Viewpoint: Four Lessons from the Decentralization of DAOs

The heated debate around community decentralization continues to burn in the melting pot of the DAO ecosystem.

DAOs are not (yet) decentralized. While there are some useful and widely adopted community decentralization frameworks and playbooks, there is no one-size-fits-all approach. A core reason for this is because DAOs are not fully autonomous: they require people to create decision primitives for governance, incentives, and growth. These tracks are usually set by “leaders” within the DAO. This has led to recent debates about whether DAOs are leaderless and/or should have a CEO.

our opinion? A DAO is not a leaderless organization and should not have a CEO.

Instead, DAOs should leverage their “all leadership” capabilities. DAOs need to create functions and spaces for all people to be leaders in shaping DAO’s culture and future. This requires empowering everyone to be a leader so that decentralized communities can become truly resilient.

Therefore, we believe that what is really needed in DAOs is to incorporate asymmetric influences to avoid design flaws that lead to dictatorship or over-reliance on individual and collective action.

To learn important lessons about how DAOs can better achieve this end state, we spoke with experienced DAO operators who have been at the center of the DAO’s journey to decentralization. In the following, we examine the following important topics:

  • How are DAOs decentralized?
  • How does this change?
  • How has leadership evolved and rotated over time?
  • When and how did this evolution happen?

D (Decentralization) in DAO

DAOs are not inherently decentralized. Vitalik’s famous 2014 article on DAOs, DAs, and DOs discusses how initial centralization enables communities to move flexibly and establish goals, missions, and visions. Centralized decision making usually makes sense when a “DAO” is launched. Mirror’s purpose is best said: “A DAO is an organization that builds a DAO.”

Nearly half a century ago, Leopold Cole wrote in The Fall of the Nation: “Whenever something goes wrong, it is too big”. The same logic applies to DAOs as well. DAOs continue to grow in size and complexity, eventually reaching a point of no return, and they need decentralization to continue growing. As some of the larger DAOs have seen, they decentralize decision-making for greater transparency and trust at the expense of speed.

Despite this realization, there is still no agreed way of when or how to decentralize. Details surrounding leadership transitions, elections, cultural norms, and departures vary from DAO to DAO.

To help current and future DAOs in their decentralization efforts, here are the four most important things we learned from our conversations with major DAO operators.

1. There is no accepted definition of decentralization

“DAO decentralization is how decentralized and disseminated decisions are made.” — Joe from Index Coop

The first thing we learned from DAO operators is that there is no consistent definition or understanding of decentralization.

A reliable dictionary will tell you that decentralization occurs “when power is widely dispersed or dispersed.” In fact, many of the people we talked to talked about decentralization in these terms. It is widely believed that decentralization occurs when power is dispersed to ensure that no single participant can disproportionately influence decisions.

A hierarchy of power—or “network topology” as Tracheopteryx calls it—exists in a DAO just as it exists in a non-decentralized organization. This is not necessarily a bad thing. Leaders appear whether or not the organization formally recognizes them.

Minimizing one party’s ability to capture DAO decisions sounds great. But how does this work in practice? Through the DAO governance and decision-making process.

DAOs have long been exploring different voting models for fairer and more transparent governance. DAO operators mentioned early, simple voting, such as one token (or one person), where one vote prevailed until glaring vulnerabilities, such as plutocracies and governance attacks, were discovered. Since then, DAOs have tested reputation-based weights, belief voting, delegated democracy, and even a mix of some of these models.

These experiments often focus on reshaping power within communities through collective ownership. Fancy from Protein pointed out that their DAO “leader” (i.e. the core team) has exactly the same voting power as the members.

This is similar to how moloch DAOs are designed. A sponsor from WarcampDAO (the DAO of c.30 contributors, including the original moloch smart contract developers, who built the DAOHaus platform) explained that moloch’s design is focused on giving each member some form of execution, not creating Any type of executive power council.

These forms of participatory governance in Protein and WarcampDAO aim to increase the number of agents involved in decision-making.

However, other forms of governance have also been employed by the community, including appointed committees and/or delegated voting mechanisms. These models aim to achieve decentralization by enabling token holders to nominate and empower a small group of people to make decisions. MakerDAO’s Jack said that Maker uses delegated voting to make decisions. They have about 10 representatives who have significant voting power and are mandated by the wider decentralized community to act together in the best interests of the DAO.

Whether the DAO adopts a participatory or delegated model, or reimagines governance in another way, the key takeaway is that the DAO should incorporate relevant discussions and agreements around key decisions and support the subsequent execution of that consensus.

2. 4 key principles to consider when decentralizing DAOs

“We are gradually decentralizing and trying to put more decision-making power in the hands of the community. To do this, there has to be a high level of trust and participation.” – Fancy from Protein

While there are some experiments like Loot’s (probably one of the only “real” examples of a fully decentralized project from the start), most DAOs must gradually build a decentralized future.

While this process will vary from DAO to DAO, many DAO operators agree on some best practices that DAOs should adopt when decentralizing.

The first key principle is to be careful not to over-pursue permissionless. All DAO operators agree that there is a serious “overemphasis” on permissionless and openness relative to decentralization. They also collectively agreed that being permissioned in a DAO and having truly decentralized power is better than being permissionless with just a few administrators on multisig.

Second, DAOs must involve the community throughout the process. As Protein’s Fancy puts it, “The key to unlocking value is to actively allow contributors to build their own parts of the DAO and become their stewards”. WarcampDAO’s Spencer calls it “localization” and is a key structural component of a decentralized community. These local areas should not only be identified, but should be clearly defined.

