Order or Chaos? Pushing through DAO Development

Author: 0xoct, @RealResearchDAO

Special thanks to @BeeGeeETH, @0xzhujun, @0xDavii and @composableflick, @lvxuan147 for their help with this article. Many authors of high-quality content are also cited. This article attempts to explore the future development of ResearchDAO, and try to give solutions. As an innovative governance model in a modern environment, DAO is difficult for me to fully understand and master. There are also many biases and opinions in this article. Readers, please help me debug.

Foreword

Before we move on, let me tell a story: in today’s world where the global order tends to collapse, there are such people in the subcultural communities of the Internet in various countries. They continue to celebrate the ancient Roman Empire at some important historical commemorative moments. We often observed in the chat/comment of many Roman Empire related videos that the fanboys and fangirls of the Roman Empire will commemorate the glory of the Roman Empire, the incense of Rome, the inheritor, and even “weep” at the demise of Rome every time they see Istanbul.

The fans of the Roman Empire basically want to eternalize the glory of Rome in a virtual environment like the Internet. In their eyes, even Istanbul should not be called Istanbul, but Constantinople; and even modern Turkey should be the inherent territory of the Roman Empire.

Why would anyone imagine themselves a Roman? The obvious reason is that the Roman Empire was once insanely powerful. The Roman Empire was born in 27 BC, or a little further back, with the Senātus Populusque Rōmānus (SPQR), which shared a Latin name, in 509 BC, and this is where the Roman fans began to imagine. The Roman Empire made the Mediterranean a “lake” of Rome, continuing their glory for a long while.

As the jurist Rudolf von Jhering said, the Roman Empire conquered the world three times: the first by force, the second by religion (referring to Christianity), and the third by law (Roman law became the legal basis of Western democracies). Today, the Roman Empire has vanished into thin air, and the Pope has only huddled in the Vatican to this day. Only the former system and laws of Rome still have a strong influence on the world.

In modern society, the DAO governance model, which is rooted in the soil of real political systems, is more or less influenced by the democratic republic of the Roman Republic. Even the problems encountered by the current DAO in the operation process, perhaps we can find some solutions to them from the past history.

What is DAO?

From the ancient feudal monarchy to the democratic republic system that prevails in modern society, the focus of social decision-making is shifting from the minority to the majority. From this, the prototype of DAO that allows the universal participation of the whole people in decision-making was born.

As a decentralized autonomous organization based on a blockchain network, the smart contracts embedded in DAO can indeed enable all participants in the community to govern in a cooperative manner.

In DAO, people with the same consensus gather together to carry out democratized governance for the sake of consistent interest demands. There is no distinction between the identities of leaders and executors. All governance trust and effect endorsement come from the contract code behind it.

Compared with the current government management and enterprise management, the ubiquitous responsible person system, the behavior of each member in the DAO is directly related to their own interests, which further stimulates the improvement of the initiative of community members to a certain extent. And it is gradually accepted by more and more organizations around the world.

According to DeepDao data, there are currently 4,833 DAO organizations, and there are already more than 100 DAOs that manage more than $1 million in assets and attract 3.7 million members. And DAOs range from large DAOs that help manage crypto protocols to smaller DAOs organized around investment, community, media, and philanthropy.

Participatory and Algorithmic DAOs

• Participatory DAOs are mainly completed by different members through the establishment of different governance systems to complete the governance of DAOs. At present, most of the cultural, content creation, and NFT-type DAOs use this model;
• Algorithmic type mainly uses smart contracts to realize the rights of DAO members to vote, invest, govern, and distribute dividends. DAO organizations rooted in DeFi mainly adopt this model.

The Pros and Cons of DAO Organizations

• Centralized systems: This is the economic state that most companies operate in today. Centralized systems operate at peak efficiency, but they lack robustness. Perhaps all it takes is one central node to shut down, and these systems can easily collapse. Markets operate under strong human intervention.
• Decentralized system: More open and inclusive, any member can join or quit at any time. Currently, many decentralized DeFi projects such as BTC and ETH1.0 currently adopt this form. However, the disadvantage is that the execution cost of decision-making is high, continuous economic incentives are required, and the decision-making efficiency is low.
• Representative system: Somewhere between the centralized and decentralized systems, it is more efficient and fairer than the centralized system. At present, most public chain ecological projects such as BSC, ETH2.0, Polygon, etc. mostly adopt this system.
• DAO? At present, the institutional structure of DAO organizations is relatively complicated. Although DAO advocates more decentralized autonomy in concept, based on practical considerations, this concept often cannot be implemented. Most of the current DAO organizations are still in the name of DAO, with a loose structure of a company. Although there are no rules and regulations of various written contracts under the company system, there are still differences in the identity of leaders and executors.

