Bribery and Futarchy: The End or the Future of Tokenized Governance?

Many have decried the likes of Bribe Protocol and Paladin ‘the end of token voting’ for DAOs. Is this a fair assessment or hyperbolic alarmism? Bribe’s goal to “build DAO decision-making tooling powered by liquid, on-chain governance markets” seems innocuous enough. The culmination of Bribe’s roadmap is a system of governance called futarchy — what does this mean for DAOs like BitDAO? The project has drawn the ire of those who say it misaligns stakeholder incentives and entrenches the financialization of governance. Ethereum creator Vitalik Buterin was clear in a 2021 article that “we need to move beyond coin voting as it exists in its present form” in order to benefit from decentralized, token-based governance while minimizing its risks. This seems pretty far from that vision.

Incentivizing tokenized governance: good or simply inevitable?

No one disagrees that bribery happens at all levels of governance in the real world, albeit under the table. However, many assume this would be a vestigial property of analog governance to be eliminated in the new crypto-facilitated paradigm of Web3 digital dGov. 0xCondorcet, founder of $BRIBE DAO token-governed Bribe Protocol, is not alone in thinking otherwise, though.

He says Bribe is ultimately responding to the current state of the market, but does not view that as incompatible with the team’s democratic ethos, viewing Bribe as a democratizing solution to what he describes as a “fundamentally oligarchic market”. As long as we have transactable and lendable token-based voting, he claims, there will be governance markets, and it is the right of the token-holder, at a minimum, to understand the monetary value of their vote — the voter extractable value (VEV).

Condorcet suggests that it is more democratic to have multiple ways a governance token can be used — voting, lending, and staking, for example, in addition to the unique features of each native token — ideally simultaneously, than to have singular-use governance or interest-earning tokens. Instead of users staking governance tokens and being compensated at a fixed rate, Bribe enables them to transparently access the variable VEV of each vote, maximizing their rewards. For this reason, part of the Bribe roadmap includes trying to get more protocols to move to a non-staking model, which would enable token holders to respond to fluctuations in the rewards associated with each use. Bribe also plans to introduce minimum starting bids and a pricing framework for governance decisions.

Hostile takeovers and cross-protocol monopolies

In the same way that Convex is built on top of Curve’s gauge mechanism, Condorcet views Bribe’s pricing of votes (VEV) as just another stepping stone on which other apps, markets, and utilities can be built. He predicts that these will encourage responsible usage of VEV and mitigate the risk of bad actors, while still fairly compensating users. Regardless, most protocols integrating with Bribe have vetoes as a backstop against adverse behavior, so Bribe does not render all governance entirely open-access to hostile takeovers, he says.

However, some foresee bribery bringing about cross-protocol monopolies where one pool of tokens voting for specific proposals controls multiple projects, reversing the decentralized and democratic ideals of Web3. Condorcet responds by saying that Bribe makes sure every product they build is conducive to a functioning market, but does this necessarily mean it fairly reflects the collective will of the community?

Condorcet is adamant that the aims of Bribe are not incompatible with the burgeoning paradigm shift toward ‘one person, one vote’ brought about by self-sovereign identity systems like Proof of Humanity, as there will still be an important monetizable role for ‘one token, one vote’ digital governance in certain business decision-making contexts, he asserts. Some decisions should be sold on a marketplace, rather than being voted on in an election process, Condorcet contends:

“[G]ood governance (for DAOs and otherwise) requires execution without bias. That is to say that the goal of governance tooling is to improve a DAO’s ability to come to pareto-optimal outcomes and deliver on them. Crucially, this goal requires that tooling providers make no pre-determination of what is ‘right’ or ‘wrong’ for governance in particular contexts. With this in mind, the team at Bribe is committed to neutrality. We eagerly provide analysis of governance decisions where warranted (as in the case of our Aave Frax proposal). We will only ever support or advance governance decisions that have been approved by some means, be that on-chain voting, bribing, Snapshot temperature checks, etc.”

Unstoppable marketplaces & manufacturing consent

Michelle Thuy, system architect at Swarm City, a reputation-based marketplace dApp, emphasized the importance of having ‘skin in the game’ in governance during her ‘Unstoppable marketplaces’ talk at ETH Barcelona last year. She described this in terms of putting your money where your mouth is — absorbing the risk of a financial ‘stake’ to prove your preferences — instead of simply saying or voting for them during a DAO proposal.

She claims the market is the only form of governance that accurately reflects what people value, and thus which goods and services should continue to be provided, through the signals provided by how individuals choose to spend their money. She cites the example of The Beatles’ domination of the music charts in the ’60s reflecting overwhelming public demand for more of their music. Signaling community preferences through the trustless voluntary exchange of value builds more social and peaceful organizations, she theorizes, as it’s much harder to entice people to spend their hard-earned money than to vote. Thuy encourages DAOists to think carefully about the future they’re contributing to in order to avoid situations where projects’ goals and methods are merged with people’s ideologies and opinions.

As multidisciplinary academics Edward S. Herman and Noam Chomsky argue in Manufacturing Consent, people’s opinions are now more easily influenced than ever — well-coordinated minorities of extremists can come to dominate both discourse and policy via the careful deployment of mass, and increasingly social, media narratives. Thuy suggests ‘unstoppable marketplace’-based governance would be inherently less susceptible to the manufacturing of consent. However, people’s willingness to part with their money is still influenced significantly by the information they consume from those same media sources.

