Incentives, DAOs and Anti-Fragile Existence

“Law-governed interaction (LGI) enables a distributed group of software actors to engage in a mode of interaction governed by an explicitly stated policy, called the ‘law’ of this group.” — Naftaly Minsky, 2005

In my last post I focused on smart contract design patterns that are consistent with jurisdictional law, specifically applied to modern contract law. These design patterns arose from two primary sources, one derived from a piece on adding escape hatches to DAOs and the other Law-Governed Interaction. In that post, Law-Governed Interaction provided the concepts behind locality and interoperability design patterns for potentially resolving conflicts between jurisdictions within a smart contract system.

In this post, I focus on Law Governed Interaction and the new shape DAOs may take if they adopt an additional property of this framework.

At its core, LGI is intended as a mechanism to prevent any violation of law as opposed to punishing an observed violation of the law. ‘Law’ in an LGI framework is defined as a mutual agreement between parties codified in an exhaustive list of state/event/action tuples.

If you consider drivers in a community as an example, they operate by a set of laws agreed upon and followed independently — in a decentralized manner. The result of the law is the continued coherent operation of the community.

LGI in the context of jurisdictional law provides design patterns for locality and interoperability. LGI may have an additional property that applies to smart contract systems. Particularly, LGI’s focus on continued coherent operation of the community implies a potential compatibility with DAO governance.

The concept of a Decentralized Autonomous Organization (DAO) is recent [2014], and the realization of this concept — in multiple embodiments — is more recent [2015]. Custodial models for DAOs have emerged since then to provide constraints on the operation and administration of the DAO. I have previously advocated DAO structures constrained by constitutional and holacratic custodial models.

Here I advocate for a DAO custodial model where the priority is — as exemplified in the LGI ‘community of drivers’ example —the continued coherent operation of the community. In the spirit of LGI and smart contracts, this is achieved through the prevention of conduct that is unhealthy to the community as opposed to the punishment of unhealthy conduct.

Here there is a clear role to provide structured incentives for actors. Swarm, Gnuclear, and Alexandria are examples of distributed organizations that consider this characteristic fundamental. For distributed organizations, actors — apathetic, non-participatory and hostile — can wreak havoc on an improperly-incentivized structure.

Swarm is a decentralised file storage and distribution system which provides micropayment incentives for bandwidth and storage. Alexandria provides micropayment incentives for contributing and curating original content on a peer-to-peer media distribution system. Gnuclear provides incentives for participation in governance via a decay factor on non-participating tokens.

Incentives are not be limited to tokens and micropayments. Both Steemit and Backfeed have proposed modified DAO governance structures where the reputation of a recommender or delegate determines their quality of interaction with the community, and where improving that reputation serves as the incentive.

An incentivized DAO custodial model provides incentives in addition to voting and delegation mechanisms. Users may prefer interacting with such an organization because of improved community function. Incentivized custodial models are intended to provide anti-fragility due to a continued coherent interoperation of the community based on the incentives provided to the actors in the community.

Thank you to Stephen Palley and Griff Green for comments on this article.