Q for DAOs
DAOs are a hot topic in crypto today, and rightly so: Experimentation on novel forms for people to organize and coordinate in the digital space are badly needed. Since “THE DAO” happened in 2016, models have evolved significantly, and we are seeing new concepts pop up every day. At the same time, we are still in the very early days of DAOs: While the question of governance is at the heart of every DAO, many governance systems appear to be immature, enabling only a limited set of decision types and providing insufficient security against attacks. Q aims to change that: With Q’s governance framework, DAOs can instantly upgrade their governance game, adding value to the communities they support. Q’s vision is to become the first choice for DAOs looking for a Layer 1 blockchain to build on.
This blog post is the second part of a short series which summarizes the benefits of building on Q. In the first post, I have described the generic properties of Q, which apply to all applications deployed on Q. Future blog posts in this series will focus on other specific use cases and highlight the benefits for those, particularly as they relate to Q’s governance features.
The state of DAO governance
DAOs are in essence structures that enable human coordination in the digital space. As such, governance is the most critical element of a DAO. While the original idea was that everything a DAO does is determined solely by code, DAOs have very soon found that this limits the scope of what they can do. Hence today, many DAOs have moved beyond the simple “code-is-law” logic and deploy human-focused decision-making processes. For the most part, though, these still lack sophistication; often they are limited to simple token holder votes or multisignature schemes. This is inherently limiting, and can also lead to vulnerabilities against governance attacks.
For DAOs to move beyond the current state of affairs, a more sophisticated governance architecture is necessary. In particular, DAOs need:
- The ability to make, but also contest, judgement decisions in a decentralized way;
- Enforcement of the “rule-of-law” of the respective DAO;
- Dispute resolution mechanisms to resolve conflicts;
- Cryptoeconomic security guarantees that can be applied to critical decisions and parameter choices;
- A structured process for changing the rules of the DAO itself;
- Enforcement of property rights.
In essence, these are governance features which — in the centralized world — would be provided by the nation-state-based legal frameworks. As of today, however, those governance features are not available to DAOs in the decentralized world. And as we know, relying on centralized traditional legal frameworks does not work well in the world of crypto.
This is where Q comes in: With its system architecture that is customized to support complex governance frameworks, Q can provide all of the above. It is therefore the “go-to” blockchain for sophisticated DAOs that want to move beyond their current limitations.
Every DAO can build on Q without permission, and for many DAOs, this will be a good start. However, Q offers even more exciting and value-adding opportunities for DAOs: They can integrate into the Q governance, thereby benefiting from the full range of governance infrastructure, tooling and security guarantees which the Q governance framework offers. From rule-setting to enforcement to dispute resolution, Q provides DAOs with a full-stack governance framework — all decentralized and without relying on nation-state-based legal systems.
How DAOs can benefit from Q
To make it concrete, here are just three examples (out of many) of how DAOs and their stakeholders can benefit from integrating into the Q governance:
- Treasury decisions: This may be one of the most obvious use cases for DAOs in the short-term. Many DAOs today can be classified as “chat groups with a shared wallet”, and most DAOs have some form of treasury that needs to be managed. Investment decisions can be made via token voting, but more often than not, they are delegated to a limited number of community members, typically via multisig privileges. This effectively lets a small number of people control the community’s assets. This is — quite obviously — not ideal, and there have been a number of high-profile controversies around this and even cases where funds were misappropriated. When integrating into Q, DAOs are able to define guidelines as to how funds are to be spent, which can include subjective criteria such as “investments should only be in blue-chip cryptoassets”. These rules are then enforced via the Q governance, with Q’s governance stakeholders acting as neutral third parties that can — for example — exercise veto rights or delay execution of decisions in case of controversial actions. This instantly boosts the security of the DAO’s treasury operations, creating value for the DAO‘s stakeholders.
- Enforcement of stakeholder & investor rights: Basic stakeholder protection, which ensures that agreed-upon rules are enforced, should be something that is a given in every DAO. Nevertheless, this is often missing today: There are harrowing examples where DAOs have failed in this regard. The problem: Stakeholder protection typically contains provisions that need to be interpreted and cannot be enforced purely via code. With low voter turnouts being common in many DAOs, this practically means that stakeholders are at the mercy of a very small group of active DAO participants, with little recourse against “rug-pulls” by this group. Q governance fixes this: DAOs can set rules, which are then actively enforced via Q’s governance framework. This can include, for example, checks and balances in which Q’s governance stakeholders are involved, dispute resolution procedures and penalties such as slashing of tokens in case of violations by DAO stakeholders. These safeguards provide peace-of-mind for all stakeholders who can rest assured that their rights will be respected.
- Parameter settings: Some DAOs operate with parameters that need to be (re-)set periodically. The most prominent example may be MakerDAO, which uses a myriad of parameters to balance out its system. Again, not everything can be dealt with deterministically via smart contracts, and not all parameters can be dealt with through oracles. For those cases, an enforceable rule-set that describes the principles according to which parameters should be set is critical. If parameters can be set arbitrarily by a limited number of DAO participants, or even via popular vote, the DAO is subject to governance attacks. Q solves this by allowing DAOs to either have parameter settings validated, or even completely outsourced, to the Q governance system. For example, Q’s expert panels — which are bound by the Q Constitution — can be granted authority within a clearly defined scope to set certain parameters, either alone or together with the DAO’s stakeholders. Parameters that are covered by the Q governance can be limited to the most security-critical parameters, which allows the DAO to retain its autonomy while dramatically increasing the robustness of the DAO’s operations.
Building on Q
For DAOs that require similarly critical governance decision, Q offers a comprehensive and fully decentralized solution. Q’s mainnet has gone live in March 2022 and is fully operational — you can start building immediately. The Q website is a good place to start if you want to get an overview, or you can head straight to the project repo to take a deep-dive into the technology.
If you are a contributor to an aspiring DAO and are interested in boosting the DAO’s value by supporting sound governance principles, feel free to reach out to me or other Q core community members to learn more and discuss possible integration paths.