In fact, this is also a common problem encountered by DAOs today. Pursuing Order means the absolute control of power and passive obedience of members, which is not conducive to the exertion of members’ subjective initiative. However, excessive democracy will make the community move towards Chaos, excessive autonomy will in turn lead to inefficient decision-making.

Order or Chaos? This is a problem. To understand this problem, we need to first have an understanding of the development context of the DAO form.

The Evolution of DAO

From the history record we can see that the earliest DAO was born in 2016 and was called “The DAO”.

At the time, The DAO, as a collective investment community, was somewhat similar to a fund. The DAO maintains the relationship between community members through smart contracts, and accumulates a large amount of ETH through rational crowdfunding.

However, after that, The DAO was attacked by hackers, and the raised ETH was continuously stolen by hackers. After the attack, The DAO debated endlessly, and finally triggered a famous fork event in the history of ETH: Ethereum & Ethereum Classic, which had a profound impact on the subsequent development of Ethereum.

After the incident, The founder of The DAO Christoph Jentzsch himself admitted that DAO was still in its early days, and The DAO’s contract code still has many loopholes. The governance and voting mechanisms of the decentralized system still needed to be improved.

In the end, as an early experiment of DAO, The DAO came to an end, but the reflection on the DAO organization continues.

The incident of The DAO has left two questions for other DAO organizations to think about: 1. simply relying on smart contracts cannot completely guarantee that the code is free of loopholes; 2. how to solve the tediousness and inefficiency of the democratic decision-making process of the community? (In fact, it was The DAO that was difficult to take immediate measures after being attacked, which led to the repeated increase in the cost of solving the problem.)

Based on these two problems, the later DAO organization began to launch a series of measures to gradually improve the internal operation mode of DAO:

Firstly it’s the rise of economic incentives system

The early DAOs had no special incentive mechanism, and the method to promote the enthusiasm of members often relied on the comparison of members’ capital investment/risk & return. After the rise of DeFi, new DAO organizations based on the concept of DeFi began to appear, and the economic model in DeFi was embedded into the governance of DAO.

These incentives, and the way they are built on top of each other, have become key to DAO governance. Without economic incentives, there is no reason for DAO members to invest their time, money, and energy into these networks, vote on governance proposals to improve these networks, or care whether these networks continue to grow and succeed.

The current economic incentives are divided into: growth incentives, Farmer incentives and certified airdrop incentives:

• Growth incentives: For example, Compound, where DAO members control treasury assets and grant income by lending them;
• Farmer incentives: Gain long-term benefits of project development through staking;
• Certified airdrop incentives: We have often seen this in the past two years, whether it is the acquisition of ENS or the airdrop of BAYC, both belong to this category.

Secondly, the division of labor in the community is clearly defined

The elected paid contributors are respected, and the DAO organization will provide paid remuneration for the contributors that are conducive to ecological security or the providers of ecological improvement proposals.

The emergence of special field groups based on security protection makes the maintenance of ecological security a normalized behavior.

Based on the above-mentioned measures, the current DAO organizational form has made great progress. Compared with the past, the enthusiasm of DAO members has been further improved, and the security of the DAO ecology has also been guaranteed.

However, these measures have not solved a core problem: how should the democratic governance pursued by DAO be embodied?

The full name of DAO is: Decentralized Autonomous Organization. Without Autonomous, the necessity of DAO’s existence leaves a question mark.

In fact, the vast majority of DAOs today are mostly representative systems, and many of them are actually Decentralized Organizations or Digital Organizations “DOs”.

Many people confuse DO with DAO, and some people think that the role of DO is the same as the governance structure of traditional companies, but it is actually different.

DOs are digital organizations that bring people on-chain but still operate as a company or leader, driven by non-democratic decision-making and management to maximize profits and incentivize alignment.

