Where is the DAO: A brief analysis of the development process and governance mechanism of the DAO

This article was originally created by Huobi Research Institute and authorized by Golden Finance to publish it.

Abstract To

Distributed Autonomous Organization (DAO) is an organizational form that uses a blockchain protocol to decentralize and autonomously complete some decisions and automatically perform tasks under shared rules. The concept originated from EOS founder Daniel Larimer. In 2014, after being supplemented by Ethereum founder Vitalik Buterin, it officially entered an eight-year tortuous development: after the embryonic period of forming the concept ; DashDAO appeared to the chaotic period of the fall of The DAO ; Aragon, Maker DAO , The reconstruction period of the Moloch DAO framework one after another ; and the current exploration period since the outbreak of DeFi .

The mainstream classification methods of DAO include broad and narrow sense, technical model level, and application scenarios. In order to explore the similarities, differences, advantages and disadvantages of mainstream DAOs, we classify them according to the governance framework : 1) According to whether there is a coordination mechanism, such as off-chain proposals, access system qualifications, proposal prediction market, etc.; 2) According to voting decision mechanism , Such as quorum voting, secondary voting, and relative majority voting mechanisms based on tokens.

Furthermore, the report analyzes DAO representatives and their advantages and disadvantages under different governance frameworks. Among them, 1) the governance of the Aragon framework is easy to understand, but lacks a coordination mechanism and has fairness issues; 2) the off-chain + on-chain model based on Maker DAO can drive governance activity and improve security, but it also brings centralization , Cost and enthusiasm; 3) The Moloch-based model achieves minimum availability and optimizes fairness, but malicious proposals are prone to appear and the process is slow; 4) The DAO Stack-based framework can focus the attention of members and provide fairness in the above model , Security has been improved, but the issue of voting quality and governance incentives has also been extended.

Based on these different DAO representatives and governance models, we believe that the current DAO has provided some distributed and autonomous collaboration paradigms in specific scenarios such as protocol governance, investment and financing , and can solve the following problems: create a global operation in the form of organization Environment; provides a distributed, trustless, and transparent decision-making environment and fixed rules in decision-making; delegates power in resource allocation; improves execution efficiency; and a more flexible organizational structure. But it also faces some problems: technically amplified risks and limited development; application scenarios are still in the early stages of exploration; the single function of the DAO ecosystem is limited; there is no optimal solution for fairness, quality, and incentives in governance; there are potential legal risks. We believe that it will take time for the DAO to reach the ground and create a “moat”.

Looking to the future, we believe that DAO will develop towards more diverse scenarios, clearer identities, and higher participation in the short term ; in the long term, there will be more in-depth theoretical research, more reasonable incentive systems, and more distribution. It has developed in the direction of style and has become an indispensable part of the Web 3.0 system.

Author 【Huobi Research Institute】Chen Han

content

1. What is DAO

1.1 Definition and Evolution of Distributed Autonomous Organization (DAO)

1.2 DAO’s role and capability boundary

1.3 The development stage of DAO

Second, the classification method of DAO

2.1 Broad VS Narrow Sense

2.2 According to the technical model level: consensus layer, contract and application layer, middleware

2.3 Classification by application scenarios

2.4 Classification by governance framework

3. DAO representatives and their advantages and disadvantages under the mainstream governance framework

3.1 Custom proposal + quorum voting decision based on token

3.1.1  Aragon

3.1.2 API3 DAO

3.1.3 AAVE

3.2 Off-chain proposal + second voting decision: Maker DAO

3.3 Access system qualification + relative majority voting decision

3.5.1 Moloch DAO v1

3.5.2 Moloch DAO v2

3.4 Holographic consensus: Proposal prediction market + custom weight voting decision

3.4.1 DAO Stack

3.4.2 DXdao

4. The pros and cons of DAO—solve problems or create more problems?

V. Outlook

references

What is DAO

Decentralized Autonomous Organization (DAO), or “distributed autonomous organization”, refers to an organization that uses code and programs to complete some decisions and automatically perform tasks in a form of decentralized autonomy under shared rules. In vernacular terms, it means that some people gathered under a certain “big goal” make collective decisions about different “small goals” and let the actions corresponding to the decisions be automatically executed on the chain. In the blockchain world, DAO is realized through tokens and smart contracts, and is often used for project governance or resource allocation .

Definition and Evolution of Distributed Autonomous Organization (DAO)

From a definition point of view, according to the content of the DAO abbreviation, the current mainstream definition must meet at least three points:

  • distributed

In the context of DAO, distributed mainly refers to the decentralization of decision-making rights, and no special rights are given to key persons/organizations in the mechanism—this is completely different from the decision-making/management system of traditional hierarchical organizations.

  • autonomy

Mainly refers to whether the rules/decision-making process is constrained by code and executed automatically after the decision is completed; this process is mainly realized by smart contracts.

  • organize

The organization is composed of people, and the people will be responsible for the input of core parameters (such as proposals, etc.) in the DAO, and start the distributed autonomous process for “small goals”. The organizational form of DAO includes two points: 1) The final individual for making proposals and decision-making (the “edge” according to the V God’s paper) is human, not purely automated individuals such as AI and robots; 2) Having a certain number of participants , Can fully reflect the process of individuals making decisions based on personal interests. The difference between organizations under DAO semantics and ordinary groups is whether there is a mechanism to ensure the realization of “distribution”: fixed small groups can easily form an off-chain consensus, and even democratic voting cannot guarantee the decentralization of rights.

The definition of DAO originated from the distributed autonomous company (DAC) proposed by Daniel Larimer (BM), the founder of BitShares and EOS in 2013 : the encrypted token is regarded as a distributed autonomous company (DAC) shares, source The code defines the company’s charter; its goal is to maximize the value of an encryption system and minimize the cost through decision-making. This concept later gave birth to the BitShares project, but because DAC is more from the perspective of corporate governance and has strong application restrictions, it has not been widely used.

In 2014, Ethereum founder Vitalik Buterin (V God) improved the definition and distinction of DAO in his blog, and it has become the more recognized version of the standard definition. According to the description of God V, DAO is “an entity living on the Internet that exists autonomously, but it also relies heavily on hiring individuals to complete certain tasks that the autonomous mechanism itself cannot accomplish. ” In order to distinguish DAO from other distributed organizations, God V has given the following four quadrants, and only those with internal capital, autonomy at the core, and human behavior at the edge belong to DAO .

Figure 1 The four quadrants of DAO listed by God V

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Source: V God Ethereum Foundation Blog (2014), compiled by Huobi Research Institute

According to the four-quadrant diagram of V God, a DAO is easier to confuse with distributed organization (DO), distributed application (DA), and the earliest DAC proposed by BM. Among them, DO is an organizational structure in which a group makes choices based on code rules and personally executes choices through code, and there is a certain transferable value circulation system in this organization. DA is an application that does not contain transferable value, but contains distributed trust and communication features. The core difference from DAO is the value transfer system, such as the P2P information system BitMessage, which only transmits bitcoin block information. In addition, DAC is an organizational structure whose main purpose is project profitability and is classified as a subset of DAO.

