The state of development in the DAO field is still at a relatively early stage. But DA Oryakai, as a practitioner and learner of DAO, through a period of observation, discovered and personally experienced some of the various things happening in the DAO community. This article attempts to provide every DAO practitioner and enthusiast with a different perspective by sharing some of the things we are experiencing and deeply reflecting on.
01. The treasury is not a fund, endowment or other pool of capital
Over the past few months, we’ve seen a development that worries us: some market players see DAOs as honeypots from which they can generate fees, and no product is like a “two and twenty” fund The business model is as easy as generating fees. “More specifically, we’re seeing market participants recommending that DAOs sell their native tokens to obtain large sums of money that can be used to generate “low-risk” returns for the DAO. In other words, want to run a hedge fund with treasury money .
Without commenting on any specific proposal, we see several issues here.
While DAOs can generate 10-30% returns by investing their assets in financial assets, well managed DAOs can generate higher returns by investing in things that control their own destiny – investing in people (contributors) , marketing, growth plans and acquisitions. In our view, the rewards of making DAO products better and more widely available will be far less risky and higher upside than the returns generated by financial assets. (Even though the returns on financial assets may be decent, after the service provider charges high fees, those returns are only decent).
Another issue with service providers managing hedge funds using DAO assets is shifting the focus of the DAO and its community from building products and communities to generating returns. This loss of focus could lead to very significant “scope creep” benefiting service providers at the expense of token holders.
Reflect: Focus on using your funds to reinvest in DAOs. Reinvesting in the DAO includes hiring great contributors, investing in marketing and growth, and launching new products.
02. Contributors can have external agendas
Given the open nature of DAOs, it is common to see contributors working on multiple DAOs at the same time. This is in stark contrast to traditional employment methods, where an employee usually works full-time for only one company.
While there is nothing inherently wrong with working for multiple DAOs at the same time, it does create potential conflicts of interest.
For example, we see some part-time contributors encouraging unfavorable integrations, partnerships, and/or investments in other DAOs because they hold personal stakes in them. While conflicts of interest are an unavoidable fact of life, if not disclosed, they can lead to the DAO making decisions that benefit the individual making the proposal to the detriment of the DAO and its token holders.
Reflection: Require contributors and other governance actors to disclose their conflicts of interest with respect to meaningful conflicts (eg, investments of more than 1% of their net worth).
03. Committees play down accountability
Committees (eg, grant committees, financial management committees) are good and bad.
Benefit: Multi-signature composed of committee members acts as an internal control mechanism to prevent members from doing evil.
The bad: Committees tend to downplay accountability. That is, if the wrong decision is made, there is no one to blame. As a result, responsibility is diluted among a group of people who are not punished for wrong decisions. Often, this results in a “committee by design,” where the most popular decision trumps the most correct decision.
Reflection: Form staff committees with those who play an important role in the DAO/game. Committee members are required to hold the DAO accountable by evaluating the results against the previously proposed plan. Make sure each committee has a “leader” who will be held accountable if something goes wrong.
04. Openness and quality can be antithetical
Today, many DAOs are in desperate need of contributors. In order to find as many contributors as possible, many DAOs present themselves as “open” to encourage people to join and start doing valuable work. While the intent is noble, the outcome of the open can be questionable.
The biggest problem with DAOs being extremely open is that they attract different levels of talent. Great people are what DAOs need and vice versa. By opening up, many DAOs open the floodgates to low-quality contributors, which is a net negative for DAOs. The problem itself also exists. Once low-quality contributors are attracted, uncomfortable or cruel measures need to be taken to deal with the matter.
This is not meant to sound the alarm on openness. DAOs should be open, but should also maintain extremely high quality standards. In fact, it looks like everyone should be welcome to join the DAO, but to contribute, the quality bar should be set very high. This shows that people joining the DAO care about quality, and if they want to contribute, the contribution needs to meet minimum quality standards. Once some A+ quality contributors work on the DAO, their contributions will start to be noticed by other A+ contributors and encouraged to join the DAO as well.
This is similar to conventional hiring wisdom: A hires A, B hires C, and C hires D and F. Hiring A from the start is much easier than dealing with B and C after the fact.
