Web3 systems are governed and controlled by token holders, making them fully autonomous and decentralized in theory. In absence of a DAO structure the system reduces to a centralized web2 portal. Ensuring resilience of a web3 application is a natural goal for any DeFi protocol, but how can this be realistically achieved, and what are the common pitfalls of existing governance structures?
Let’s start with the pitfalls:
- “The team” creating or writing proposals. Often times proposals and initiatives are written by the protocol’s own team. However, developers are not always in sync with the needs of the community. Often being “in the bubble” or too close to the implementation details a project makes it difficult to understand or anticipate important concepts from an outside perspective. New proposals and decisions made by the DAO should mostly come from outside of the core development team. An example of this procedure could be: community suggestion → DAO discussion → DAO vote → execution by DAO-chosen developers. Another example procedure will be touched on later in this post.
- “The team” deciding on and voting on proposals. Unless the project team controls very little of their own token supply, decisions made by an overwhelming whale vote from the team should be avoided in almost all cases. (One case where it’s reasonable, for example, would be a veto with limitations). Not only does team-whale voting undermine the democratic structure of a DAO, it also invalidates the ability of the community to have any control over the system. It could silence their concerns or reduce their voting power to effectively zero. There is also potential for a conflict of interest because the interests of the developers do not always match the interests of the community or token holders. Morale can be adversely affected when thousands of individual votes are eclipsed by a single developer vote. Ideally, developer tokens should be locked for a duration measured in years, and these tokens should also become ineligible to vote for that time.
- Low activity on voting and governance forums. This is the hardest and most crucial attribute of governance that has no immediate action or solution. Naturally, a popular and profitable protocol will have active governance, and conversely an unpopular and unprofitable protocol will have low governance activity. In this case, something I call “preemptive implementation” might be enacted. It is an actionable solution which could lead to higher governance activity and buy-in from the community and token holders.
Preemptive Implementation
This style of governance is a method in which a developer or group of developers create code before a governance vote decides on it, then introduces that code to the DAO with a price tag and a decision of whether or not to buy it. This is similar to the “benevolent dictator” method, where a developer simply writes code and implements it on their own, without any DAO involvement. Preemptive implementation has major advantages over other styles of governance:
- Developers can immediately work on new opportunities without being blocked by long governance processes.
- Non-developers have a better and more clear understanding of technical concepts because they’re already implemented and applied.
- Approval can happen more quickly ex post facto in comparison with deciding on minor details of a proposal to-be-implemented.
- Suggestions or feature requests can be made and users will then look forward to “the next version” which includes their suggestions.
Following the above process is a viable way to kick-start a DAO with low activity. In essence, it is this procedure:
developers create code → developers propose to sell the code to the DAO → voters decide on whether or not to buy the code and implement it
Tools for DAOs
Concrete processes and tools available to communities that can help channel ideas into action:
- Subversion control based collaborative note taking apps (hackmd).
- Google docs style temporary collaborative notes (google docs, notion).
- Discord town hall calls or text chats with transcription.
- Ephemeral discord channels and forum threads discussing ideas.
- Scheduled feedback / anonymous feedback collection forms.
- Community events to organize all of the above.
Scaling a DAO will require the efforts of DeFi power users, developers, and token speculators to decide on the best path forward. Maintaining protocol code is as important as maintaining competitive with the rest of the web3 application market. The above tools and procedures can be implemented in both Saffron and Koge to meet the requirements of true decentralized governance.