Furthermore, the difference between DAO and DO lies in whether it has the ability to automate decision-making . DAO should execute it automatically regardless of whether the decision is “correct” or maximized. The most basic example is the modification of project code. For example, in 2013, the BitcoinQT 0.8 client was abandoned after the off-chain consensus of the mining pool and rolled back to the 0.7 version event. The incident was realized without a fully democratic decision based on the mining pool’s judgment on the user’s “maximum benefits”, and it did not actually cause much negative impact. From the perspective of the client rollback event, the execution of DO also relies on artificial parts, which is equivalent to leaving a backdoor of “repentance”, giving the possibility of artificially rejecting democratic choices , and there is a hierarchical structure to a certain extent.

1. DAO’s role and capability boundary

With the continuous emergence of blockchain projects on a global scale, new organizational paradigms that match the blockchain world are gradually being needed. This is due to the fact that the business model and organizational form of blockchain projects are different from the traditional world.

In the business model, users can withdraw from a project by selling their tokens; however, the project forked by the eye-catching opponent can retain historical data, which greatly reduces the user’s transfer cost. On the whole, the network effect of blockchain projects is lower than that of traditional enterprise products, and the cost of users exiting and choosing alternative network markets is smaller. This is different from traditional enterprises, which means that blockchain project parties will pay more attention to their ecological governance needs, by giving participants more rights to build together to retain users and contributors, and reduce the risk of projects being copied.

In terms of organizational form, the organizational characteristics of most blockchain projects are different from those of traditional enterprises: 1) At the founding stage, they are globalized and distributed, whether for builders or project users; 2) Many projects have no corporate entities. , The interests of each participant may not be guaranteed through the contract by relying on the law, but through project governance, but project governance is bottom-up; 3) Decision transmission is faster than traditional enterprises, especially for contract parameters and project codes Modifications, changes may be immediate. These characteristics require the organization’s governance to be fairer, transparent, efficient, and relatively stable , and higher requirements for multi-party cooperation games are put forward to the project sponsors at the initial stage, and the hierarchical structure cannot be balanced.

The emergence of DAO aims to provide a new organizational paradigm and governance form for group decision-making in the blockchain world . This new paradigm provides fairness between organizational contributions and rights for participants on the premise of eliminating hierarchies , and Under this major premise, improve governance efficiency and reduce governance costs (here we do not expand whether it has fully realized the original intention).

Specifically, DAO tries to solve the following problems:

  • Fairness-to ensure fair decentralization, so that everyone’s opinions can be expressed in governance, and the passed proposals can be accurately implemented. In the case of traditional equity-based enterprises, there are a few or small and medium shareholders who cannot propose; there are also situations where corporate contributors and partners have no right to participate in governance. In terms of execution, traditional enterprises or DOs are executed by people, and in terms of time and accuracy, man-made operations and adjustment space, corporate managers are the strong side.
  • Transparency—Ensure that governance rules are transparent and cannot be tampered with, and that governance and resource information is visible and time-sensitive. Taking traditional companies as an example, their governance rules can be adjusted by a small number of people in power; while governance decisions and resources (such as raised funds, etc.) have a scope that may not be disclosed, and the information disclosed is not real-time; non-listed companies may not disclose at all . This opaque and passive information flow management is not good for ecological expansion in the blockchain world.
  • Efficient coordination under the multi-party cooperation game-to provide a trustless, geographically-restricted and efficient coordination foundation for all parties with different interest appeals. Under the traditional structure, there is a lack of standardized and efficient trust-free coordination mechanisms within the enterprise, external partners, investors, and users. There are also differences in time, geography, resources, and laws between entity companies. This makes the progress of some important decisions either very slow and cautious, or managers weigh the pros and cons at the expense of the interests of some people; it also restricts the development of organizations in the context of “globalization”, such as small and medium-sized enterprises that are difficult to be global in the initial stage Seek talent within.

The above are some of the problems that can be solved by organizations such as DAO. Of course, DAO is not a master key, there are some capability boundaries:

  • Profit maximization— Accurately speaking, the existence of DAO is to maximize the governance of the group based on their own interests, rather than directly maximize the benefits of the organization represented by the DAO, because “groups of ideas” may make the best choice, or they may make stupid s Choice.
  • Fast decision-making- DAO applies to complex governance scenarios involving multiple parties. For some matters that require fast decision-making (such as completing a decision within one hour), DAO cannot be achieved in order not to undermine its fairness.
  • How Fast and Better— DAO’s organizational form is far from “how fast, better, and economical”. There are fewer applicable scenarios and are still being explored; the hierarchical organizational structure is not fast enough; various functional mechanisms are not perfect; and limited The high cost on the chain is too high for users.

Based on the above-mentioned role and capability boundaries of DAOs, after several years of exploration, two new trends have emerged in current DAOs: 1) Realization of minimal availability, such as pure voting to govern DAOs; 2) Exploration of application boundaries, the emergence of investment and financing, Special governance, NFT and other sub-fields of DAO, and different application directions have also appeared some widely used models.

2. The development stage of DAO

From the perspective of time, the evolution of DAO has roughly gone through three periods: the budding period from 2011 to 2014; the chaotic period from 2015 to 2016; and the reconstruction period from 2017 to 2019; and the second half of 2019 is now entering The exploration period of DAO with different functions and existing forms is moving towards a more stable development stage.

Figure 2 DAO development timeline

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Source: Compiled by Huobi Research Institute

As mentioned in the previous section, with the interpretation of the definition of DAO by V God in 2014, the basic nature of DAO and the difference between it and its side branches are basically clear. With the official launch of the Ethereum mainnet in 2015, DAO combined with smart contracts has changed.

With the emergence of Dash DAO in 2015, DAO officially moved from a general concept to a concrete realization, and thus entered the chaos period; until the emergence of the Ethereum crowdfunding platform The DAO, the chaos period DAO was pushed to a peak of popularity. The DAO is a crowdfunding platform deployed on Ethereum. It is the first DAO to build an independent ecosystem through independent goals. The DAO is also the first DAO to try to realize the financing function. The holders of the pass will vote to allocate funds to the projects that have been reviewed by the managers. The project was a smash hit, and it was worth about 150 million U.S. dollars when it raised over 12 million Ethereum. However, the smart contract vulnerability of the project for more than one month was hacked, and the loss of 3.6 million Ethereum was worth nearly 70 million U.S. dollars, which eventually led to the split of the Ethereum community and finally enforced a hard fork to achieve the return of funds. The impact of The DAO event on the DAO track mainly includes several aspects: 1) From its participation enthusiasm, it can be seen that people have great enthusiasm and desire to explore this new organizational form of DAO; 2) In-depth integration with smart contracts enlarge conduction technology risk, and the application forms of organization DAO in complex scenes into the game yet verified, shaken market confidence; 3) Securities and Exchange Commission (SEC) 2 017 Nian sentenced at the DAO project illegal sale of securities, this means Larger compliance risks for such projects.  

Based on the above influence, the DAO track’s market enthusiasm decayed after The DAO event, and players on the track entered a restructuring period—starting to improve the infrastructure and different governance models, and there was no explosion in the sluggish market sentiment. A number of DAO platform projects developed during this period, such as Aragon and DAO Stack for platform facilities; MakerDAO for DeFi management; until the launch of the application-based Moloch DAO in 2019, through its minimalist mechanism and clear goals— Provide community funds for the development of Ethereum, allowing more people to participate in the governance mechanism of DAO conveniently and intuitively.

