DAO’s “Left” and “Right”

Why left-leaning DAOs are bound to fail

the basis of the argument

In countless narratives, the DAO, as an organizational form, can replace the responsible company, the market organization order that capitalism has explored over hundreds of years. So, what do DAO researchers think about its opponents? The prevailing view is nothing more than:

  1. Unequal distribution, AKA exploitative. The executives or capitalists of the company sucked most of the value, while the salary of the diligent 996 barely paid the mortgage.
  2. Classes are distinct, the rich enjoy a fantastic quality of life, and wages consume their lives in cramped rental houses.
  3. Spiritually devastated, technology companies fill ordinary people’s time with “junk information”, making them decadent.

Critics will also pinch their noses and admit that over the past few decades, large multinational corporations have created the convenient lives we have today that were unimaginable just a few decades ago. Ordinary people’s living room can also be warm in winter and cool in summer. You can have a delicious lunch without cooking. At midnight, you can choose the most eye-catching blogger to comfort your loneliness. It’s even free. .

But it would be better if the poor could earn more. So, let’s DAOs. Through DAO, early ordinary contributors can also harvest wealth; through DAO, every member is equal; through DAO, we create art and call for conscience…

So, you can see a lot of social experiments that have appeared in history, resurrected in DAO. This kind of experiment draws many nutrients from the designs of Saint-Simon and Comte in the 19th century, and we generally call it “utopian socialism”.

The left-leaning attempt of DAO is the restoration of some socialism ideas in the field of cryptography. The following will illustrate my point of view from three aspects: the basic form of left-leaning DAO, the logic of profit and collapse, and the speculation of its psychological root.

basic form

Although there are many variations, the basic idea of ​​left-leaning DAOs is to create a “commons capital” that belongs to DAOs, and then design a certain mechanism so that the commons capital can generate income according to the mechanism and distribute it fairly according to the mechanism. E.g:

  1. Use multi-signature wallets for fund management. Generally speaking, a DAO run by the “treasury” needs to use a multi-signature wallet to manage the funds of community crowdfunding. Allegedly, this ensures that the treasury funds will not be RUG by the management to the greatest extent.
  2. Operational collective decision-making. This is where DAO tools focus on innovation, because the problem is obvious: collective voting decisions are very inefficient. Therefore, we have seen such things as: the majority vote mechanism, the election committee mechanism, the random voter mechanism, the separation of powers between the two chambers, etc.
  3. The mechanics of benefit distribution. At present, there are two types of interest distribution in mainstream DAOs: one is equal distribution, the income generated by DAO is distributed to the community through equal sharing or random lottery, with various NFT DAOs as typical representatives; the other is a Ponzi-like mechanism, it is said that DAO’s Early participants should get more income, and latecomers should contribute to the principal reward, represented by OHM fork.
Profit and crash logic

The logic behind the establishment of a profitable DAO comes from the assertion that DAOs stimulate the creative entrepreneurial talents of DAO members and thus gain efficiency advantages over traditional corporatized organizations. But for now, I haven’t seen a successful case based on this logic, so how do so many DAOs make money? Generally include:

  1. Ponziization benefits and their collapse: Including obvious ones such as OHM Ponzi, as well as invisible Ponzi that cut leeks through token marketing. Well understood, not to mention.
  2. Management information difference income and its collapse: This refers to the personal income earned by the DAO management using its own opacity of protocol code, capital, and market resource information. For example, fake rug, use DAO funds to ship, and steal the white list. This way of making money has generated huge profits for the DAO’s management, but at the cost of the loss of the DAO members. Such a DAO is not a positive-sum game, and the collapse is justified.
  3. The collapse of consumptive profit and its management system: This refers to the collapse of competition failure under the operation of honest management of DAOs that want to do things. The so-called consumptive profit means that the founders’ funds to maintain the initial operation of the DAO, or the profit expectations for the formation of the DAO are consumed, making the DAO unsustainable. The reason for the collapse excludes the lack of competitiveness of the product itself, and it is more due to the imbalance in the distribution of interests within the DAO and the exodus of talents.

It can be seen that the basic pattern and the three points of profit and crash logic correspond to cause and effect. If there is no left-leaning mechanism design in the form of DAO, there will be no unsustainable profit and inevitable collapse.

