In anticipation of the Power DAO white paper launch and $POWER airdrop, this post lays out our rationale explaining the critical necessity of a next-generation DAO governance model.
Governance is a method of organizing a group of collaborators trying to achieve a goal through collective decision-making.
A decentralized autonomous organization (DAO) is a community organized by a unified mission, governed by a shared set of rules encoded on a blockchain. Blockchain protocols do not change governance models per se, they are model-agnostic and can support any governance structures — including highly centralized ones.
Today’s governance model behind most DAOs ‘ is simple token governance,’ a weight-based voting system, where the number of votes is proportional to the number of governance tokens a voter holds locked in the DAO protocol. Governance tokens are available on the open market, making voting dependent on direct financial incentives. As a result, DAOs are easily hijacked by well-capitalized or clever bad actors to the extent that the very existence of bad actors has become a part of the governance process.
And yet, blockchain still has a legitimate promise to change the governance game. Protocol-based governance can provide much-needed transparency for group decision-making processes and can connect the outcomes of decisions with voters responsible on a technical level.
So why isn’t it?
Why Does Simple Token Governance Fall Short?
In the early years of DAO experimentation, incentives were developed to encourage users to invest their time, money, and energy into helping pioneering DAOs grow. Growth incentives, yield farming and retroactive airdops financially incentivize users to act in ways that would support the DAO. Unfortunately, none of these incentives addressed the critical absence of voter accountability.
With nothing to stop users from pursuing their own interests over the DAOs goals, the good will of many becomes easily exploited by the ill will of a few.
Most DAOs today are still vulnerable to attack or exploitation from a minority of unmitigated bad faith voter decisions. If a harmful voter action does not lead to a restriction of the voter’s ability to participate in future governance, and does nothing to inflict direct monetary loss back to those responsible for the bad decisions, what’s to stop them from continuing?
In traditional democratic governance, this lack of accountability is also seen in the problem with ‘voter apathy,’ and has yet to receive an adequate cure. Without ‘skin-in-the-game,’ voters either refrain from voting, are easily bribed to vote for certain proposals, or simply act with indiscriminate self-interest at the expense of everyone else.
Two sum it up, there are two major problems with simple token governance, and several symptoms of each.
1. Simple token governance is not optimized for making good decisions:
- Bad voter decisions do not lead to any restriction of ability to participate
- Apathetic voters don’t vote or can be easily bribed to vote for certain proposals
2. Simple token governance is not optimized for making great products that maximize shareholder value:
- DAOs pretend to be decentralized but in practice are quite centralized — this defeats the purpose of building on blockchain
- DAOs are highly decentralized and product development stagnates and suffers due to a lack of leadership with compelling vision channeling support and driving to a goal
- DAOs are afraid of generating revenue through fees, being classified as a security and being exposed to regulatory risk
DAOs are just people after all. And human nature persists whether people are clicking a mouse or scratching a pencil on a paper ballot. Throughout history democratic governance processes have shown that voters prefer parties to goals, and personalities to results. Usually people vote for specific leaders, rather than for concrete tasks and the desired outcomes they want to achieve.
But DAOs don’t need to operate within the same constraints as a national government. Simple token governance was good enough for a time, but a better model with protocol-enforced agreements can be built.
DAOs need a strong solution to these ailments, built from first-principles to optimize transparency and accountability by using the full power of decentralized, censorship-resistant, and permissionless blockchain technology. And Power DAO is that solution.
In the next installment of the Power DAO launch series, we dive into what a next-generation governance model, built to maximize decentralization and self-sovereignty might work.
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