After 2019, the emergence of the Moloch mode and its v2 version have reignited people’s expectations for DAO, and projects such as MetaCartel, The LAO, and DAO Square have gradually emerged that adopt this mode. On the other hand, with the gradual development of DAO’s infrastructure, the continuous accumulation of theory and practice, and the DeFi boom that Compound will start with its governance token in 2020, the exponential growth of on-chain applications and active individual participants will also allow Governance needs from this continue to accumulate. In summary,  DAO has entered the current period of exploration—exploring the utility and boundaries of DAO in different purposes, application scenarios, and ecology.

DAO classification method

DAO itself means an organizational behavior model, a business model, and many blockchain projects have different organizational purposes and business models may be completely different; and the concept and theory of DAO itself are still evolving and not fixed, so there is currently Various definitions of “DAO classification”.

1. Broad VS Narrow Sense 

The core difference in this dimension is whether the token can be directly used for governance. As mentioned earlier, the standard DAO should include transferable and circulated value—that is, tokens. Under this premise, Bitcoin, Ethereum, etc. themselves can be regarded as a kind of DAO. Miners follow consensus rules to make decisions on blocks and transactions and obtain mining rewards. At the same time, they participate in proposal systems such as BIP and EIP with their computing power. Off-chain governance system; but the right to speak in this type of DAO governance system is not the token itself. Correspondingly, the DAO of Bitcoin’s fork project Dash links the token to governance (although its goal is different from Bitcoin, etc.). For example, payment of 5 Dash can create a proposal, and nodes pledge 1000 Dash to participate in voting decisions.

  • Generalized DAO— Bitcoin, Ethereum , etc.;
  • Narrow DAO—DashDAO, MakerDAO, and most of the current DAOs.

2. According to the technical model level: consensus layer, contract and application layer, middleware

This dimension is distinguished by the level of DAO governance and decision-making services. The consensus layer basically serves a certain chain itself; the contract and application layer serve specific protocols, projects or application scenarios; in addition, there are some middleware projects where the upper-level contracts/applications are used to create DAOs. These middlewares provide DAOs with some governance paradigms and standard solutions, and some also have native DAOs created based on their own governance paradigms, so they are also included in the classification here.

  • Consensus layer DAO—Bitcoin, Ethereum, Polkadot, Tezos, etc.;
  • Protocol/application layer DAO— MakerDAO, MolochDAO, AaveDAO and many other projects;
  • Middleware — Aragon, DaoStack, Colony, DaoHaus, Snapshot, etc.

3. Classified by application scenarios

Since a large number of DAOs are currently gathered in the contract/application layer and their application scenarios and goals are different, it is necessary to classify different scenarios under this branch. Here we quote the classification method on the DAO information platform Boardroom.

  • Investment and financing DAO—Moloch, MetaCartel, DAOSquare, DuckDAO, etc., mainly serve the established investment and financing behaviors, resource allocation decision-making services, and incubate external projects as the main goal;
  • Protocol DAO—MakerDAO, Compound, Uniswap, AaveDAO, etc., mainly for token holders to participate in protocol governance services, covering parameter adjustments, contract upgrades, business decision-making and other directions;
  • Project DAO— Badger DAO, YAM DAO, etc., mainly serve for project promotion. Decision-making also involves technical decisions, product form, project income, etc. Project DAO is more like a combination of protocol DAO and investment DAO. Some decisions will generate income and Access to the treasury of public management;
  • NFT DAO- Flamingo, Metafactory, JennyDAO, B20, etc., under the new NFT influx of birth, which is specifically targeted at NFT direction ie including investment and financing type DAO, but also for ownership management NFT after management division DAO as JennyDAO; 
  • Other scenarios— As emerging concepts continue to be born, there have also been associations DAOs that specialize in serving the community and serving the free talent market, etc., so I won’t expand here.

Figure 3 DAO overview diagram classified by application scenarios

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Source: BoardRoom, compiled by Huobi Research Institute

1. Classified by governance framework

Some current DAO classification methods are listed above, but in order to explore the similarities and differences between different DAOs, it is necessary to classify them according to some similar governance frameworks behind some current mainstream projects. Governance framework is a relatively large concept, including purpose, covered items, coordination mechanism, decision-making methods, how to implement, etc.

Due to the large number of different DAOs, the horizontally comparable parts are mainly on “how to coordinate” and “how to make decisions”. Therefore, we condensed the focus of the governance framework to these two parts, and made the following classifications:

  • Coordination mechanism —that is, the balance between guiding participants to actively govern and the influence of each proposal. There are several differences in the coordination mechanism: 1) Off-chain proposal governance vs. on- chain proposal governance (off-chain such as BIP, EIP, MakerDAO The first stage of the forum proposal); 2) Whether there is an entry threshold for DAO (such as Moloch’s funding/contribution threshold, invitation system, etc.); 3) Whether there is a proposal attention distribution mechanism (such as DAO Stack’s proposal) Forecast, Compound’s principal agent) The difference between these three mechanisms is in addition to cost and benefit considerations, essentially setting rules for the attention of participants and the influence of the proposal, because the more complex the implementation can cover or the more benefits involved, the DAO’s professionalism in the content of the proposal The higher the requirements, the greater the attention paid to the participants’ attention distribution. 
  • Decision-making mechanism —that is, rules that allow participants to reach consensus. At present, mainstream solutions are basically realized through voting. There are two distinctions: 1) Right mapping method (such as BIP and other computing power voting, the current mainstream governance token system); 2) Voting Rules (such as threshold-based quorum voting adopted by majority projects, relative majority voting following the Moloch framework, etc.)

DAO representatives and their advantages and disadvantages under the mainstream governance framework

In the previous section, we discussed some classification methods of DAO. This section will focus on some representative projects in the mainstream governance framework to explore the similarities and differences under these frameworks.

1. Custom proposal + quorum voting decision based on token

Aragon

(1) Overview

Aragon is deployed on Ethereum. It is a platform for any organization, no threshold, one-click creation of DAO (currently also supports DAC creation function); it provides a modular governance framework that is currently used by more than 1,700 projects .

The organization creator first selects the template according to the functions to be used in the future (picture left), then enters the voting parameter setting (picture), and finally configures it according to the name of the ERC20 token issued by its own contract and the holder’s address (picture right); The rapid deployment of a DAO can be completed in three simple steps. If the token has not been issued, the platform token ANT can also be purchased to confirm the membership.

Figure 4 Aragon Network quickly creates DAO

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Source: Aragon China official website, compiled by Huobi Research Institute

) Governance framework

There are two core functions under the standard governance framework given by Aragon: the quorum voting module based on ERC 20 tokens, and the dispute resolution module Aragon Court. Both functions revolve around voting decision-making through governance tokens, but compared with other governance models, they do not provide a governance coordination mechanism.

There are three types of tokens in the Aragon ecosystem, namely ANT (Aragon Network), ANJ (Court), and *ARA (Chain). ANT is the original token of Aragon, which is used for proposal initiation and voting; the arbitration tribunal token ANJ is issued by pledge of ANT, and is used for the governance of disputed proposals.

From the point of view of the decision-making mechanism, the framework provided by Aragon has the following characteristics (pictured above): 1) Designated tokens, the tokens used for voting can be selected when initiating a proposal, generally the governance token issued by the project party itself, but also ANT can be used but needs to be purchased by yourself; 2) Voting based on the quorum of the token, and the threshold (the number of tokens participating in the voting in the DAO) and the voting pass rate (percentage of the number of votes) need to be set during the creation phase; 3) Standardized time parameters Modules, namely voting time, buffer period, and execution delay period.

