DAOs Are Supposed to Be Governed by Votes, Right? Proph3t Says It Doesn’t Work

Transcript

I would say >> and how are those delegates appointed? >> Um so the foundation curated so our kind of journey was we tried to uh do the airdrop distribution that is typical um but the kind of salana community was so alien to dows like there was no dows that existed that none of them turned it up turned up to vote. So um we kind of had to uh emergently define uh discover a set of delegates and and um and sort of assign tokens to them to be part of the delegate set which made a huge difference in the kind of quality of the decision-m. So rather than the kind of like pseudo randomly distributed uh power to a DAO which is how most of the EVM Dows did it power randomly

distributed on airdrop day we we have a kind of more aligned set of participants who are um who are helping govern our doubt and it works much better. >> Okay profit do you have anything to add? >> Yeah I mean obviously Metadau has a pretty opinionated take on this which is that voting doesn't really work. uh and that you need an alternative and we use decision markets and I guess to break apart the problem uh voter turnout is not intrinsically an issue right the the main thing that we want from a governance system is making good decisions uh and people showing up is actually a cost right like ideally like the best scenario is we make all the

right decisions and just one person shows up and has to spend like the the least amount of effort making that decision um And the problem like why we want v voter turnout in a in a voter-based system is because as Nick alluded to like you can get capture otherwise right if I have 1% of the supply of a token uh it can be in my interest to do well like capture maybe is best illustrated by like the 51% attack right if I have 51% of a token supply um I may benefit from voting myself like the whole treasury uh even if it's not in the interest of the of the Dow because like uh yeah, if I say it's like a $10 million treasury and

then I have 51% so like 5 million tokens $5 million worth of tokens like uh even if I completely nuke the Dow like I I would benefit $10 million by voting the whole treasury to myself. Um and then you can think of this like in the extreme where yeah there's only like 1% of the token supply voting uh and they like have captured this Dow uh and so yeah I mean what we use instead is markets to make decisions. So instead of people voting they they trade on uh essentially what would be good for the value of the token which I think is quite nice because uh it means that you actually have like a direct incentive to participate which is that you can make money uh the same incentive to

participate in any market. Um and that uh yeah if the market is wrong like if other people are wrong that you can yeah make money by trading against them. And so that is kind of like our our opinionated take on this. Yeah, that's super interesting. I love that. And I could see how like, you know, when I when I was writing the script for this episode, I was thinking, oh, um, this sort of reminds me of how like paying too much attention to like what's going on in the government can be boring. Whereas something that's more like Yeah. similar to betting is more like a game. It's

more fun, you know? I think that's why uh like prediction markets feel more fun than just someone kind of pontificating on like what they think is going to happen, you know, which is um or or what should happen, which feels more like a truly political or governmental thing, you know? It's like the same thing. It's just the spin makes it such that one feels like C-SPAN and the other feels like a video game or something. So um anyway, so I did want to also ask uh about one other proposal I saw which is Alex Vanderesand who was also one of the co-founders of ENS made a proposal where the DAO can delegate 5 million of

its tokens to new delegates and there there was kind of some complex stuff about how there would be like certain metrics and like people could decide which metrics they thought import were important um and that basically like once those end up being delegated then that would mean that 60% of the DAO vote would be, you know, by these people and thus they would be large enough to block the largest stakeholders. Um, and you know, Nick Johnson himself said he liked that idea as long as the foundation could still run the day-to-day treasury. Um, but I wondered what you thought of of something similar to that.

>> Yeah, I thought it [clears throat] was a good idea actually. I think there's the the DAO has a lot of tokens that it could utilize uh but to distribute the power base of of the DAO effectively. So you can you can think of the governance tokens as like the tokenized responsibility or the the the tokenized power of the DAO. Um and [clears throat] this was you know to to address this idea that there's a single holder with 3 million tokens. let's get five million tokens, distribute them to a broader set of people to rebalance the power structure in the DAO so it's not so founder heavy. Um, good idea, but how who where those tokens go to? If you kind of like randomly distribute them again, you're going to end up back at

the same problems. So, I think this is uh it's a it's a fair way to do it. The question is is can they do it now? because I I'm pretty sure the DAO has effectively been assume the control has been assumed by under the kind of new security council structure. So we've you you've kind of had this hard power battle over who actually like controls the protocol and it comes down to this security council which is effectively the old one's just being disbanded and a new one's being set up with a new token vote and and kind of Nick is on there. So um whether such a proposal like this redistribution of power is possible anymore is a bit of a question I would say.

