Decentralized Autonomous Organizations (DAOs) have been heralded as the future of governance, opening up a more egalitarian approach to decision-making. However, decentralized leadership is not a magic solution that will lead to better results instantly. To get the most out of a decentralized organization, measures must be taken to control weighting and toconomics. If not carefully balanced, DAOs can crawl — and some already have.
Decentralization explained.
DAOs provide a model for managing a project or company that distributes voting rights among all members. Usually there is no central authority, only collective consent. While this sounds fair in theory, the opposite may be true for some governance models.
Perhaps the most problematic of all structures are DAOs that operate on a token-based voting system. Although built to be decentralized, token-weighted governance — where users with the most tokens hold the majority of voting power — can inadvertently hand control over to a few wealthy participants and take it away from the many. As can be seen immediately, this completely undermines the philosophy on which DAOs are built and allows wealthy whales to have a disproportionate say.
Related: Daos are focused on community rather than profit. Here’s why
This can do more harm than just centralization; Token-based voting systems lead to hostility by DAO token whales and other malicious actors – such as Build Finance’s takeover of the DAO. In February, The DAO fell victim to an attacker who had enough assets to gain complete control of the project.
Due to the token-based governance model, this raid completely fell foul of the rules, leaving Davis or the community with little option to scrap the project and start from scratch. Clearly, asset allocation weighted voting is not the best way to go.
Overcoming DAO problems
The point is that asset-based voting is not a suitable method for decentralized management systems, especially if they want to replace older models. The long-term goal is to create a decentralized system for businesses, organizations, and even nations that provides meaning to each individual but takes into account what that member has to offer. Different types of personalized, blockchain-enabled identities, as well as a meritocracy-based voting structure, may be all that is needed to balance the equation.
Imagine a new model where voting members are evaluated against certain key performance indicators (KPIs). These may include engagement and growth metrics within the DAO, and failure to meet these KPIs may result in the user’s voice being reduced or removed entirely. Taking this approach encourages all parties to make decisions that protect not only themselves, but the broader interests of society.
It can also apply to any aspect of the platform, such as future technological developments or how community funds are allocated. It can create new social organizing structures for charities, environmental groups, and entire governments—providing larger goals than capital gains.
Related: Decentralization, DAOs and current Web3 concerns
Already, NFT communities have demonstrated that they can encourage activities that promote mutual benefit, such as participation being a prerequisite for “whitelisting” an NFT drop. Successful Web 3 projects do not have the same kind of collaboration, shared goals, and existing management systems that provide direct incentives for participation. Take modern governments for example, where citizens vote an individual into a central position of power. Web3 and DAOs are showing how things can work differently with shared benefits and encouraged participation.
This is only one view, but the basic premise remains. Decentralized organizations must explore new structures to ensure they remain intact. There are so many attack vectors that affect important projects, and these issues need to be addressed quickly if DAO management is to grow into a global movement and see implementation beyond crypto.
Sasha Ivanov He is the founder of Waves Platform, a global public blockchain platform that reached a market cap of $1.7 billion in December 2017. It was crowded with 30,000 BTC, which represents the second largest successfully crowded blockchain project (after Ethereum). The name refers to his background as a theoretical physicist and the recently discovered gravitational waves predicted by Einstein over a century ago.
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