A standard decision-making process is: members with organization-designated governance tokens can make proposals and initiate voting, which will call up the smart contract to check the number of voting address tokens to confirm the vote; the voting results are confirmed according to the set voting parameters, and the members are in When voting, the contract will be called up to sign, and the network gas fee needs to be paid; after the voting is completed, the time parameter is set according to the time parameter, and the decision is executed after the buffer period.

The Court of the arbitration tribunal is used to deal with disputed decision-making proposals . Participants can pledge ANT to initiate a “litigation” in the Court module; while the “litigation” is arbitrated by three arbitration jurors, the jurors need to pledge at least 100,000 ANTs to generate ANJ Become a juror; the arbitration result can be “appealed at the second instance” through the same process, requiring more than 3 jurors to continue the arbitration.

Since then, the new Aragon has upgraded the DAO decision-making process in terms of efficiency and cost reduction, and dispute resolution, but it has not changed its basic governance structure and is currently being launched in phases. Its governance structure is adjusted to: protocol layer, governance layer and multi-user interface. 

  • Protocol layer: Deploy the Aragon protocol upgraded with the Court module, use it as a subjective oracle, follow the subjective judgment model of Court jurors, and gradually merge ANJ into ANT and withdraw from the market. This upgrade is aimed at simplifying and accelerating the decision-making process and adopting the mode of post-event arbitration.
  • Governance: DAO upgraded to optimistic voting—off-chain voting and on-chain execution. The core of optimistic voting is to assume that voting is fair and fair. Arbitration of disputes after the fact can effectively reduce the cost of community governance. Through the token pledge of the voting results, when a dispute occurs and it is proved to be a non-malicious challenge, the challenged member can obtain a pledge reward to encourage the member to supervise. Due to the adoption of off-chain expansion to improve efficiency, the original public chain plan will be gradually removed.
  • Multi-user interface: Advanced customized module cooperating with Snapshot Labs, currently there is little information.

Figure 5 Aragon v2 structure

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Source: Compiled by Huobi Research Institute

Aragon provides a simpler governance framework centered on voting decisions.

Its advantages are:

  • Relative standardization, easy for organization builders and governance participants to understand, and achieve minimum usability;
  • Decision voting based on a quorum is tested in real-life democratic voting.

But at the same time there are some common problems with this framework:

  • Lack of coordination mechanism : Anyone holding a certificate can initiate a proposal, which affects the attention in governance and at the same time affects the participation of participants. Whether the DAO actively and effectively governs will depend on whether the coordination mechanism set by the project itself is reasonable;
  • Fairness issues: The decision based on the quorum of the token, or 1 coin 1 vote, means that the giant whale has a greater right to speak, and it is easy to cause voting attacks and affect the quality of voting;
  • On-chain cost: Since each vote has to pay a network fee, it affects user participation

API DAO

API3 belongs to the oracle project, and its goal is to provide a distributed API solution for web3.0 that is not a third-party intermediary, and to provide a fully distributed blockchain native API through dAPI. DAO is responsible for selecting API service providers; managing the modification and upgrading of the agreement; providing guarantees for the credibility of API data and handling disputes and claims; managing the pledge pool.

The organizational form of DAO makes it possible to implement API 3 without relying on third-party oracles provided by centralized nodes. Due to the differences in interest demands and data quality among first-party data providers, only the traditional form of “middleman” can balance the interests of all parties and monitor the quality of all parties. The DAO combined with democratic decision-making can effectively complete supplier access judgment, data monitoring, and insurance claims in a distributed situation. At the same time, since the user-dAPP project party is also included in the network, it is also given the right to actively choose the first-party data provider.

Figure 6 API3 operating mechanism diagram

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Source: API3, compiled by Huobi Research Institute

API DAO adopts Aragon’s governance framework, based on the governance token API 3 to make a threshold quorum decision , but does not set a clear coordination mechanism . The initiation of governance revolves around community discussions and on-chain voting decisions. Proposal initiators need to pledge at least 0.1% of the tokens in the pledge pool to create new proposals, and all participants need to pledge tokens to obtain permissions. For large and small permissions, API3 DAO has designed two types of proposals, primary and secondary, with the voting ratios of 51% and 15% respectively, and the basic weight distribution of 1 coin = 1 vote is adopted. In addition, API3 DAO has also added a delegate function. Individuals who do not want to directly participate in voting can enter the public key address to be delegated for proxy. Similar to the design of Aragon, regardless of initiation, voting or delegation, the contract will be transferred and the network handling fee will be paid, and the collateral must be completed beforehand.

Figure 7 API3 DAO new proposal

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Source: API3, compiled by Huobi Research Institute

From a governance perspective, in addition to following the pros and cons of the Aragon framework, API3 DAO’s governance framework has the following unique advantages and disadvantages:

  • Advantages-two types of proposal systems: 51% and 15% voting rate thresholds are applied to governance of different importance, to a certain extent, it can solve the problem of too few participants in some proposals under a single threshold;
  • Advantages-delegation function: Participants who have governance rights but lack understanding of the proposal can participate based on off-chain trust, but it also increases the risk of voting attacks to a certain extent;
  • Disadvantages-the selected service providers lack a clear and effective punishment mechanism;
  • Disadvantages-The handling of disputes is often subjective : this is also a problem with the Court module in Aragon, and API3 oracle data is more likely to directly cause economic losses to the project, and there is no guarantee that losses will be compensated in the event of disputes.

AAVE

As the leader of lending projects, AAVE adopted Aragon ’s DAO framework and combined with off-chain coordination to form its own governance model . This model was released on Ethereum in September 2020 and will manage the agreement after implementing this model. Key handover to governance smart contract

The form of DAO allows Aave to be truly “distributed” and return rights to the community, which is important for many DeFi projects. Since Aave and other head DeFi carry a large amount of user funds, security has always been their most important consideration. Therefore, the project team has been in control of the protocol management key for a long time, and this does not satisfy users’ “distributed” Demand. The demands of users are not limited to the ownership of “non-custodial” funds, but also include the right to make decisions on project development, which will directly affect the user’s income.

From the perspective of the governance framework , AAVE’s governance is divided into four stages: motion, community discussion, decision-making, and plan implementation. The first two steps are off-chain governance coordination, and the last two are decision-making and execution mechanisms.

In the motion stage, community discussions and proposals are initiated in Discourse; then community discussions are conducted and the proposals are evaluated and fed back; after approval by the founding team, the AIP proposal is submitted to the chain and voted by AAVE token holders; finally, if The plan is implemented if the vote is passed, and the plan is rejected if it is not passed.