Third, in addition to engaging community members, DAOs need to ensure that they codify core activities. According to Jack from Maker DAO, this is especially important for their strategic function, especially being able to make timely decisions when protocol revenue declines or when efficiency needs to be improved. DAOs need to clearly define and agree on the scope of roles and powers, and how to update these. While this may seem counterintuitive, Julz from Orca argues that the strengthening of ecosystem responsibilities, roles, and opportunities actually “gives people ownership and autonomy in decision-making.”

Finally, DAOs need to take care to balance participation and delivery. As Fancy from Protein says, “It’s a balance between keeping your guts to get things done and jumping in (if not) before the deadline”. Joining can include things as simple as pushing people to vote, such as reaching a quorum on important decisions. The balance between getting people to work and micromanaging them from the top is tough, but the act of having more contributors vote on proposals actually increases the decentralization of the decision-making process.

If DAOs adopt these key principles, they will help build strong, engaged communities committed to decentralized growth.

3. Tools and processes will define effective power transfer in DAOs

“If votes don’t automatically de-authorize or decay over time, leaders will be in power forever because it takes effort to de-authorize them. They will then be the first choice for others to delegate.” – David from JokeDAO

Decentralization of DAOs requires power transfer. To transfer this power, DAOs need proper tools and processes.

The DAO wants to avoid situations where the entire DAO is dependent on an individual. This is essential in DAOs because it not only supports the longevity of the DAO, but also de-risks it. As stated in Luke Duncan’s famous book on effective governance, DAOs should create a structure that does not render the entire DAO inactive when key individuals are inactive.

Warcamp DAO’s Spencer reiterates this in his “anti-capture” framework, which is designed to help DAOs determine whether their processes are vulnerable to “capture” by one or more actors. One particular process that Spencer sees as making communities more resilient to capture is the creation of smaller groups focused on sub-goals, such as subDAOs. Spencer is particularly excited about Orca Pods, which Orca Pods say is “an important step in creating a subgroup protocol by maintaining connectivity between subgroups.” In fact, Julz, the founder of Orca, has long championed “proportional levels of power and control” and the need to “elevate community contributors” in order for DAOs to scale and fully decentralize.

Index Coop achieves this, albeit in a slightly different way. Index’s DAO has a group of leaders – the Index Council – who develop the overall strategy for the DAO and support it through resource allocation. The council also deals with decisions that lack a clear owner. The Council supports decentralization by effectively delegating real responsibility to the teams and individuals that make up the DAO. In doing so, they ensure that decisions are not actually made by those in leadership positions, but can be driven by the DAO contributors who provide the most in a given area.

These governance processes are more effective when ritualized, systematized, and facilitated. Joe from Index Coop noted that they have government representatives who “handle snapshot vote requests, review and edit proposals, publish vote announcements, and notify the community of any votes that may lack a quorum.” These ceremonial duties ensure that the community is accountable for its role in participating in the day-to-day decisions the DAO needs to make in order to function. Procedural and discussion-based decision-making offers the added benefit of increased transparency, which makes the decision-making process inclusive.

Establishing clear groups and roles within those groups, and ritualizing their use, provides clear lessons for DAOs when choosing processes to support decentralization.

4. DAOs should not underestimate leadership responsibility, continuity, and departures

“It’s not about ‘how do you rotate people’, it’s more about ‘how do you create space for people to take on the leadership roles that make the most sense for them’, thereby creating more local parallel leaders.” — Spencer, WarcampDAO

A surprising lesson from the DAO operators we spoke with revolved around the importance of ensuring leadership accountability, continuity, and departures.

First, all operators said that DAOs need accountability capabilities. These can be agreed values, agreements signed by community members, or more formal mechanisms. In short, the formal or informal norms by which leaders live. For example, Index Council members are elected by Index members for six-month terms and are accountable to contributors and token holders who can effectively vote them out. This is a similar model of delegated democracy currently used by Synthetix, although they will soon move to a more direct on-chain access model that will also enable token holders to veto decisions made.

Second, DAOs need to create space for new leaders to emerge. Leadership transitions are something WarcampDAO is really starting to grapple with now, but Spencer is especially complementary to the space the original three founders (who are all still on the project) created for new leaders to come along/with them, Including Spencer.

Third, many DAO operators note a clear link between leadership and reputation in DAOs. Therefore, it is critical to ensure that the hierarchy is replaced by consistent promotion of elite contributors. As Protein’s Fancy puts it, “ideally, consistency is achieved with an appropriate handover period”.

Fourth, DAOs should seek to support DAO continuity as leadership changes due to institutional history. The DAO has old and new members, some of whom have been around since its inception and others who have only recently joined. Fancy talked about the importance of creating a culture in DAOs and incentivizing the preservation of that culture.

Under the right circumstances, a culture of open debate about leadership electoral practices and rotations may yield the healthiest and most effective decentralized organizational structures.

A call to action for DAOs that are now decentralizing

DAO decentralization has many guises. By understanding how those DAOs before us struggled with decentralization, this will allow us all to better discover organizations that belong to DINO (decentralized in name only).

This is our DAO Masters’ call to action, encouraging DAOs to embark on a journey of decentralization: explicitly agree on roles and power lines; define and strengthen their culture; ensure accountability functions; and create space to maximize new leadership voices. In doing so, existing and future communities will better establish themselves to ensure resilience and support in their progressive decentralization process.

Posted by:CoinYuppie,Reprinted with attribution to:
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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