>> Okay. And profit what about what do you think? >> Um I don't really have a strong opinion here. Uh I mean yeah I don't have a strong opinion here. >> Okay. Okay. Well >> like um I'm still bullish on voting by the way. So profit here is very anti- voting I would say. So I think it's still possible but one of the things that makes a good voting system work is effective distribution right. So who how is the power being distributed? It makes sense to have um like voting is still a great way to canvas opinion at a huge scale and I have a nuanced answer. Um so distribution is one of the most important elements of that and I think

we pick up a lot of bad governance based on bad token distributions. Um, so I think that there is better ways to uh structure governance dynamics and we we just haven't innovated on this. So we're kind of largely stuck in like 2016 Dowo governance patterns. It's one of the reasons why I think metadow is interesting because it's actually a fresh take on it. But largely the industry is kind of structured um very heavily on some very old DAO technology effectively and I think we we pick up the issues with the voting because of that. >> Yeah. One thing I did want to ask about voting structures is I was thinking about how you know in the US or or it could be the UK but you know we have like this representative democracy where you know and this is kind of like the

concept of a delegate but I think it could be something that's even a little bit more structured you know because in the US we have the executive branch we have the jud judicial branch we have um the legislative branch right and so um it could be something like what Alex had proposed where you know these different groups are become dele delegates. Yeah. For uh for some period um but yeah I guess the way you're doing it you guys are literally appointing but it could also be that they are voted in although then there's the issue of the voter apathy. So um but you know does it feel like that is at least for for the Dows that are governed more in this truly

governmentmental sort of way that they're moving toward this structure where there's like multiple types of governmental entities and you know the different actors in them can be elected in so to speak. >> Um yeah I'll speak to that because that's this is largely where I see a lot of it going effectually specialized substructures. Uh the problem is the average token holder does not really have the context or necessarily the the knowledge to make effective decisions on a kind of frontier protocol if you like. So it makes sense that you'd want to shape the voting power towards expertise. So I do think one of the kind of more advanced structures we'll get to over the next few years is that we have

effectively specialized substructures. We're doing bits of this at at GTO DAO at the moment. uh we haven't got to the point where we elect these individuals. The kind of you know we're we're still hand selecting these things. Those kind of create these kind of weird loops where if you're frail to capture and decentralized systems are then the people will you know stack the kind of vote and be the the very dedicated people who come in and just want to get paid to sit on councils will be the ones who are there for the vote. Um so I think it still makes sense for there to be um utilize the tokens and distribute them or distribute subsets of the treasury to to um groups who are effective and hold them accountable. So

the problem is is when these substructures just end up there forever. Um so they should like effectively self-destruct. Um you know we're doing this to set up this very defined thing. you have a mandate to spend this treasury over six months, one year and then it you all disappear and it automatically dispands um and I think that's likely to be if we can get better structures which have this subsidiarity in Dows I think that'll be um hugely beneficial. Um the other the other thing I'll sort of flag is that Salana governance has just upgraded and has a um interesting delegation structure via the validators.

So that has we've just introduced this uh protocol level program which allows validators to vote on network proposals but delegates can override their vote individually. So if they want to come and vote differently to their delegate the token holder can come and overrule those delegates which I think is a it's a kind of delegation with re revocation which I think is a a really useful structure. >> Okay. And um profit, I wanted to ask you like do you do you see any merit in that you know idea of having kind of like these expert governance people or are you just kind of down on on the concept of governing a DAO altogether?