Figure 8 AAVE DAO operation flow chart

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Source: AAVE Governance, compiled by Huobi Research Institute

Aave’s governance framework inherits most of the pros and cons of Aragon like API3 , but it also has the following advantages by designing an off-chain coordination mechanism :

  • Advantages-reducing costs and increasing efficiency: the consensus in the motion and discussion phases does not incur on-chain network costs; at the same time, the proposals on the chain are preliminary consensus, which is convenient for participants to concentrate;
  • Advantages-a certain degree of security improvement: community proposals need to be reviewed and approved by the team on the chain, which reduces the possibility of malicious proposals and also reduces voting attacks to a certain extent;
  • Disadvantage-not enough democracy: This is the other pole of the team’s review and approval, which means that the proposal mechanism of the access system may still be rejected under special circumstances, which is the result of the game of democracy and concentration.
  • Disadvantages-lack of additional governance incentives: token speculators can directly enjoy the appreciation of tokens brought about by members actively participating in governance without having to pay any costs such as labor and chain fees; further, because DeFi governance tokens such as Aave are available. Due to liquidity mining, after the project matures, it may be used by other DeFi projects to mine dolls, further reducing the proportion of tokens in circulation that are used for governance.

2. Off-chain proposal + second voting decision: Maker DAO

MakerDAO is the provider of the mortgage lending platform and stable currency DAI on Ethereum; it is also the first to set up an independent DAO for decision-making from voting to execution, issue governance tokens, and have a relatively well-developed project. Its governance model has become At present, many DeFi projects draw on reference objects.

In terms of governance framework, although Maker DAO is also based on quorum voting for governance tokens, its characteristic is that it combines off- chain coordination; on-chain uses multiple voting modes (binary, plural, and instant win); at the same time, it uses a secondary voting mechanism. . The scope of its governance is mainly aimed at the economic rules and protocol parameters of the Maker agreement, and adjusts the risk of DAI through changes in parameters (changes in stability, mechanisms for determining supply, etc.).

Specifically, a proposal generally goes through the three stages of off-chain initiation and initial voting, on-chain public opinion voting, and execution voting (secondary voting). It also includes a governance security module (Governance Security Module, GSM) to oppose malicious Proposal attack. Like Aragon, Maker DAO has also set the time parameters: after the vote is passed, there will be a buffer period. If the voter starts GSM, the execution will be delayed for up to 24 hours to activate. During this period, modules such as emergency shutdown can be used. Block the attack.

1)  Off- chain proposal initiation and voting -similar to Aave, forum members (regardless of whether they hold MKR) put forward basic proposals, initiate forum voting through the Signal proposal, and the temporary risk team selected by Maker will release the consensus on the chain

2)  Polling Votes on the chain— Governance Pool will be created through smart contracts; MKR users lock their tokens to vote, one coin for one vote, generally for 3 days. 

Plural voting (Plurality Voting) V . .S instant run-off (instant run-off voting) – public opinion poll in the multi-purpose complex voting, multiple choice can be understood to include multiple options, the highest number of votes wins (including the “no change” Option); At the end of last year, MakerDAO introduced instant decisive voting, that is, prioritizing multiple options and individual votes during the voting process, and finally selecting the winning proposal based on the final elimination system.

3)  Executive Voting— After the voting of the proposal is completed, there is no clear deadline for the round of voting before the automatic execution of the proposal. The implementation of voting is a binary voting process, which only contains two options: the winning plan and the remaining unchanged (not implemented); the former will be returned to zero with the initial number of votes and reinvested, and the latter will maintain the number in the previous round of voting, but voters can choose Remove the MKR pledge to reduce the voting ratio. 

Figure 9 Maker DAO chain voting (interest rate adjustment proposal) flowchart

j9PygAxVZ8NGqntAt3ivVcTLzY1PRM1eaUE4V3iP.png

Source: Standard consensus, compiled by Huobi Research Institute

On the whole, Maker DAO has designed a relatively standard, complete and efficient governance plan. After the MKR destruction mechanism is implemented, the holders of the governance token will receive additional benefits from the increase in net worth, thereby inspiring members of the organization. Governance.

Maker DAO’s governance framework has the following advantages over Aragon:

  • Out-of-chain coordination, same as Aave, so I won’t repeat it here;
  • Promote the activeness of governance on the chain: multiple voting decision-making mechanisms provide richer decision-making scenarios and weaken the decision-making power of the off-chain consensus; for example, under a purely binary decision (agree/reject) mechanism, the community will be “off-chain” Proposals in the “agree” direction can only be initiated on the chain after reaching a higher consensus, and multiple mechanisms allow the community to only conduct (yes/no) consensus on the executable AX sub-schemes and then vote on the chain to select the best solution;
  • Security improvement : the second voting (execution voting) and emergency security module can prevent malicious proposals and voting attacks, and improve the security of governance based on smart contracts

But the following problems also appeared :

  • Governance centralization: This is a common drawback of the off-chain coordination mechanism. Since the governance at this stage is not directly related to personal interests like on-chain voting (on-chain voting is executed after it is passed), off-chain trust is bound to occur, and ordinary participation Those who mentioned may not have influence. According to The Block statistics, as of the end of 2020, only 36 user proposals on the Maker Forum have entered the Signal voting process, and most of them are put forward by 6 core personnel in its ecosystem (67.4%).

Figure 10 Statistics of voting initiators under the Maker DAO chain

TxrTEVXiiT0lKfwaMHhHvb6bMetf6OBleJHaJX6f.png

Source: The Block, compiled by Huobi Research Institute

  • Cost and governance enthusiasm: due to the participation of the second vote, users who choose the same option incur at least two expenses, and the cost is higher, which will affect user governance enthusiasm. According to The Block statistics, as of 2020, the number of times the same maker address participated in the implementation of voting basically fell within 1-5 times, and only 7 addresses had more than 100 votes.

Figure 11 The degree of repeated participation in Maker DAO’s implementation of voting addresses

2ITPIXQZA3jm6DgAf9SOMIedKqGjqsWpZiu6fnce.png

Source: The Block, compiled by Huobi Research Institute

3. Access system qualification + relative majority voting decision

Moloch DAO 1  

Moloch DAO is a financing scene project that has reappeared after The DAO has been silent for 3 years. It aims to crowdfund and allocate funds for the Ethereum infrastructure construction project, and solve the problem of developers and project parties not providing sufficient contributions due to lack of incentives ; After gradually upgrading, the current long-term goal is to cultivate Web 3.0. Since its launch, it has provided more than 20 projects with a total of more than 300,000 US dollars in funding, and so far, more than 100 projects have adopted its governance framework, including MetaCaretel, DAOhaus, etc.

The organizational form of DAO combined with Moloch’s simple mechanism makes it possible for the community to invest in and financing the scene, and under the stable development of Moloch, it allows people to walk out of TheDAO’s shadow and rejuvenate, and it is compatible with non-profits after the upgrade of its v2 version. For-profit, for-profit organization. To put it simply, investment and financing need to pool capital, make allocation decisions, perform post-investment management, and also need to distribute income in profit scenarios. Before the emergence of DAO, the above-mentioned links needed to rely on hierarchical management, contracts between subjects, and participants out-of-chain consensus based on organizational interests. In addition to trustless and transparent governance mechanisms, simplicity and execution is an important factor for the participants in DAOs that do not have a fixed ecological basis (such as Maker, Aave communities) to truly act, and Moloch and its v2 version have become the current independent investment and financing DAO paradigm. Important reason.

In terms of governance framework , Moloch v1 adopts a minimalist design that is almost violent. Through 3 core rules, only 400 lines of code are used to complete governance. This minimalist model seems to be becoming a new paradigm of DAO-to achieve the smallest available DAO . To put it simply, Moloch adopts access production as its coordination mechanism and relatively majority decision-making as its decision-making mechanism. The access system includes directional invitations and thresholds for fund donations; relative majority decision-making does not set a threshold for voting participation rate, and only counts based on the proportion of votes that have been voted. Those who do not vote either follow the organizational decision or choose to withdraw from the organization to get the funds back. 

