DAOs

I wrote the majority of this the day before the ConsitutionDAO failed to purchase a copy of the U.S. Constitution. I was in their Discord as the bidding and confusion afterwards ensued–it made the organizational critiques I lay out below even more salient.

Decentralized autonomous organizations are groups whose governance structure is codified on the ethereum network.

There’s been a wave of new DAOs recently–one that’s been getting a lot of attention today is ConstitutionDAO , whose goal is to buy one of the copies of the U.S. Constitution that’s going to auction soon.

ConstitutionDAO

As I’ve been looking into DAOs I’ve been seeing some worrying recurring patterns that seem–to me at least–to dull some of their shininess. Sorting out my thoughts:

Money is blinding

The first and hardest to ignore attribute of DAOs is the amount of money many control. At the time of writing, ConstitutionDAO has 9,653.925 ETH in its treasury, equivalent to $41,154,682. That’s a lot of money.

What to make of this? I think most would look at these sums and equate the money to power. One might think that a DAO controlling over 40 million dollars has a lot of power.

But to have power, the DAO needs to be successful in another way. The money is only powerful if correctly leveraged. To do so effectively requires high-quality governance and decision making. These are subjects explored below.

The point here is that money is blinding. We look at these DAOs and can’t help but feel enamored by their potential for power. But we probably probably wouldn’t feel the same way if there was $40 in the treasury. It’s the DAOs with money we pay attention to.

I’m not saying that’s inherently a bad thing. After all, since DAOs are composed of many individuals, a DAO with a large treasury would likely have received the support of many people (those elusive crypto billionaires notwithstanding). Surely that support means something.

But we’d be wrong to assume that the DAO has the potential to be powerful on the basis of money alone. It’s the underlying governance structure that matters, not the money. It’s what realizes the potential the money affords.

Old decision making mechanisms

So a DAO has $40 million in the treasury. It’s time to act on its potential and be the powerful entity it should be. What to do?

According to ethereum.org :

Think of [DAOs] like an internet-native business that’s collectively owned and managed by its members. They have built-in treasuries that no one has the authority to access without the approval of the group. Decisions are governed by proposals and voting to ensure everyone in the organisation has a voice.

So it’s a bit like a digital S Corp or LLC. Members buy in, receive governance tokens, and vote away. That’s a familiar enough structure.

Here we run into a problem that spans beyond just DAOs–it’s a problem with voting as a mechanism more broadly. Consider:

There are two proposals A and B. The population votes. By popular vote, proposal B wins. The population has decided on B, so it can be executed “by will of the people.”

In this scenario one might say the power rests in the population voting. After all, they’re making the decision what to execute.

But I’d argue the real power rests not in the voters, but in who creates the proposals. The authors of proposals A and B have the most power: they’re reducing down the space of possible proposals down to just two. By the time the vote happens the real decisions have already been made.

So in DAOs who creates these proposals? According to ethereum.org , DAOs should be “usually flat, and fully democratized.” In practice, though, there seem to be two common paths:

  • “Core contributors” AKA the oligarchs of the DAO, those who formed it and have greater control over its treasury due to owning more governance tokens (perhaps purchased at a very low price upon creation of the DAO) or by law of the organization itself.
  • “The people” AKA people with more social clout who have the status needed to separate their proposal from a sea of other proposals. Find a DAO (or web3 project, generally) that doesn’t somehow find a way to incorporate members’ Twitter handles. The Twitter social graph is inherited as a implicit social hierarchy to a theoretically “flat, and fully democratized” system).

The ConstitutionDAO's core contributors

The fact that these sorts of governance structures allow for this sort of power imbalance to occur in the first place should indicate that the structure itself isn’t truly democratic. Surely the many problems with the “democratic” voting process as it’s commonly implemented today is evidence enough that replicating this mechanism in a digital world won’t really solve the underlying problem?

Much like the large amounts of money DAOs control, I think people tend to get blinded by the so-called “democratic” process DAOs build on. It’s a democracy so it must be just and good, right?

Decisions are governed by proposals and voting to ensure everyone in the organisation has a voice.

The assumption that a structure of proposals and voting will give everyone a voice misses something essential about the way influence and power tends to govern our democracies. What is the point of my “voice” if it’s really just concerned with voting on options that a select few have decided should be voted on?

Voting on ConstitutionDAO's Discord server. Everyone has a voice, so long as your voice is one of 🍄, 🍻, 🕊, 😇, or 🙏

This imbalance between members of the DAO was made all the more apparent in the period following the auction of the constitution on ConstitutionDAO’s Discord server. People had no idea what the outcome of the auction was, and for a solid 10-15 minutes the constant stream of messages were of utter confusion. Nobody knew what was going on and if they should be celebrating or commiserating. They turned to Twitter, where members of the community with “sources on the core team” announced both that the DAO had won and lost.

It felt familiar. Like we were waiting for the authorities to tell us the Truth. That was precisely the situation; the members of the DAO weren’t all equal. There were oligarchs out doing the actual work, everyone else was there for the hype, money, and memes. It was a situation of “us” and “them” existing within this supposedly “flat, and fully democratized” system.

Global scale problems

So DAOs are a new way to have a bank account shared between internet people that don’t have to trust each other. Surely this in and of itself is compelling. What new sorts of things can we do with this sort of mechanism–what is the real utility of DAOs? What problems do DAOs enable us to solve that couldn’t be solved by people working together in smaller, trust-based organizations?

I sense it has something to do with global-scale problems. Again from ethereum.org:

DAOs are an effective and safe way to work with like-minded folks around the globe.

What is it about these problems we want to work on that makes us need systems that bake in a structure that ensures no single individual can blow apart the whole thing? If these folks really are like-minded, why do we need all this fanciness?

Probably because of the “all around the globe” part. As the scale increases, we can no longer guarantee that all these folks will really be like-minded. So the system should be designed to anticipate that. Fair enough. But to the original point: what are we really trying to solve here? What makes it need a DAO? Do we inherently just not trust people? Do we feel better when there’s this decentralized (theoretically) transparent system enforcing the rules so we don’t have to think about it and just trust it?

In sum

DAOs are shiny things. Like many shiny things it makes it hard to see beyond their shininess and appreciate the shape of the thing itself.

DAOs seem to often rely on a vision of democracy that we just take for granted is giving everyone a “voice,” when in fact it replicates existing problems with a flawed democratic process. It’s either explicitly heierarchal or it depends strongly on social status.

DAOs also seem to operate on the assumption (perhaps hypothesis) that there’s utility in collaborating around a shared bank account with anonymous individuals around the world. That assumption may further blind us to the many ways in which collaborations with people we know and trust can be equally or perhaps even more effective, despite the fact they often happen in the stinky old physical world.

I write all of this to explore the current state of DAOs with the intention of better imagining what a future state might look like. It seems to me that the core set of concerns to be considered here aren’t DAO or web3 specific problems–it’s a very old set of problems. Namely, how do we effectively collaborate? What governance structure best facilitates that collaboration? What are the tools we need to best act on the potential of a collaboration?

These problems aren’t as sexy as new technology. But they need to be considered if the technology is going to be used for anything of real value to society. I tend to think these problems are even more interesting divorced from the technology entirely. If it happens that solving the problem of collaboration and governance takes us to a solution involving a decentralized bank account and digital LLC, then DAOs will make sense. But it’s possible that exploration may take us somewhere else entirely.