Child Sacrifice and Developer Grants — A look at MolochDAO

March 6, 2019

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When you say it out loud, it might sound like something is stuck in your throat.

But it’s actually a macabre reference to a child-sacrificing, Levantine god that represents coordination failures in society.

According to co-creator Ameen Soleimani, the name was chosen because the project creators believed “We must summon Moloch… to defeat Moloch.” Or more literally, they must design a grant-making DAO for the Ethereum community in order to alleviate the incentive and coordination problems surrounding open-source protocol development.

Blockchain Funding

Given the open-source nature of blockchain development, it has historically been difficult to monetize core development work absent an ICO.

Since all block rewards in Ethereum go to miners, core developers work primarily on a volunteer basis or through grants. A classic example of a “tragedy of the commons,” funding public infrastructure such as Ethereum is too great a cost for any single entity relative to their individual benefit. Yet everyone else in the community benefits from funding core work even if they do not share the cost burden.

This has long been a contentious topic, with a variety of proposed solutions. One such solution may be to commit a portion of block rewards to a treasury fund which a given community can later allocate based on pro rata voting (e.g. Decred Politea). This model is akin to taxation. In the real world, citizens pay to fund public infrastructure meant for the good of the collective. Moloch is intended to mimic such a system, but is opt-in. In fact, it doesn’t even indirectly require token holders to pay via monetary inflation.

The Moloch DAO works by pooling member funds into what is known as the Guild Bank, where each member receives voting shares in proportion to the amount of funds they contributed.

New entrants are admitted based on a simple consensus vote from existing members, and since each member has allocated their own capital towards the shared goal of growing the Ethereum 2.0 ecosystem, they are incentivized to only vote for new entrants they believe will contribute to that goal. Grant proposals work the same way. Token holders vote on proposals and if consensus is reached, funds are allocated with each member contributing their pro rata share of the grant.

What makes this model unique is the freedom of exit, where any member who votes against a proposal has the ability to “ragequit” if they are irreparably dissatisfied with a given outcome. They can withdraw their share of funds before the grant is processed, and the remaining members then shoulder the financial burden of having to provide a higher percentage of their capital since the gross amount of the grant stays the same. This incentivizes members to not vote for proposals that could be contentious to the point of causing potential ragequits.

Why Moloch Matters?

In Meditations on Moloch, the author posits that we humans have a penchant for underperforming as a result of inadequate social coordination mechanisms.

Even though each individual may act rationally, there are other potential ways to organize collective behavior that could result in greater individual benefit. This is the gist of Moloch. It is rational for any single entity to be reluctant to fund public infrastructure development. To make public contributions rational, you need a method of organization that decreases marginal cost per user to the point where collective decision making provides a greater benefit to each individual.

There may still be free riders in this crypto-economic scenario, but that may be an inevitable outcome without inflation funding.

There’s also no guarantee marginal per user cost will decrease below the critical “worthwhile investment” threshold, as Moloch presents a highly experimental funding mechanism.

How will the Moloch model — more skin-in-the-game driven — perform relative to Politea which may be more “equitable” but tyranny-of-the-masses driven?

Moloch sure looks like a leap in crypto crowd-funding design. Time will tell how pervasive the model becomes, but you can bet that these smart contracts will form the backbone of many more community finance experiments.