Although DO cannot realize the demands of DAO in an ideal state, it does not mean that DO should not exist. On the contrary, DO is an ideal transitional state, from pure human governance to joint governance between humans and smart contracts, and finally achieve complete decentralization, that is, the addition of Autonomous.

After being Autonomous, a general balance of the energy of community members is still required

In an emerging governance structure, whether there is Autonomous and how to implement Autonomous has become a prerequisite for the complete definition of the term DAO. The existence of Autonomous, for a DAO, not only has a key role in giving it its nature, but also brings many negative worries to the DAO. This hidden worry is innate, unavoidable, and must exist in DAO.

We can have a clearer understanding from the development of Ethereum. Although Ethereum has two seemingly absolute centralized power representations, Vitalik and the Foundation, due to the ecology, official teams, developers, miners, token holders, etc, each group has its own interests and demands. Each group has the possibility to release its strength, so that the entire Ethereum ecosystem can complete the transformation of DAO in a Nash equilibrium premised on mutual destruction.

Just like the Roman republic, a senate dominated by hereditary aristocratic groups became the decision-making body of the whole of Rome, the decision-making body of the highest military commander, and the highest administrative chief of Rome. In contemporary society, this structure has been further improved and has become the political paradigm adopted by most western countries.

Let’s take the US as an example, the president corresponds to the consul, and the parliament corresponds to the Roman Senate. The Senate of the United States is called the Senate House, which is named after the Roman Senate. The threshold for participation in the “Senate” has also changed from being completely closed to being moderately open. (In fact, it has not been fully opened. The main constituents of the US Congress are still bureaucratic families, chaebols, and powerful factions in various fields.) These strongmen have formed a delicate balance through internal equilibrium games. On the premise that there is no strong external threat, the entire ecosystem can operate and enter the market, and everyone plays cards according to the rules. Once the external motivation for change is generated, the internal balance of the ecology will also be broken.

Trump’s inauguration but not being re-elected for two consecutive terms as usual, and Ethereum’s move towards 2.0, leaving aside the once heroic miners, these are the results of autonomous within a range.

The above case brings us two profound insights:

• Real Autonomous requires community members to be irreplaceable, so that the energy of the entire community members is roughly equal;
• Changes in external conditions will have an impact on the Autonomous community, which may lead to the failure of equilibrium: the Solend community’s forcibly taking over the whale account through voting is called the shame of DAO.

Based on these two cognitions, we can further deduce:

• The fewer ecological variables, the simpler the DAO governance.
• Complex ecology requires more roles to join governance: such as Ethereum: project developers, security groups, miners, operations, content providers, KOLs, etc.;
• A growth-oriented ecosystem that seeks development and efficiency on the premise of taking into account Autonomous.
• The substitutability of a single member is high, and absolute democracy is not conducive to the improvement of ecological efficiency.
• Selecting role representatives based on member attributes can help members with the same identity as themselves to seek benefits to the greatest extent, and is conducive to improving the efficiency of ecological decision-making.
• Member attributes can be multi-faceted: function-based, region-based.

It is worth noting that the above conclusions are limited to the start-up period. DAOs who want to make great strides but do not want to over-centralize DAOs do not constitute recommendations for mature DAOs. Because the above governance process, no matter how it is adjusted, is focused on optimizing the organizational structure and management rules, and the word management itself conflicts with Autonomous.

In “Self-Segmentation of DAO Governance”, the author Eliade.eth believes that excessively transferring the problem to the field of structural conditions to solve it will become a political problem when it develops to the extreme, and will lead to a bad trend: management is prone to spontaneous expansion of their own power boundaries. which has become the most annoying political issue. On this point, I have the same perspective as the author. In addition, excessive human participation often results in that members who have participated for a long time often have more information and resources in the DAO, while new members often are discouraged from participating if they don’t know what to do.

The current participatory DAO governance model will eventually be replaced by a more complete algorithm-based DAO organization, while the emerging DAO organization can develop by optimizing the structure and management during the development process, but the final vision should not be too sticky to the “political struggle”. It should promote the attempt of related smart contracts and code governance at the same time, and eventually replace the former.

Regarding DAO governance, specific methods are proposed:

After we discuss the concept theory of DAOs, we can further focus our attention to tentatively give the current reality-based governance methods of DAOs.