Um, I mean, yeah, I think delegation is probably better than the status quo of just like or at least it seems like in ES's case of uh having basically no one no one participate or like the people participate not being that knowledgeable. Uh, so yeah, I mean delegation seems better. Uh, I mean I guess like I live in the US, the US is basically like a delegation based out. Um, we have Congress. Uh and uh and yes and it's like it is maybe not terrible like I think governments uh are probably not the most effective things in the world but uh at least maybe that the

fact that they don't change is useful in the context of a government and probably useful in the context of something like ENS where it's supposed to be this hyper structure that's not really changing that much. Um so yeah. >> Okay. So last uh question I wanted to discuss on this. So Nick and Katherine uh said multiple times that they felt that having a foundation manage a treasury and the ENS token holdings and the endowment would be better than the Dow doing it because it just felt inefficient and you know trying to make different financial decisions like sort of day-to-day was was challenging. And then Jeff Laauo, who has been at ENS for nine years, said that sending the Treasury to the governor contract was

idealism that created a honeypot with zero accountability. And I wondered what you thought of this notion that protocols should sorry that Dow should govern protocols but not money. >> Um, yeah, I think there's um I I think there's there's a bit of both sides on this, which is kind of true. I think if you stick a permissionless pot of money on chain and some of these have been billions of dollars in size, it's going to attract people who are who are there to effectively extract the treasury and and it is a kind of large honeypot. Uh so yeah, the governor contract was the fault here. It wasn't a sophisticated enough mechanism to be able to deal we

we kind of asked too much of Dows. So he is like going from we've not really tried Dows before to putting a billion dollars into these governor contracts which was meant to govern a DeFi protocol and sort of 2019 um was generally a bad idea. I think that that's kind of true. Um I however do think it's something that we need to like get to properly. I think the onchain treasury management is what gives accountability to uh the token holders. So a lot of what Dows were formed for was kind of in the wake of the ICO boom where people raised loads of money and then just ran off with it.

Um at this point you would be trusting the foundation not to just everyone retire, right? So once it's out once it's offchain or once it's under the scope of control of the foundation, it's a lot of money. It's over hund00 million. We now have to trust the ENS. The ENS future is dependent on the foundation, not just retiring, right? you know, so that the fact that it's in a treasury means that you know it's there, you know, it's accessible. We should just get better at being able to broker access to it for through more advanced governance structures. So, one of the kind of disappointing bits I think for ENS, this was a kind of darling project of Ethereum. it was one of the kind of tentpole Dows that was still holding the dream alive. And then

they the fact that they kind of give up and just moved it um into self-controlled treasury is has really kind of upset the Ethereum people uh for good reason. I think they could have advanced the Dow and in fact they did quite a bit of work on tearing down doing a retro on what worked, what didn't. They created a kind of road map for improving it and then they just kind of like let's not bother. Let's just let's just centralize it around the foundation which is a bit of a shame I think. profit. What do you think? >> Yeah, I mean, uh I obviously I'm working on something new and and so I'm not totally uh opposed to new structures at the same time. Like the way that companies work and securities evolved uh

was pretty linear in response to problems. Uh and there's like a clear reason why we have things like fiduciary duty for a company. Um and also some level of control which is that uh like Ralph Merkel actually the inventor of Merkel trees he put it in this great paper uh where he says like okay so ideally we would just have experts make all the decisions but uh the problem is is that we don't trust that the experts are going to make decisions for all of our interest and not uh for just their own interest. uh because yeah it and so we need like this accountability mechanism and that's historically been uh voting um and yeah I mean the treasury is quite big uh it is to me a

little bit crazy to just be like um I mean he is the founder so I think like respect to him and he has built this so it's not like it's completely uh not a good idea but it is just a little bit crazy that you just like throw all this money with no accountability over what is supposed to be a decentralized protocol. Um, and yeah, uh, like with no fiduciary duty. >> You just caught a piece of Unchained. I'm host Laura Shin and the full conversation is in the description [music] below. We go live every Monday and Thursday. Subscribe so you never miss it.

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