Below, briefly speculate on the psychological roots of this left-leaning DAO.

psychological root

In Mises’s great article “Bureaucracy: The Anti-Capitalist Mentality,” he summed up the reasons for the left-leaning of the public in his day, and I have listed a few of them that are appropriate for today’s situation, summarised as follows:

  • Psychological jealousy and self-deception

In a market economy system, everyone can achieve a status jump by providing value recognized by consumption, but only a few elites can do it. Some of the remaining losers, to console themselves, convince themselves that their failures are not their own fault, but the fault of the social order. He is as good and diligent as those who have overshadowed him, but more profit is made by unscrupulous liars and shameless “capitalists”, it’s not fair.

  • The influence of literature and entertainment

Writers and entertainment stars are always frightened in the market era. They are afraid that they will no longer be welcomed by the market and will no longer be able to enjoy today’s wealthy status. Thus, in their works, they always seek an escape, a quest for the paradise of socialism – just as they pursue the backward idyll, in the United States (obviously), produce these boring plays and movies. people, who happen to be those most ardently devoted to the ideal of socialism. This is not random speculation. Eugene Lyons, a Hoover biographer, once analyzed the influence of the world’s most famous stripper on the American radical movement at the time.

  • Resentment of white-collar workers

The white-collar workers have some special troubles. They work in office buildings and seem to have the same job as their bosses; the colleagues they deal with every day climb to the top, but they don’t get promoted for a long time – these people are always inferior to themselves, but Rely on despicable means to gain status. He feels that his work is an important part of his boss’s entrepreneurial activities, but he never gets paid proportionally. And precisely, white-collar workers are an important part of advancing DAOs today.

summary

Left-wing countries can last for decades, and left-wing parties can survive at least one term. Why does the DAO always collapse so quickly on the left?

Because no matter how the mechanics of left-leaning DAOs are designed, DAO members have an always open retreat – sell and leave. This is the initial design of the crypto world, giving property owners the greatest rights and respecting the private property system, which is the natural enemy of the left.

A NAP-based solution

The above summarizes the reasons for the failure of left-leaning DAOs: they always want to build a “commons capital”, and friends who are familiar with the basic economic concept of the tragedy of the commons know that commons capital will only lead to a waste of resources. Further, the protection of property rights in crypto will allow DAO members to leave such DAOs early by selling, thus accelerating the collapse of left-leaning DAOs.

Therefore, as long as the starting point of constructing “commons capital” remains unchanged, no matter what kind of mechanism innovation is made, it is giving publics managers the opportunity to seize personal interests.

Then reverse the thinking: Is a DAO without “public domain capital” conceivable? Of course you can, and you can see it everywhere.

Companies do not have public domain capital, and every bit of assets can be traced back to individual shareholders, employees and suppliers through layers of commercial contracts. As we’ve seen, mechanisms like this create great products.

NAP (Non-aggression principle) is a property rights treatment principle that has been continuously improved since Spencer proposed it. It’s a natural fit for the crypto world: you can do whatever you want as long as you don’t infringe on others.

Granted, there are many academic scenarios to discuss in the real world, such as the free-rider problem, victimless crime (drug sales), intellectual property issues, and so on. But fortunately, we are in web 3.0, and it is easier to deal with this principle.

NAP-based DAO solution, starting from the core asset ownership:

Step 1: Clear ownership of funds

In a DAO, each fund is attributed to a specific individual (address or DID). The individual has the full right to dispose of its funds, including defining its use, secondary market sales, withdrawal, waiver of rights, etc.

Step 2: Utilization of funds

Now, we define the owner of each asset, but the funds of the DAO members will be very scattered. So, how to use these scattered funds efficiently? In the traditional corporate structure, shareholders generally appoint professional managers to manage assets. On the contrary, in mainstream DAOs, DAO members choose to hand over funds to project parties for use.

The problem is that in the real world, the real-name + relatively perfect legal system tends to let professional managers manage shareholders’ assets for longer-term interests; but in DAO, the rules here are completely opposite: the team may be anonymous and real Laws are missing for web3, and there is no way to talk about spontaneous laws in cyberspace.