First, the governance tools of the DAO should be widely adopted:

• DAO management framework: Aragon, Colony, DAO Stack, Orca, etc.;
• Community: Discord, Mirror, gm.xyz, Glass Protocol, Medium, etc.;
• Infrastructure services: Llama DAO, Seed Club, Vector DAO, etc.;
• Authentication: BrightID, ENS, IDX, Proof of Humanity, etc.;

Regarding the infrastructure construction of DAO, more attention has been paid to the industry recently. In June this year, a number of DAO infrastructure teams including Dework received financing. Among them, Utopia, the DAO salary payment system, received $23M in Series A financing. Perhaps we can look forward to the wealth effect of the future DAO infrastructure field.

Note: Regarding the summary of DAO governance tools, there is a detailed Notion summary on the Internet, which has been placed at the end of the article for readers to pick up.

Second, it is best to employ some full-time employees in moderation:

• Once a DAO has a large enough community and assets, it must hire people who can devote all of their energy to maintaining, communicating, and managing the DAO;
• DAOs need to make a clear distinction between “active participants” and “full-time employees”, and do not confuse them;
• The size of the full-time staff should not be very large, so as not to put pressure on the overall financial expenditure of DAOs.

Finally, DAOs should group community members where possible:

• As mentioned above, DAOs can group community members according to different categories such as functions or regions;
• Collaboration between different groups can be accomplished through governance tools at the code level or special committees of management;
• Different groups need to select a person in charge to upload the needs of group members and issue the will of the DAO;
• DAOs need to establish a mechanism to prevent group leaders from acting bad.

What should ResearchDAO do?

The idea of writing this article itself is to explore the governance ideas of ResearchDAO.

As a content creation DAO with industry research and media attributes, ResearchDAO has encountered some urgent problems in the development process.

Here are the current problems with ResearchDAO:

• Not establishing a good circulation of collaborators;
• The incentive system is relatively lacking;
• The output form of DAO content is relatively simple.

Solutions

-Establish order delegation mechanism & bounty mode:

• Undertake the content creation needs in the market, connect with the corresponding collaborators, or let the collaborators recommend themselves, give the collaborators a corresponding return, and record this behavior as a beneficial behavior of DAO co-construction.
• Example: CreatorDAO adopts this model. DAO receives the demand for NFT recreations in the industry, and then connects this demand to the corresponding artists.

-Enrich collaboration methods:

• In addition to article creations, users who intend to provide DAO with paintings, design drawings, and topic discussions on social media platforms can be defined as collaborators.

-Regularly organize online & offline interactions between DAO collaborators: organize activities, form consensus, and listen to the opinions of collaborators to make improvements.

-Group the collaborators and give the relevant people who are in charge with certain rights and permissions to expand and maintain the associated collaborators. (Identity Association & Geographical Association)

-When appropriate, launch Token & NFT incentive mechanisms.

-Appropriately present the DAO work process to the DAO members, and enhance the DAO members’ identity and sense of participation through voting, discussion, etc.

Conclusion

Fundamentally, DAO is a kind of political and philosophical art. Whether it is a metaphysical discussion of the underlying logic, or a specific discussion of governance, whether it is based on code governance or not, its essence is to seek a relationship between human beings, and a relationship between good and new governance models.

The Roman republic system provides a wide range of reference for the political structure of later generations, so our exploration of the DAO governance model can also visit history and reality to find answers.

We did not start from scratch, and the DAO structure did not appear suddenly, but was based on the historical evolution of the past governance structure. Therefore, we naturally cannot completely jump out of the inherent framework to seek unknown solutions, and there is no need to be scared from the problems of DAO governance based on reality.

Participatory or algorithmic, centralized or decentralized, worrying that the pursuit of Order will lead to centralization, and worry that the pursuit of Autonomous will lead to Chaos. This is common a misunderstanding.

For an ecosystem and a DAO, the issue that should be most concerned about is growing and developing. Choosing the specific form of DAO governance based on this position may be a correct solution.

In general, DAO is an ideal state, and it is far from being achieved at the current stage, including infrastructure and incentive mechanisms. More importantly, a strong vision and values ​​are needed to support it.

References

Building and Running a DAO: Why Governance Matters Author by Tarun Chitra

DAOs: Social networks that can rewire the world Author by Justin Mart & Connor Dempsey

DAO治理的自我割裂 Author by Eliade.eth

治理的思考：Token与DAO Author by Typto

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