Specifically, Moloch’s 3 core rules include:

1)  Guild Bank (Guild Bank)-the entrant needs to donate a sum of funds, the minimum threshold in the v1 version is 100 ETH, the funds enter the guild bank as the distribution pool, and the donor gets its equity based on the proportion of the distribution pool. The equity is determined by DAO casting;

2)  Summoning— The invitation system for new members requires the old members’ proposal and is voted through. After approval, new equity will be cast to the new members, and the old members who make decisions will be based on whether their equity should be diluted and whether the community Need to make judgments about new funds, resources that can be contributed, etc.;

3)  Ragequit- automatic equity destruction settlement mechanism. For members who wish to withdraw from the organization or who do not like a proposal but did not vote, they can choose to retire and get back the corresponding funds without going through the proposal; this is in the traditional world Some of them are similar to SPAC listings. However, if the voting power exceeds a certain percentage (settable), the dilution limit mechanism will be activated, and the execution of the proposal will be directly stopped.

In terms of process, Moloch v1 is a standard decision-making process for initiating proposals, voting decisions, and contract execution. Participants can complete all types of operations by setting only 3 parameters: input the share x coins to be contributed; enter the number of shares x shares they want to obtain; enter the address to receive the shares. Through the difference between the values ​​and addresses of the three parameters, a series of operations such as donation, joining the organization, leaving the organization, applying for funds, and leaving the organization can be performed.

Figure 12 Moloch governance flow chart

uEf3l4nxugiWbr7HrMIAjTnQaRRFlk14Nti4zXCp.png

Source: ETH Fans, compiled by Huobi Research Institute

Under the governance framework of Moloch DAO v1, it is more in line with the characteristics of an “enterprise”, unlike the “community” characteristics under other DAOs. This brings the following advantages:

  • Minimal coordination mechanism: Bypassing complex coordination mechanisms (such as off-chain, holographic consensus), raising the entry barrier and setting access donation funds, binding user interests and governance to a high degree, not actively participating in governance means taking the initiative to hand in The right to decide on personal interests, the funds will be used by the group;
  • New fairness: bypassing the design of complex decision-making fairness mechanisms, no longer relying on absolute majority democracy, but based on the relative fairness of individuals, participants will either accept the result or choose to withdraw from the organization; Into the vote, thereby delegating the game process to the individual;
  • Simple and easy to understand: Compared with other governance frameworks, it is easier for participants to understand, because participants only have three options for joining (investing funds), making decisions, and exiting (retrieving funds).

Of course, providing this simple governance framework is bound to bring some new problems:

  • The degree of distribution is reduced : the barriers to entry can be governed instead of holding coins, making user portraits more concentrated;
  • Slower speed : Compared with other DAO’s 3-7 days voting period, the Moloch v1 voting period usually takes one week, and due to the setting of the retirement period, there is an additional 7 days of withdrawal time allowed than other DAOs;
  • Malicious proposal attack : The relatively majority decision-making mechanism may cause some unnoticed proposals to be passed secretly, and there are not enough emergency shutdown modules except for anger, which increases the risk.

 MetaCartel— DAO based on Moloch framework 

Most of the mechanism design of Moloch is used, so the advantages and disadvantages are similar to that of Moloch, the difference is:

  • The goal is mainly for the development and construction of smart contracts/dApps;
  • Lower the entry threshold to become a member, individual 5 (female) -10ETH, organization 50ETH;
  • Set up a fund issuance cycle, and conduct actual fund distribution based on the development progress/acceptance result of the project to be funded through the decision.

Setting the cycle of fund issuance is equivalent to adding a certain post-investment management system, which is a small optimization.

Moloch DAO 2  

Moloch DAO v2 is an upgraded version carried out by the Moloch team at the beginning of 2020. It adds a new multi-token system, extends the supported tokens to the ERC 20 series, and updates the governance mechanism. So far, the v2 governance framework has been adopted by DAOSquare in the investment scene, MetaFactory in the NFT crowdfunding scene, and TheLAO in the legal compliance scene.

The governance structure of the v2 version is an extension of the profitable organizational form. This dimension brings it closer to the DAC mentioned above. In terms of governance structure, it splits the original proposal process (as shown in the figure above) into “funded” and “unfunded”, and at the same time opens up the proposal rights of non-DAO members, and uses trophies to issue and redeem DAO shares With the reduction in frequency, the purely invested project will no longer affect the number of DAO’s equity, and it can also make DAO members more united and focused.

Specifically , v2 follows the v1 framework as a whole, but adds the following mechanisms:

1)  Open submission : non-DAO members can also submit proposals instead of becoming members by calling;

2)  Guild kick-out: Old members can initiate a proposal to remove a member from the organization. If passed, the member will enter a “custodial” state until the previous vote and the corresponding share are fully implemented on the chain, and the remaining ‘S share will automatically retreat;

3)  Loot: A non-voting and non-transferable equity. After the old member’s proposal is passed, the DAO will be cast and distributed; the funding of the invested project will no longer affect the number of voting equity;

4)  Pass and payment system: other passes have been added, and a white list has been added to the system, which needs to be voted through; at the same time, the membership donation and subsidy expenditure system will be disassembled, and users can freely choose passes;

On the whole, the governance framework of Moloch DAO v2 has the following advantages over v1:

  • Punishment mechanism for evildoing : The kicked out setting allows the organization to have certain punishment authority, which can exclude evildoers, but because this mechanism is still a posteriori, the degree of prevention of evildoing is limited;
  • Increased degree of distribution : Open submission and multi-token systems have improved the attraction of organizational participants to varying degrees, accommodating non-members and non-Ethereum holders;
  • Stability: Split the voted shares and voting shares to reduce fluctuations in the number of system shares.

Of course, the malicious proposal attacks left over from and the long governance cycle remain unsolved .

4. Holographic consensus: Proposal prediction market + custom weight voting decision

DAO Stack 

(1) Overview

Similar to Aragon, DAO Stack is another DAO platform deployed on Ethereum, providing a complete DAO governance framework for distributed organizations. DAO Stack pays more attention to effective distributed decision-making, and its purpose is to solve the problems in the distributed decision-making process-the game of efficiency and quality . 

In terms of product application , the core products of DAO Stack are its application interaction layer Dapps and Arc.js libraries. The former is used for organizations to quickly deploy DAO applications such as Alchmey (proposal system UI) and DAOcreator (DAO creation); while the latter is It is a programming language-friendly API layer, which is convenient for third parties to develop applications.

Figure 13 DAO Stack structure (left), DAOCreator application (right)

r6YQz9POJFHEnlSY733BoaLTjoDEUCZ8Lfq9xg21.png

Source: DAO Stack official website, compiled by Huobi Research Institute

Ecologically, DAOs released based on the DAO Stack framework are still in double digits. According to the statistics of DeepDAO as of mid-June, about 12% of the 109 DAO projects are based on DAO Stack releases, while the corresponding proportion of Aragon is over. 50%. However, due to its special mechanism designed for distributed decision-making, such as AUM’s third dXDAO and PolkaDAO’s PolkaDAO all adopt its framework.

