very large starting barrier to initiating traditional trans-national initiative, partly because you’re completely reliant on the good faith and behavior of the administrative team to not abscond with any funds (whether explicitly or through luxurious purchases, etc.). On-chain collection and management of DAO funds significantly addresses this issue.
On-chain management of funds also allows for more trustless cross-DAO collaborations. Doing business with other businesses is typically fraught with counterparty risk. The other party may not pay funds owed on time or at all; they may waste the money that you pay them; in general, you have zero transparency into their activities. However, the transparency of on-chain helps alleviate these risks to some degree (e.g., the counterparty cannot fraudulently claim to be temporarily short of funds). Moreover, depending on their specific nature, certain partnerships can be encoded as smart contracts, allowing for DAOs to build off each other in ways that are trustless and immutable or for payments to become automatically disbursable when sufficient conditions are met.
At the risk of ending abruptly — I’d like to hear if you have specific ideas about how bringing off-chain activities on-chain in the context of a DAO or other collective entity can be clear value-adds. I’m generally skeptical that DAO governance will be a major theme of 2022 (as some have suggested), but it seems valuable to try to understand what uniquely positive aspects of DAOs will survive in the coming decades.
Please note that I am currently looking for employment and am happy to receive inquiries through Twitter DMs: https://twitter.com/0xfbifemboy
I have a technical background with professional expertise in statistical methodology and machine learning. I am proficient in R, Julia, and Python, with moderate competency in C++, and am novice-level in Solidity and Rust (but hopefully learning fast). My ideal role is research-based with a theoretical or mathematical component but also with the opportunity to learn from more experienced DeFi developers.
I’m particularly interested in novel protocols which are pushing forward the cutting edge of on-chain finance from both theoretical and practical perspectives.