Therefore, we certainly need to re-establish a professional manager system within the DAO, which should satisfy:

Security: The space for managers to rug funds should be minimized, even if they are extremely trustworthy.

Flexibility: Managers can access large sums of money in minutes without the cumbersome financial approvals in web2.

Therefore, we describe a possible mechanism from four aspects: the generation of managers, the use of funds by managers, the handling of managers’ rug funds, and the profitability of managers:

  • The creation of managers

The owner of the funds entrusts the funds (eg. ETH) to the manager and signs an entrustment contract, which stipulates (entrustment fees, profit methods, exit conditions, etc.). The manager will receive a time-locked, linear release of ETH funds – tETH – into the pool he manages. Delegators can withdraw their delegated funds, leave the DAO or re-select delegators at any time as specified in the delegation contract.

  • Manager’s application of funds

Once tETH leaves the pool, the time lock is opened, and the pool will automatically send ETH to the address of tETH according to time (or a DeFi protocol that can be claimed with tETH, the technical details are beyond the scope of this article, the same below). At this time, the pool consumes the funds of all delegators in the pool in equal proportions.

2.3 Prevent rugs

Since the delegator can change the manager at any time, this means that his ETH is withdrawn from manager A’s pool and enters manager B’s pool. Therefore, if he has doubts about the use of funds by Manager A, he can immediately withdraw from the pool according to the current profit consumption ratio. Once the ETH funds in the pool cannot pay the amount represented by tETH, the release is suspended until the pool is replenished with new funds. (PS: Although this means that if a rug occurs, the sooner people who withdraw from the pool will be able to reduce the loss, but considering that the speed of information dissemination is much faster than the release speed of time-lock funds, the difference in this loss is minimal.)

  • Manager’s Profit

Why external funds are paid into the pool (rather than the manager’s private wallet), how to pay into the pool, and how to distribute profits in a pool that can be entered and exited at any time are the three major issues linked to this question. However, within this framework, the above problems can be easily solved, because an important factor for the client to choose a manager is its ability to use funds to make profits, such as:

Why pay into the pool?

There is sufficient competition between managers, and managers who cannot help the pool to make profits cannot gain the trust of their clients and obtain large amounts of money; therefore, compared with managers in web2, managers have a lower probability and amount of extra income .

How to enter the pool?

There are two forms of profit for managers to use pool funds: a. Generate income in the form of on-chain smart contracts, such as managers investing in DeFi protocols; b. Direct remittances, such as managers hiring communities to complete certain off-chain tasks. The former can be reviewed by the community in advance, and the latter is also subject to the delegator’s profit and loss assessment because of its financial expenditure on the chain.

How to distribute?

The main contradiction in distribution is how to distinguish the benefits of pool clients at different levels (early/late, big/small). The traditional way of dealing with it is equity dilution and acquisition, but this requires at least P2P matching, which is inefficient and not suitable for the principle of pooling in and out.

Therefore, we changed our thinking, and the income is also a part of the pool’s expenditure. Therefore, the remaining profit from the ETH in the pool minus the tETH payable is paid by the manager to different clients in the form of tETH according to the contract. In this way, the manager’s dividend plan is used as a dimension of its competitive entrustment quota for the entrustor’s reference. (PS: What kind of client is more popular with managers is a subjective issue according to local conditions. In DAO, we reject both the fair distribution and the distribution method that blindly pleases the early clients.)

Through the above mechanism, we review the two principles of flexibility and security proposed at the beginning. can be seen:

In terms of security, competitive managers reduce the probability of manager rug from a priori perspective, while the time lock + linear release mechanism completes the supplement from a posteriori, leaving ample time to reduce the client’s rug as much as possible. loss.

In terms of flexibility, managers can immediately sign a large amount of investment through the private key, which not only optimizes the cumbersome web2 financial approval process, but also helps managers gain the upper hand in the competition for important business opportunities. (This is not unprecedented, as TJX senior buyers have immediate authority to sign million-dollar orders.)

As a supplier or principal that accepts DAO funds, smart contracts not only ensure the repayment ability of its accounts receivable, but as a bond, tETH has a broad application space in the DeFi world. This enables suppliers to release liquidity more fully to improve production efficiency.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/daos-left-and-right/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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