Read on Twitter
DAOs & Token-based Governance is a fantasy.
Stop emphasizing token-based voting; start focusing on assigning executive power. Even countries and big corporations fail to ensure wide participation by their "token holders" - instead they maintain strong executive bodies
Thread
Stop emphasizing token-based voting; start focusing on assigning executive power. Even countries and big corporations fail to ensure wide participation by their "token holders" - instead they maintain strong executive bodies
Thread
The crypto world has a fantasy about token-based governance. It goes like this: you want to have a commercial organization with a mission (e.g. a DAO). So you mint tokens that represent both shares in the profit and governance rights in the organization. Exactly like stock.
Now, the token holders are shareholders, so the theory is that they are incentivized to steer the organization to success. Just like in public companies! Shareholder governance, isn't it great!
But the actual world doesn't work this way.
But the actual world doesn't work this way.
In public companies in the real world, shareholder governance is *not* how decisions get made. The actual decisions are made by the executive bodies. The CEO, the senior leadership, the VPs, sometimes the board.
In public companies, shareholders are rarely called to make decisions, and when they are, it's mostly to elect executives. Executives are important: they're people in the know, with relevant skills, able to dedicate time and to wield power, and who are paid to do their job.
This pattern is pervasive. In democratic countries, public voting is held every several years, to elect members of parliament (~ board members) or to elect executives directly. In countries with strong direct voting, you might vote on approving policy, but never on setting it.
Executives are the ones setting policy, negotiating it, making day to day decisions. Their job is to be well-informed, to make data-based decisions, and to execute them. They are continually judged by the CEO, and the CEO is judged every several years by the token holders.
Big organizations -- countries or corporations - always rely on the executives for all their operations, and only ask "token holders" for their input rarely, and on broad topics. Because token holders hold too little equity, they're not incentivized to be well-informed.
So I don't get why DAO advocates spend so much of their time obsessing about voting works and how token-holder value accrues, and so little time specifying how the executive works. Many DAOs don't even specify an executive -- they pretend someone will take the mantle organically.
Designers of DAOs and other token-voting schemes need to focus much more on designing the executive. For each 100 words you spend on describing how the executive works, you're allowed to spend 20 words on specifying the token holders dynamics, processes and incentive design.
If we keep pretending that token-based governance is a thing, we'll just keep designing dysfunctional systems that only serve as fodder for speculators. If you want to design tokenized systems that thrive, study how real-world companies work: they rely on strong executive bodies.
Just to add: my point is not that real-world companies or state democracies have great governance. My point is that even in these big important systems, the "token holders" have little interest to participate beyond voting once every few years -- so surely your rinkydink DAO...
shouldn't expect thousands of tiny token holders to make executive decisions. As @CemFDagdelen points out, corporate governance and state democracies are not the end of history. But the vector for improving them is not the vanilla "more direct democracy" https://twitter.com/CemFDagdelen/status/1315973434996916224
Direct Democracy pretty much does work as-is. For many reasons, but primarily because of the paradox of voting: small stakeholders are not incentivized to put in the work to make good decisions. token-based governance has offered few ways to solve this.
Also, to be clear, there are some promising suggestions for token-based governance that goes beyond the "direct token-based voting" paradigm. E.g. @joincolony @DemocracyEarth @daostack @AragonProject and others. But most projects are naive...
I see way too many projects and whitepapers and discussions that just assume as an axiom that vanilla token-based voting is a decent solution for governance. Instead, they should say "this is a hard problem, we'll use best-of-class solutions as they develop".
Another point: you can try to design DAOs that don't have empowered executive bodies, but do have sophisticated voting systems that try to solve the paradox of voting. (cf. Liquid Democracy or Holographic Consensus.)
I claim this is insufficient and that executives are necessary:
I claim this is insufficient and that executives are necessary:
Executives of a body can negotiate. They can set long-term plans and then adapt them on the fly. They are empowered to represent the organization. And they have this power in a legally-binding way:
Politicians sign peace treaties before bringing them to congress.
Politicians sign peace treaties before bringing them to congress.
CEOs make offers to buy and sell companies, before bringing them to the board or shareholders (if at all).
Executives wield dramatic power. They can be reprimanded for their actions -- but only after the fact.
Empowered executives of this sort are necessary for organizations:
Executives wield dramatic power. They can be reprimanded for their actions -- but only after the fact.
Empowered executives of this sort are necessary for organizations:
If your DAO only makes decisions by voting-based governance, and if potential decisions are only "brought up for voting" rather than executed, then there are many modes of organizational action that are completely blocked to you:
Outsiders cannot negotiate with an organization that does not have empowered executives that are allowed to represent it and make decisions for it. Iterating on policies becomes impossible. It's like trying to run a country with a parliament without a government.
My rule of thumb: if your token governance design, or your DAO, does not have executives, i.e. people who can take binding actions first, and only be punished after the fact, then you've designed a dysfunctional governance system.
One good example for a system with empowered executives is @joincolony , which is designed to allow people to make empowered binding decisions first, and then to later suffer the consequences if they angered the group. I wish this concept was more widely used.
Here's a really important caveat to my claims, by @VitalikButerin . He says that DAOs have many roles. Some DAOs are "wide DAOs" that have wide responsibilities. Some DAOs are "narrow DAOs", entrusted to manage one narrow system semi-automatically
>> https://twitter.com/VitalikButerin/status/1316292839307796480?s=20
>> https://twitter.com/VitalikButerin/status/1316292839307796480?s=20
He says that on narrow DAOs, you absolutely don't want empowered executives -- you want a stable and dependent organization, that just quietly does its job. Like the Bitcoin network, for example. He references the work of Thomas Sowell on this dichotomy. https://twitter.com/VitalikButerin/status/1316292846102605824
There's a big spectrum of DAOs' missions, and they need very different designs. In fact, I already have a diagram for this, from my blog post on behavioral crypto-economics. The more you are on the top-left, the more you'd want an empowered executive.
https://medium.com/lunar-ventures/behavioral-crypto-economics-6d8befbf2175
https://medium.com/lunar-ventures/behavioral-crypto-economics-6d8befbf2175
Also: DAOs today already do have executives. They're just self-appointed, unofficial, de-facto executives, but no duty of fairness, nor checks&balances, nor the right to officially represent the org.
Today's DAOs are not free of executives, they just have dysfunctional executives
Today's DAOs are not free of executives, they just have dysfunctional executives
You can speculate that this trend will get fixed with time by better governance methods, eliminating de-facto executives. But I suspect executives are here to stay, and you must choose to either design them into the system, or to deal with dysfunctional de-facto executive bodies.
Great thread from @EAThomson pointing out some typical weaknesses of executive bodies:
https://twitter.com/EAThomson/status/1316315253425221635
To be clear, corporate executive bodies can serve as inspiration, but we should do even better!
https://twitter.com/EAThomson/status/1316315253425221635
To be clear, corporate executive bodies can serve as inspiration, but we should do even better!
And a good point from @Sam_Liban about the importance of intransparency: https://twitter.com/Sam_Liban/status/1316101883271020545
To see why you need to design executive power into your DAOs, just look at thepower-jockeying that happens when a DAO is lacking a defined executive. In the end, a bunch of players all try to grab power, and often the worst players, or the ones with foreign interests, win.
Recall that a key feature of a Democracy is the peaceful transfer of power. When you avoid defining who has power and how it's reassigned, you don't get a system where no one has power, but a system where the worst entities seize power and monopolize it.
