Why API3 DAO, not API3 CORP?
In this series, we have looked at first party oracles and quantifiable security as major aspects of the API3 solution to the API Connectivity Problem. In part 7, we highlight how the organization of API3 as a DAO benefits the project, API providers, and dApp developers.
“There’s a place called Adventure that lives just on the horizon. It calls us forth, over the next ridge and around the next bend… But Adventure doesn’t give up her secrets easily. She keeps them hidden from all but the most willing…” — Clay Hayes, Alone Season 8.
The quest to optimize seems uniquely human. A pinnacle forever on the horizon, the most favorable or desirable method is only suitable for a moment before the context of our environment changes and forces the search to continue.
As we explore the possibilities of the the Information Age, necessarily the way that we organize must adapt to help us tackle the new challenges encountered in this new frontier.
The birth of the DAO
In the Industrial Age, the majority of economic activity came in the form of transforming raw materials as input into products as output. Economies of scale were key to maximizing profits, and so centralization was a natural consequence in everything within this environment of incentives, from the size of manufacturing facilities to the governance of them.
In the Information Age, as we are seeing the transition in our lifetimes, a larger portion of economic activity is coming from an organization’s ability to process and use information in novel ways. Data is the input and as the output of digital products and services can be distributed globally at the speed of light over fiber optic cables, so too can the workforce commute in from anywhere. From a financial perspective, one skilled coder can be more productive in this environment than teams working in an industrial setting.
As the cost of operations trades office space for server space, materials for data, the human component is the clear place to save money.
Within this new incentive structure, the smallest teams that can do the most will find the greatest rewards, and it’s from this environment that decentralized autonomous organizations (DAOs) have emerged to assist in alligning the goals of project and participant.
“Autonomous agents are some of the hardest things to create, because in order to be successful they need to be able to navigate in an environment that is not just complicated and rapidly changing, but also hostile…
The ideal of a decentralized autonomous organization is easy to describe: it is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do.” — Vitalik Buterin, 2014
Humans, code, and governance
Smart contracts power the autonomous agents that Vitalik Buterin describes above. Smart contracts are agreements codified on-chain that execute programmatically when their conditions are met. They minimize the trust required between the parties of an agreement, and remove middlemen altogether.
In this way, “they” are fair arbitors, great for carrying out the rules of governance within the environment that they are created for. DAOs attempt to move as much as possible into these lines of smart contract code.
Though we trust in code, we live in an infinite universe that is sometimes a struggle to concretely define, and our ability to predict and computationally express everything that might be needed by our autonomous agents is imperfect.
It is out of this need to adapt the protocol to changing circumstances that DAOs reintroduce the human element to governance.
How a DAO benefits API3
Scaling within the organization
API3 DAO members are incentivized to create and vote on proposals that cover beneficial changes to the protocol. This function can be used to allocate funds, in the form of grants, so teams are able to organize or disband depending on the needs of the protocol. These teams and the projects they work on consequently decide the direction the project takes. As such, a DAO is more flexible than a traditional corporate structure.
The API3 DAO also votes on proposals covering high-level mechanics, such as those needed to optimize staking incentives. More granular tasks are left to the teams to work out on their own through their hierarchies.
Unique to the API3 DAO are several monoliths that were coded in at initialization. These work as non-linear checkpoints as well as defining values of the project, guiding contributors and uniting the community.
Transparency of design and construction
Because the data collected from sensors vs. data from exchanges vs. data from binary yes-no votes are completely different, it’s clear that each new data type introduced via dAPIs requires unique consideration.
The implementation of new dAPIs, datafeeds managed by API3, is an open and transparent process by design. Each new dAPI starts with a proposal that includes an API provider assessment for accuracy and reliability, as well as research into optimal approaches to data filtering and aggregation.
Removing points of control and failure
As a chain is only as strong as its weakest link, a system is only as decentralized as its most centralized component.
When the governance of datafeeds or third-party oracle networks is done by a centralized entity, it means that the constituent smart contracts are controled by that centralized entity.
This point of control is also a single point of failure which can expose dApps to:
- Negligence — When governance mistakes go unnoticed, datafeeds can misreport even when the rest of the oracle network, including APIs, is functioning correctly.
- Variant quality — Centralized oracle services can recompose the sources of their datafeed without the knowledge of their customers. We explore how data source matters in this article.
Decentralization of control has the additional benefit of removing targets for regulators. Because the removal of one person or one server does not have an effect on the functioning of the greater DAO, it is futile to act towards a decentralized organization in these ways.
Concluding thoughts
We’ve set the context for human organization within our lifetimes, and illustrated some of the benefits to API3 that come with the DAO framework.
With this as the last component of API3’s solution to the API Connectivity Problem, we will complete the puzzle and put all of the pieces that we’ve introduced over this series in the last installment, which you can read here.
Note: some of the substance of this piece may be attributed to “On DAOs: Decentralized Autonomous Organizations” as initially written by Sasa Milic for the API3 DAO in the API3 Medium publication directory (see this link).
