Thoughts on DAO Governance

Welcome to the DAOs & The Network State Newsletter. This article summarizes some of the discussion on DAO governance that took place during our Twitter Space on Feb 2, 2023.

Democracy is the worst form of government, except for all the others. ~ Churchill

When DAOs first emerged, they were viewed as a promising way to crowdfund capital and achieve a wide range of missions, sparking a great deal of enthusiasm and optimism. However, this enthusiasm has waned in recent times, partly due to the downturn in crypto prices and partly because DAOs have struggled with governance.

Early optimism surrounding DAOs was centered around the concept of voting as a consensus mechanism. This implied that DAOs could use straightforward voting to quickly and efficiently allocate resources and address problems.

However, bringing together hundreds or thousands of people to vote and discuss consensus resolutions is no easy task, and DAOs have experienced issues similar to those seen in traditional democratic processes, including voter apathy, polarization, lack of information, alleged voter manipulation, and complexity. While Web3 offers many solutions, there is no inherent blockchain feature that can solve these issues.

Nevertheless, there is hope. Blockchain technology and DAOs offer a unique opportunity to address these issues. Blockchain offers capabilities that traditional democracies lack and DAOs provide a platform to experiment with different voting mechanisms to find effective solutions. Unlike most countries, DAOs have the freedom to try different approaches and identify what works and what doesn't.

Highlights From the Discussion

See this Link for the full Twitter Space.

The host, MemeBrains, started the discussion with a good summary of the current state of affairs. While DAOs exploded over the past couple of years, they have currently hit a wall due to regulatory uncertainties and a lack of voter turnout. While some DAOs are flourishing, many are struggling. The key to fixing the issues, MemeBrains suggests, is to reflect on the lessons learned to make better decisions, as these decisions will have a huge impact as DAOs continue to grow. MemeBrains then posed an interesting question.

What is your best example of a properly functioning governance model?

ESKOH suggested it comes down to individuals being able to drive decisions. Shawn talked about “Proof of Reception” to enable self-validation. This will allow DAOs to be by the people, and for the people. All about figuring out how to get that while not having 3rd party validations. New consensus algorithm you can drive consensus. Shawn points out how well this worked with Ukrainian refugees. Self-validate to receive donations.

Deepa expended on this by noting one person one vote won’t work. Smaller DAOs have more discussion-based methods, which can be effective and that active discussion is still very important. Amazon does this as well, there is decentralized decision-making in traditional companies. If you are interested in learning more about Deepa’s thoughts, check out “Impact DAOs.”

I was highly interested in hearing from Clinamenic, a member of the DAO Coalition. Clinamenic, who agreed with Deepa, suggested that we are still searching for best practices. He believes that aligning DAOs is the answer. There should be different groups with different tasks.

This starts by creating a core group that delegates powers to other groups. For instance, establish a large community group responsible for a comprehensive voting process and the resolution of long-term, big-picture issues. Additionally, set up an executive group tasked with making short-term, top-down decisions. The core team should oversee these groups to enable DAOs to align with the community and achieve their goals. However, it's worth noting that the source of authority for the core team is a critical component.

Puncar then shared his thoughts around a Winston Churchill quote that; "Democracy is the worst form of governance, except for all the others that have been tried." This is where we currently stand. We started with democracy, which isn't perfect. However, we need to experiment and try new things to improve. Although it will take time, we need to accumulate knowledge and experience. What has worked? Puncar suggests that delegated governance is the answer.

According to Mel.eth, good governance is about good communication. DAOs that communicate effectively, also govern effectively. DeFi DAOs such as Uniswap, Compound, and Maker need to be trusted, and they currently are. As they have the most assets, they are the most vulnerable to attack, making them crucial for creating a lighthouse - they are the beacon.

Daniel Ospina made a critical point, we need to define meta-governance and operational governance. Meta governance is big changes in how to make the rules. Operational governance is more day-to-day. They can’t be done at the same time. They just require different approaches. Researchers have shown that representative governance isn’t the best, we elect influencers, and they abuse power, back to where we start. An alternative that has been tested, is citizen counsel - kind of like a jury. Daniel finishes by stating it's been tried for hundreds of years.

MemeBrains then asked another interesting question;

Should the protocol come before the community, or is the community more important than the protocol?

Racheal from Opolis — We need a balance between community and protocol. The both need to complement each other. It can go both ways, great tech no community. Great community and no tech. We really need both! Some projects are all hype, with nothing behind the curtain. We need utility and community.

flow_scince from DAODenver - suggests it all comes back to consent, it's an interactive process. Build for people, the people then build it. flow_scince then drops a great insight by asking, was Bitcoin the best example of the perfect balance between protocol and people? It's a great point, they feed off each other.

0xJustice closes out the conversation by suggesting that DAOs are equated with governance, and it’s fried our brains. We ask too much about who makes decisions, not whether is there a product. We need products over politics. Then 0xJustice delivers a good joke “A camel is a horse designed by the community.” A community can’t design things the best. DAOs need to be the product or the protocol first, the community last, but also most. Community is ultimately the most important, but they need something to come for. Bitcoin and Eth weren’t designed by a community. Thus dressing DAOs not after governments, as they aren’t good, but as small start-ups, that work.

Closing Out

If the ideas and discussions presented in this article have stimulated your mind and you would like to delve deeper into this subject, I encourage you to Join the next Twitter Space discussion. These discussions are created to facilitate a safe and supportive environment where we can share our knowledge and insights, and collaborate to find the best paths for us to navigate the rapidly changing world around us. I believe that we are all in this together and that we can all benefit from each other's experiences and intellect. So come join us in the next Twitter Space, raise your hand, and let's have a productive and engaging conversation about DAO leadership and the future of decentralized organizations.