A brief discussion of the protocol governing the dxDAO

The dxDAO will use the DAOStacks Holographic Consensus for decision making. Under this protocol:

1. Anyone can submit a proposal (arbitrary Ethereum transaction) at any time.
2. Proposals will be executed if they receive an absolute majority, that is, if at least 50% of Reputation holders vote in favor of the proposal within a specific time frame.
3. Proposals can be “boosted” by predicting (called upstake in the formal specification) that Reputation holders will accept the boosted proposal.
4. If a proposal is boosted, it will be executed if it receives a relative majority, that is, more Reputation votes in favor of the proposal than against it.

Goals and Assumptions

The goal of the Holographic Consensus is to facilitate decision making processes for large groups (1000+ stakeholders). To do so effectively, Holographic Consensus is capable of processing a high volume of decisions while ensuring that a proposal against the values of the majority will not be executed. In this way, it will balance efficiency and resiliency.

The protocol assumes an honest majority. In other words, a decision is always considered “right” if more than 50% of Reputation holders vote for it. Furthermore, Holographic Consensus acknowledges that governance comes at a cost and thus it assumes that DAOs will contribute financially to its own governance by subsidizing the prediction game used to boost proposals. For this reason, the dxDAO will need long-term a stream of income to be sustainable.

Roles

Proposer — Anyone can create a proposal to the DAO without costs. The DAO will allocate proposers of accepted proposals with Reputation.

Predictors — Those who participate in the prediction game help filter proposals and direct the attention of Reputation holders to those that are in line with the majority values of the dxDAO. Predictors are driven by making profits from the governance subsidy or from other participants that make bad predictions. Anyone with sufficient capital can be a predictor. All predictions are conducted using the native DAOStack token “GEN”. The dxDAO will start with some amount of GEN since 10% of the total reputation will be auctioned-of for GEN.

Reputation Holder— A Reputation holder is represented by an Ethereum address with a Reputation score. The voting rights of each holder are weighted by this score. While Reputation is non-transferable, the dxDAO can award or subtract Reputation through the proposal submission mechanism.

In addition, there are a few default Reputation flows built into the protocol.

1. A proposer earns Reputation if a proposal is accepted.
2. Early voters that side with the majority will get some Reputation from those who voted early (pre-boost) against the majority.

Boosting

A system that generally accepts relative majorities is in danger of being spammed by a minority Reputation holder. This situation would require that the honest majority continuously counter votes these proposals.

For this reason, those who boost “bad” proposals should pay a cost. The boosting mechanism guarantees this. Predictors have to “bet” that (if boosted) the proposal will be accepted by the vote. If a bad proposal is likely to be boosted, it creates an incentive (fisherman concept) to predict against it and make a profit by alarming reputation holders to make sure they vote against it and thus the proposal is rejected. In cases where a good proposal is boosted, and no predictors are predicting against the proposal, the DAO itself will always play the role of the counterparty (predict against any proposal) and thus ensure correct predictions are rewarded.

Additional Resources

A more formal specification of the version of Holographic Consensus the dxDAO will use can be found here. The initial Reputation distribution is described in this announcement post. A live DAO that implements (a slightly different version) of this protocol can be found here. To participate in the dxDAO go here.

Disclaimer: DAOs are uncharted territory and highly experimental. They contain a number of potential risks. There are technical risks that smart contract systems might not work as described or as expected. There are risks that governance processes can be gamed and enforce proposals that disadvantage specific participants. There is potentially legal risk. While we see this type of DAO similar to networks like Bitcoin and Ethereum where network participants don’t create legal liability for each other, other legal conclusions might be possible. Gnosis is involved in the development but will fully step back before the launch of the DAO.