Figure 14 DAO Stack Ecological Partners

ajt50oShccwNK1pCJYTcMuwQvZxAq18iCxkAHkUz.png

Source: DAO Stack official website, compiled by Huobi Research Institute

(2) Governance framework

The core of the DAO Stack framework is the “holographic consensus” ( Holographic Consensus ) mechanism, which is an influence diffusion mechanism that combines economic incentives and is implemented through a dual-token system. The focus of DAO Stack’s holographic consensus is to change the coordination mechanism, which is different from the above-mentioned off-chain and access. It tokenizes the “attention” of participating governors and applies the token to the prediction of proposals. Market function, to realize the function of strengthening the proposal to be noticed. In terms of decision-making mechanism, DAO Stack is the opposite of Aragon. It provides a custom mechanism based on voting weight. DAO can use templates or custom functions to determine member voting weights.

With the expansion of the DAO, not every proposal can be noticed by governance participants, and not every one is worthy of a high degree of participation. Under the governance framework of DAO Stack, it provides a solution for ecologically prosperous projects or projects that wish to include a large number of members. Problems such as insufficient degree of distribution and insufficient governance enthusiasm in the above-mentioned modes can be solved to a certain extent through this kind of framework. In the context of the current emergence of new public chains such as Polkadot, and the community has more active governance needs, this solution has certain market competitiveness.

Specifically, the holographic consensus is implemented through a dual-token system , including two types of tokens: the reputation value calculated by the project’s native token is used for voting, which is determined by the function calculation after the original token is pledged/locked, and the function parameters include pass The number of certificates, holding time, etc.; the prediction certificate GEN is used for the coordination mechanism and is the native certificate of DAO Stack.

From the perspective of governance framework , the overall process includes initiating proposal-proposal enhancement (prediction market)-voting decision-execution; compared with other DAOs mentioned in this article, the proposal enhancement link has been added from the initiation of the proposal to the formal voting decision, which is equivalent to other frameworks The part of the coordination outside the middle chain is designed to the coordination on the chain.

Holographic Consensus has designed a prediction market for proposals and screened the priority of proposals that can be noticed in the form of token incentives. Participants can enter the proposal enhancement stage after the proposal is initiated. Here, GEN will be used to bet, and the bettor will bet on the approved proposal X that has a high probability of passing. When the GEN obtained by proposal X reaches a certain amount, it will enter a project pool and be given priority attention. If X passes in the end, the user can get additional GEN incentives, and if it fails, GEN will be lost.

Entering the voting decision-making stage will use the reputation value-the voting weight calculated by the native token. Participants can vote for each proposal once, and cannot change their votes after submission. Reputation value is one of the more distinctive aspects of DAO Stack, which gives the project party the ability to adjust the voting weight based on its community ecological distribution and token distribution, and also avoids the issue of fairness in quorum voting based on tokens . For example, PolkaDAO uses the square root of DOT holdings to calculate, and KyberDAO uses time-weighted distribution. Customizable reputation value calculation rules can meet the “democracy” recognized by different ecosystems. 

Compared with some of the DAOs mentioned above, the governance framework of DAO Stack has the following advantages:

  • Attention focus: Through the tokenization of attention, combined with the prediction market, members can focus more on hot solutions and obtain incentives, which can increase governance participation, which is suitable for DAOs that already have or are expected to breed active governance;
  • Fairness optimization : Compared with the quorum decision-making based on the token, the reputation calculation system appears to fit the definition of “fairness” in different ecology; it has a more complete mechanism design than simple and relatively majority decision-making;
  • Improved security: Under the holographic consensus, due to the enhanced ownership of proposals, which reduces the possibility of voting attacks, unattractive proposals may not be noticed, and if such proposals are passed, betting users will also incur financial losses; compared with Moloch The form can also prevent malicious proposals from being passed secretly.

But there are also the following problems:

  • Voting quality or decline : Different from the decline in voting quality caused by the overwhelming voice of the giant whale, the decline in voting quality under the DAO Stack framework may be caused by the community’s excessive response to an unreasonable proposal; predicting the incentive to bet In the mode, the bettor will choose the proposal that looks more popular instead of the best quality, and once the bet is placed, the vote will be passed. This effect will be further transmitted to the subsequent members who choose to bet, resulting in ” “Snowball” effect;
  • Incentive problem: The incentives under the holographic consensus are mainly for GEN tokens, which is the ecology of the DAO Stack, and there are fewer incentive mechanisms for the original tokens that generate reputation. However, the ultimate goal of a DAO is to make its ecology (including tokens) ) Value-added;
  • Too complicated : What needs to be clear is that holographic consensus is a more complex governance framework, which places higher requirements on DAO creators and participants, and lack of understanding will not achieve results.

DXdao

Initiated by the Gnosis team in March 2019, DXdao is based on DAO Stack. It aims to develop DeFi products in a distributed organization model. The purpose of its establishment was to serve the parameter management of the distributed transaction protocol DutchX. It has been developed so far. Become a DAO with AUM over US$50 million.

Due to the adoption of the DAOStack framework, DXdao also adopted a multi-currency holographic consensus system and further developed into a 3-currency system -native token DXD, governance token REP (reputation), DAOStack token GEN (predictive incentive) . The role of DXD is mainly the incentive token of its business layer; REP is a governance token designed based on the reputation system under the DAOStack governance framework—this is a change from the original plan of DAOStack. It is not directly mapped through the original token, but The actual tokens were issued to separate the business layer and the governance layer. REP cannot be purchased, transferred, or associated with an Ethereum address, and can only be obtained through ecological contributions, such as trading on DutchX. REP is used for voting in DxDAO.

In terms of governance mechanism , DXdao uses DAOStack’s holographic consensus for governance, so I won’t go into details here. The process includes three stages:

  • The first stage : the proposal uses GEN’s predicted betting period and locks the corresponding vote type, which lasts for about 30 days;
  • The second stage : automatically assign reputation according to the locked token weight;
  • The third stage : during the voting period, a majority obedience system (50%) is adopted.

In addition to the advantages and disadvantages of the DAO Stack governance model mentioned above, DXdao’s core advantages and disadvantages are: how its reputation token REP achieves practical value . Although DXdao tokenizes reputation and provides more room for imagination, since REP cannot transfer transactions, it is currently unknown what kind of benefits the people involved in governance can get after accumulating REP. If it is ultimately unable to communicate with the business token DXD An economic connection may mean that the DAO may eventually be separated from the business.

The pros and cons of DAO—solve problems or create more problems? 

The previous section introduced the advantages and disadvantages of some DAOs and applicable scenarios under the mainstream governance framework. This chapter will further explore which problems these DAOs solve and whether new problems have arisen to return to the topic of “what is a DAO” The opposite-what should/can be a DAO?

Looking back at history, since the concept of DAO was born in 2013, supporting tools and governance solutions have just taken shape, making it possible to build a concise DAO. The DeFi boom and the general trend of DAO mean more governance needs. The emergence of more people who need to govern their own interests and a more convenient foundation for building are important backgrounds for entering the new stage. As an organizational structure and governance method, DAO is trying to solve the fairness, transparency and efficiency requirements of the distributed new economy . In order to achieve this goal, it is necessary to realize human choice + reasonable coordination and decision-making mechanism + automation mechanism , which is why we are focusing on governance in a large space.