Reflection: Set the minimum quality bar very high. Reward A+ contributors with higher financial returns, and give up underperforming contributors.
05. Bikeshedding is the enemy of the organization
If you look at activity in most governance forums, you’ll notice the same problem: the community debates compensation/payment for proposals, not the quality of the ideas. This is a classic sign of a bike falling off, with relatively unimportant issues getting more discussion than important (but harder to discuss).
For example, let’s take a simple Grant program proposal. If a Grant program has a budget of $2 million, typically set aside about 10% to pay for the executive team (with $1.8 million left for donations). When these proposals are made, the community almost always focuses on discussing the executive team’s compensation (about $200,000 in this case) rather than debating whether funding the program is a good idea in the first place. That’s because it’s easier to discuss how much a person should be paid than to assess the value of the idea.
In reality, the discussion of compensation is far less important than the discussion of evaluating ideas. Going back to the previous Grant program example, the DAO can spend up to $200,000 in compensation. However, if the funding program was a bad one in the first place, the DAO would not only lose $200,000 in damages, but also $1.8 million for executing a bad idea.
Note: Bikeshedding: It’s difficult to give valuable input to discussions on very large and complex topics without a lot of expertise or preparation. However, people want to see more opinions. As a result, they tend to focus a lot of time on small details that are easy to scrutinize but not necessarily important. The above fictional example gave rise to the phrase Bike Shedding to describe the act of wasting time on trivial details.
Reflection: Evaluate each idea in terms of its strengths/weaknesses. If the downside of the Grant program is $2 million and the upside is generating $10 million in value, then arguing over whether to pay the executive team $100,000 or $300,000 isn’t worth anyone’s time.
06. About Community and Investor Ownership
A recurring debate we see time and time again is “too much for investors” and “too little for the community”.
From our perspective, thinking about which group of token holders owns how much of the project is the wrong way to look at things. Instead, we prefer to consider members’ enthusiasm for the DAOs they invest in.
For example, if a fund owns 10 million tokens, or 10% of the fund, there will be an incentive to track their investments. On the other hand, individual community members with 150 tokens (2% of their net worth) will not actively track their investments. Despite these differences in motivation, the prevailing narrative is to succumb to community opinion. In our opinion, this is precisely the wrong approach.
We would rather participate in a DAO with 10 active 10% owners than a DAO with 10,000 listless 0.01% owners. The results of the former case may be much more positive than those of the latter.
Reflection: Provide more signal to ideas presented by token holders who hold significant funds/equity in tokens.
07. Governance is politics
Today, getting proposals through the governance process requires a certain level of lobbying and politics. Some see this as a black eye on governance; this makes cryptocurrency governance start to look like national politics, potentially corrupt and distorted.
In our experience, the actual situation is not so bad: large token holders need to be lobbied to vote on proposals, and some level of lobbying is normal. Because large token holders are busy, they don’t keep track of every proposal posted on the forum. In short, proposal lobbying looks more like outreach than nepotism.
Every once in a while (though rarely), proposers do need to engage in some level of politics. Otherwise, you risk the next proposal. At this point, Plato summed up the situation best: “One of the penalties for refusing to participate in politics is to end up being ruled by a subordinate.”
The politics of crypto projects are practical and generally easy to understand: if you need X votes to satisfy a quorum and Y votes to pass, token holders and community members will naturally merge into one group and vote as a collective. Failure to merge into a voting block (i.e. remain decentralized) will result in each group failing to reach the governance threshold and thus not be able to achieve any success in the governance process.
Reflection: Assume that token holders will speak privately, lobby based on selfish needs, and in general, make proposals that are more beneficial to them than DAOs. None of this is a bad thing; however, when the governance process is designed in a way that does not face the reality of what is actually happening behind the scenes, it does make the process worse.
The past year and a half has been a mixed bag for DAOs – the hype is loud and many of the problems DAOs face have been glossed over. When the inevitable setback in token prices, the tide will recede and all previously veiled issues will surface. DAOrayaki hopes this article will help BUIDLers address some of these issues head-on.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/reflection-on-governance-of-dao-treasury-talent-flow-efficiency-responsibility-ownership-etc/
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