Liquid governance markets and futarchy

According to Condorcet, Bribe’s “vision for DeFi governance culminates in liquid governance markets which allow futarchy to exist on-chain.” Futarchy is a system of governance originally proposed by economist Robin Hanson that follows the mantra of ‘vote values, but bet beliefs.’ Rather than individuals voting on whether to implement particular policies, they define and vote on metrics of community wellbeing or success. Prediction markets are then used to determine and select which policies will optimally benefit the metric.

The system combines democratic participation with technocratic professional analysis, charting a middle ground between those who lament democracy’s descent into mediocrity and demagoguery, and those who would prefer management by skilled experts, à la Plato’s philosopher-kings. Unlike in more rigidly organized technocratic bureaucracies, any individual analyst or group of experts that believes they possess information unavailable to others can participate in fluid futarchic DAOs and put their money where their mouth is by incorporating their findings into their market position. To summarize and expand on Vitalik’s hypothetical futarchic DAO scenario:

1. A DAO community defines and votes on metrics of success
2. A proposal is put forward by the community
3. A prediction market is created, with purchasable tokens corresponding to either acceptance/rejection or proposal variations
4. After a set period of time, the market closes
5. The proposal (outcome) associated with the highest priced token is selected
6. Tokenholders who successfully predicted the outcome receive a reward per token from the unsuccessful tokenholders

Supporters claim this addresses the democratic problem of voter apathy and rational irrationality where individuals are not incentivized to educate themselves about policies due to the value of their single vote rarely being significant enough to affect a result. Successful analysts make a profit from the differential in information between themselves and the public, increasing their influence on the market, whereas those who are ineffective at predicting policy outcomes lose money, thereby decreasing their market influence. In this way, the market has an evolutionary pressure to improve over time. This is essentially the same mechanism by which capitalist economists argue the market optimizes the production of private goods. Futarchy simply expands it to common and public goods.

However, futarchy is still highly controversial and is certainly not free of drawbacks, some of which Buterin elaborates upon in his article. These include the complexity of human values, the ‘noise’ of uncertainty, the potential for market manipulation and volatility, and low participation.

Treating voter apathy or recreating plutocracy?

Daniel Ospina, founder of RnDAO, is pessimistic about the potential of incentivized governance for the Web3 ecosystem:

“Bribe protocols are a great example of solving the wrong problem really well. Bribe supporters argue that they address voter apathy. But apathy is a symptom, not the cause.”

Addressing symptoms creates further problems, Ospina says. Bribery enables those with funds to participate in governance without increasing ‘skin in the game’ in the same way, disrupting the incentive alignment essential for DAO governance, creating huge vectors of attack and further nudging Web3 towards plutocracy. Token holders forfeit the common good by renting their tokens to make money, while Bribe Protocol’s creators make a profit at the expense of the health of the ecosystem, he suggests. Ospina frames this in terms of a tragedy of the commons.

He claims bribes do nothing to solve the root causes of voter apathy, which include:

• Vote thresholds being too high (like in Uniswap)
• DAOs building communities of speculators instead of mission-aligned ones
• Voting having an uneconomic proposition for voters (the upside of voting doesn’t make up for the time investment required to decide and vote)

Ospina says RnDAO is developing tooling to address voter apathy and allow DAOs to defend against bribery.

The implications of bribery for DAO governance

Michael Heuer, governance researcher at Aragon, echoes Vitalik’s 2021 article in claiming that:

“[T]he misaligned incentives of coin voting lead to the apathy of token holders with negligible shares compared to whales [as] majority holders can always influence decisions and use it to extract wealth from the system at the cost of the public. This asymmetry in power between the rich and the poor becomes even more pronounced with bribery protocols.”

Heuer says this is a process commonly seen in publicly traded companies, where minority holders’ votes are largely unrepresented at general meetings. He compares the development of tokenized vote bribery protocols to the emergence of exchange-traded funds (ETFs) in the ’90s. Investors in ETFs, managed by large financial services providers, like Blackrock and Vanguard, give up their voting rights in exchange for receiving a share of the dividends of the ETF portfolio (a process similar to Bribe’s tokenized DAO vote renting). As a result, a few large financial services providers own majority (controlling) stakes in almost all major companies, speeding up the centralization of power, and effectively forming a monopoly. Heuer says he would be surprised if the pairing of coin voting with bribery protocols led to a different outcome.

The standard counter-argument is that many people can coordinate together to form lobby groups, however, this requires a large enough group of people, much more difficult to achieve compared to a wealthy individual buying the vote majority, he suggests. He cites the example of the Aave software license community vote being influenced by whales at the last minute, an outcome which may have been influenced by bribery as $AAVE tokens are supported and delegable on Bribe and Paladin.

Conclusion

Clearly Bribe has some utility, having proved its market viability through integrations with Aave, Qi DAO and Decentraland. There is obviously space and demand for incentivized governance protocols in the Web3 ecosystem, but is this limited to the world of DeFi, or could bribery or futarchy be utilized in the governance of non-financial organizations? Whether bribery protocols will influence the governance of DAOs like BitDAO irrespective of their developers’ or communities’ consent remains to be seen.

In our efforts to build better democracies for the future it is important not to lose sight of the whole picture, however. Experts agree that voter apathy is at the crux of the problem and although bribery and futarchy may work in some instances, it is certainly not an approach that will work in all applications of decentralised or tokenized governance. As Michael Heuer concisely summarizes:

“Delegation (or vote lending like in bribery protocols) makes it easier to not vote. This tends to concentrate decision-making power in the hands of a few. Coming up with clever mechanisms incentivizing more participatory and deliberative governance forms is what we should strive for.”