In combination with the above, we can see that the current DAO has solved the form of distributed and autonomous collaboration in specific scenarios such as protocol governance, investment and financing, and many projects have been tested for a certain period of time and evolved. Based on the combing project, it can be seen that under the premise that distributed operation is required:

1) For scenarios where the overall goals are general, the scope of governance is complex, and teamwork is required, a standard and robust governance framework that is not cumbersome is more suitable, such as a quorum decision based on a token combined with a plan that meets the coordination mechanism of their respective characteristics. This type of scenario includes a number of DeFi protocols such as MakerDAO, Aave, etc. The overall goals such as “long-term security” and stable and robust development of the project are general, but governance processes such as Maker’s adjustment of interest rates, and modification of protocol parameters or codes are complicated and complicated. With security risks, it is difficult for a single individual to traverse all potential problems. In this category, organizations need to design a reasonable coordination mechanism based on their own characteristics and problems to be solved, and optimize the decision-making process to ensure safety and fairness requirements. The combination of off-chain coordination can solve the problems of member participation and decision-making quality to a certain extent; the combination of secondary voting and decision-making can increase security.

2) For scenarios where the goal is relatively specific and single, the scope of governance is relatively single and is more directly related to personal interests, a simple governance framework such as a relatively large number of decisions combined with simple coordination scenarios is more suitable. Such scenarios include the investment and financing organizations introduced in this article, NFT curation, and more single-purpose organizations that may appear in the future.

3) For large and active organizations, it is necessary to explore a governance framework that can more reasonably allocate participants’ attention and provide reasonable incentives. Holographic consensus is a current direction, which is not yet mature and too complicated.

Based on the currently observed mainstream DAO, we conclude that DAO can provide the following advantages :

  • In terms of organizational form, it creates an environment that can be directly operated globally at the initial stage;
  • In terms of organizational decision-making, it provides a distributed, trustless, and transparent decision-making environment and fixed rules;
  • In terms of resource allocation, power is decentralized, and individuals can grasp the rights and benefits corresponding to their contributions;
  • Automated execution to improve execution efficiency;
  • More flexible organizational structure.

And it also faces more problems:

  • Technically amplified risks and limited development. The DAO built on the smart contract itself also bears the risk of the contract itself, and the chain performance and cost will limit the participation of members and the complexity of executable tasks. At present, mainstream DAOs are either on Ethereum or xDai, and most of them are blockchain projects. The migration of non-blockchain organizations means higher costs and limited functions.
  • Application scenarios are still in the early stages of exploration . Except for some projects such as Maker and Moloch, most DeFi DAOs have only undergone transformation in less than a year, while scenes such as NFTs, communities, and guilds have just begun to be explored. Among them, there are many organizations that are DAOs and DAOs. This has a limited effect on the development of DAOs. . For some real-life scenarios with disintermediation and distributed demand, such as freelance platforms, there is a lack of exploration.
  • The single function of the DAO ecosystem is limited. At present, mainstream DAOs basically follow the framework of Aragon, Moloch, Maker DAO, and DAO Stack, and make fine-tuning based on their strong points. On the one hand, the overall governance efficiency and quality of governance are limited by the existing framework and cannot be eradicated. On the other hand, the failure of platforms such as Aragon to launch new modules also means that the adopting organization cannot use new functions.
  • The optimal solution of fairness, quality and incentives in governance has not yet appeared. On the whole, no matter which mechanism currently can balance these three points: fairness is mainly reflected in the influence of the proposal and the weight of voting. Either its own mechanism makes the giants more influential, or some people can gain greater influence in the governance process. Influence becomes a giant; quality is reflected in the lack of participation and speed; incentives are mainly reflected in the benefits of active governance members and direct secondary transactions enjoy the same growth, and governance incentives are lacking or insufficient.
  • Potential legal risks. Although the US Wyoming has passed a bill to legislate for the DAO, as a whole, the DAO has not yet been recognized by the main body worldwide. It is doubtful whether the mainstream governance token is counted as a security, and centralized laws and regulations are used to manage distributed main bodies. The ways and methods may be difficult.

With the development of DAO, it is constructing an efficient and fair organizational paradigm and coordination mechanism for the distributed economy, and from this it has also derived organizational governance optimization in different scenarios. But on the whole, the problems it has solved and the value it provides are still less than the existing or newly created problems. It will take time for it to land and create a “moat” or a new economic system.

Outlook 

Looking to the future, we believe that DAO will develop towards more diverse scenarios, clearer identities, and higher participation in the short term; in the long term, there will be more in-depth theoretical research, more reasonable incentive systems, and more distribution. It has developed in the direction of style and has become an indispensable part of the Web 3.0 system.

In the short term, in addition to the standard forms of DeFi DAO, investment and financing DAO that are already in development, the emerging NFT DAO, DID DAO, DAO specifically responsible for dispute resolution, and protocol layer DAO may appear; and with the states headed by the United States The law recognizes the subject of DAO, and DAO will also have a clearer identity; in addition, with the expansion of Ethereum, the development of ETH 2.0, and the ecological expansion of high-performance new public chains, lower handling fees and more applications will Extend and expand to attract more people to participate in governance.

In the long run, with the development of DAO in various scenarios and forms, its professional needs will also lead to more academic research, including but not limited to specialized research in information technology, economics, sociology, game theory, etc. These professional studies will also It will provide ideas for some problems that DAO cannot solve at present; at the same time, there may be new mechanisms to solve the existing incentive system and participation, distribution and efficiency contradiction; finally, if DAO can continue to break the circle on the road of development, Attracting external talents to join and optimizing various issues, under the Web 3.0 system, it may first become a part of the real economy and provide production factors, and it may also derive its own new economic system.

references

[1]  https://blog.ethereum.org/2014/05/06/daos-dacs-das-and-more-an-incomplete-terminology-guide/

[2]  https://blog.aragon.org/thoughts-on-governance-and-network-effects-f40fda3e3f98/

[3]  https://www.researchgate.net/publication/319529311_Experiments_in_Algorithmic_Governance_A_history_and_ethnography_of_The_DAO_a_failed_Decentralized_Autonomous_Organization

[4]  https://vitalik.ca/general/2017/12/17/voting.html

[5] https://www.theblockresearch.com/defi-governance-games-makerdao-87759

[6]  https://deepdao.io/#/deepdao/dashboard

[7]  https://www.boardroom.info/

[8] https://makerdao.com/zh-CN/whitepaper/

[9]  https://dao.molochdao.com/

[10]  https://medium.com/blockcast-lab-research-%E5%8D%80%E5%A1%8A%E5%AE%A2%E7%A0%94%E7%A9%B6%E5% AE%A4/%E7%93%A6%E8%A7%A3%E5%85%AC%E5%8F%B8%E5%88%B6-c2191c7c1b4a

[11] https://github.com/MolochVentures/Whitepaper/blob/master/Whitepaper.pdf

[12]  https://ethfans.org/posts/aragon-network-whitepaper

[13] https://aragon.org/

[14]  https://daostack.io/

[15] https://daostack.io/wp/DAOstack-White-Paper-zh.pdf

[16]  https://forum.daosquare.io/

[17]  https://medium.com/api3/api3-dao/home

[18]  https://consensys.net/diligence/audits/2020/08/aave-governance-dao/

[19]  https://dxdao.medium.com/

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/where-is-the-dao-a-brief-analysis-of-the-development-process-and-governance-mechanism-of-the-dao/
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