DAOs & Governance issues

Will 2022 be the year of the DAO?

Don’t know. But I do know that a lot’s broken with much DAO ‘governance’ today. It’s not ‘fair’, or decentralized and doubt it’s the future of web3.

After 10+ hours of readthroughs on governance for Ethereum Audible podcast I wanted to share some learnings.

Let’s start at the beginning: what needs governance and why have it? Blockchain is about mitigating trust and that’s done by minimizing governance, not mimicking the real world incentive structure on chain.

In ‘Governance minimization’ Fred Ehrsam & Dan Robinson make the great case for this. There’s a difference between on chain governance (i.e L1s consensus) and off chain governance (i.e EIPs — proposals for forks & reaching consensus.

On chain governance should strive for credible neutrality by minimizing governance. What will still need to be governed? — Treasury management. — Complex parameter setting. How do we do this? It’s complicated, so let’s go to Vitalik Buterin for some ideas on the issues.

Most common governance method today is on chain voting. One token = one vote. Sounds fair, sounds democratic. Right? Wrong.

One token one vote has many problems:

• Low representativeness
• ‘Whales’ have centralized power
• Low participation rate Classic example is the MOST important vote to happen to Ethereum: The DAO hack hard fork. What do each of the 3 categories mean?

Low voter participation

as seen in the DAO hack vote to fork: Only a tiny fraction of ETH holders voted.

“Whales”

The rich have outsized say — because they vote. This is the similar to the tragedy of the commons, or regular shareholder meetings for public co’s today.

Low representativeness

Not all parties are represented: miners, users, developers, HODLres are all part of the ecosystem, but not all are represented equally based on the number of coins they hold. So one coin = one vote is rife with problems. But it’s how MOST DAOs Operate

In the Social Token Paradox Gaby Goldberg makes the case for alternative ways to measure participation and contribution to a DAO so that we can move beyond token voting.

If we can reduce the importance of what you *have* vs what you *do* we shift towards proof of participation, belonging and building, we can allow for other kinds of community participants and different kinds of governance.

Governance is complicated. There’s lots to be learned from classical political science. Learning the history will help avoid repeating the same mistakes. Dropping final thoughts on Ethereum Audible with ‘Moving beyond coin governance’ by Vitalik Butern

Links to all the quoted articles/podcasts can be found here on Ethereum Audible podcast where I read articles from Web3 each week.