DAO Governance

All blockchains need to organize soft forks for protocol upgrades, and so all public blockchains which value decentralization have considered or implemented on-chain governance to some degree. The lack of transparent governance processes is a threat to the decentralization of DAOs and blockchains. “Not only must Justice be done; it must also be seen to be done.” Ideally, blockchain governance would respect and follow the inherent qualities that blockchains are created to achieve: decentralization, autonomy, and anonymity.

However, many issues arise when attempting to implement a governance system which incorporates these qualities yet is also effective and efficient. Benevolent dictators are much more efficient and effective than messy democracies, but the long-term stability of a public blockchain is threatened by such centralized governance. Therefore, from its inception, the blockchain community has debated and continues to explore the best way to find consensus on protocol changes.

Platforms which have instituted (or intend to institute) on-chain governance to a greater extent include Dash, Bitshares, Lisk, MemoryCoin, Tendermint, PolkaDot, Tezos, Aragon, Cardano, Maker, NuShares, and DAOstack. To a lesser degree, the Ethereum carbon vote represents on-chain governance. Examples of off-chain effort toward democratized blockchain governance has included Bitcoin Improvement Proposals (BIPs), Ethereum Improvement Proposals (EIPs), Ethereum General Assembly, mailing lists, and nonbinding suggestion pages on the internet such as GitHub trees. At the time of publication of this initial analysis and proposal, however, no major blockchain is entirely decentralized with pure on-chain governance.

Governance is a fundamental human concern, which has been continually debated since humans learned to speak. Governance is a primary subject of study in philosophy, ethics, economics, political science, law, sociology, social psychology, cybernetics, control theory, etc. Choices of governance structures for DAOs should take into account the theories and examples that have arisen throughout history. Throughout history, however, in the less extreme situation involving identified members of the same culture under face-to-face circumstances with deep community ties, people have repeatedly failed to organize effectively, and corruption has arisen in every circumstance.

Every governance process in existence has flaws. In fact, no perfect governance system is possible under very minimal assumptions, such as non-dictatorship. Nevertheless, our goal is to find practical and effective governance structures for the most challenging groups imaginable: DAOs.

The purpose of a pure DAO is to allow any users on the planet to join anonymously (or pseudonymously). Such users have a natural incentive to exploit any opportunity to profit personally, even if it comes at the expense of the group. At the same time DAOs have no centralized authority empowered to police or guide behavior. A program for solving all these problems under these extreme circumstances is forbiddingly ambitious. What hope do we have of finding an effective governance structure when users are likely to be pseudonymous and occupy uncertain locations in various jurisdictions?