unknown 2

The Problem with Voting in DAOs

The first major blockchain conference I attended in person was this July at EthCC 4 in Paris. It was an amazing experience. I met so many people and learned about so many projects and gathered perspectives on where Ethereum is headed. But there was one common theme that concerned me — this notion that DAOs = Voting. 

Nearly every conversation I had about decentralized autonomous organizations gravitated around voting and governance, and rarely did the topic go beyond that. But when I look at the DAO acronym, I don’t see a ‘V’. Autonomous does connote self governance, or voting, and we use decentralized mechanisms to cast our votes — but what about the third word in the acronym, which everyone seems to ignore? Organization. And since all three of these words go together, it is not just voting that needs to be decentralized, but the business organization itself.

Most projects are not decentralizing their organizations

If your project’s business structure (organization) is still the same five devs who launched the protocol, and they make all day-to-day decisions on business operations, then is it fair to call it a DAO?   

A traditional business is made up of segmented departments, and specialized roles which perform various functions to ensure the end product you see is properly working. You have an HR department, a sales department, a marketing department, etc., all working together towards a common goal. A DAO is not dissimilar, but the decentralized structure begs the question of who will run the artwork department? Who writes docs? Who is the project manager? Where is payroll coming from? Who filled all of these positions and who is making the decisions? 

When you consider that most voting in crypto has very poor participation, and is often influenced by large shareholders, it’s even more apparent that voting as the primary focus of DAOs is flawed. 

Are the answers to these questions the same five devs who launched the protocol? Doesn’t this sound like we invited centralized corporations into crypto, and installed voting as window dressing to make it feel participatory when it actually isn’t? When you consider that most voting in crypto has very poor participation, and is often influenced by large shareholders (VCs, devs or friends of devs), it’s even more apparent that voting as the primary focus of DAOs is flawed. 

Vitalik Buterin, the founder of Ethereum, recently addressed this issue on Twitter:  

“Decentralized governance is necessary, but coin voting governance in its current form has many acknowledged and unacknowledged dangers. Augmenting or moving beyond coin voting is a key part of the solution…”

The prominence and problem with partial decentralization

Right now, we are being sold an iceberg that’s called decentralized. Yet it’s only the tip that fits that definition — the other 90% of operations are fully centralized. Not only should users and participants be aware of this, they should also know that in places like the United States and the U.K., regulatory bodies can focus on this kind of partial decentralization

In a recent livestream on YouTube with SEC Commissioner Hester Peirce discussed the prevalence of “…“shadow-centralization” within the DeFi sector, where opaque governance structures can lead to a protocol being subject to centralized control despite wearing the banner of decentralization in its marketing’”. She also stated:

 “If regulators can find a centralized part or group of people that they can grab hold of, they will grab hold of them. So, I think it’s just good to be cautious about how you build things because, down the road, it could have regulatory implications”

The crypto community needs to quickly make sure the D in DAO also applies to the O, and there are a handful of projects out there proving it can be done.

Planting the seeds of a Decentralized Organization

If you are looking to join a DAO, your typical first step is joining a chat or forum that shares project information. You’ll meet like-minded people sharing information about whatever project they are working on, and those who want to participate continue to engage in the conversation and eventually begin to contribute as a volunteer. 

As you get to know members of the community, you’ll start to piece together where your skills fit into the organization. Media, artwork, strategy development, documentation, collaborations and community growth are classic roles. Even beyond the core team, DAOs also need independent contractors or part-time workers who can translate articles and guides into various languages, create content for videos, formulate new product strategies, among  other skills.

Most DAO structures have humble beginnings, and over time as the project and community grows, parts of the project should become more and more decentralized and managed by non-founding members. As a DAO seeking contributors, these digital forums provide an instant talent pool projects can tap. And like a farming commune, DAO communities are self-sustaining with participants motivated to make the organization succeed. It’s about more than just pocketing  a paycheck — it’s a proverbial home.

Focusing on the “O” in DAO 

As you can see it takes much more than just the initial developers to properly run and maintain these digitized and decentralized business structures. But there is a glaring deficiency in decentralizing the “Organization” of many DAOs across the ecosystem. 

With increasing regulatory scrutiny, developers need to dramatically rethink this aspect of their business structure. Projects like Harvest Finance, UMA and BadgerDAO are innovating in this area by integrating its communities into the daily operations of the organization, handing off these critical business roles to non-founding members sourced directly from its community. 

Harvest for example actively seeks for contributors from its 16,000+ members, with roles such as Yeoman and Rangers who seek new collaborations or profit strategies, while Artisans help with marketing, contests and project graphics. 

We must understand that while voting is a critical tool in the DAO structure, it is only that, a tool which is dependent on community interaction.

BadgerDAO and UMA have built councils of trusted community members who help direct the flow of grants, ecosystem development and collaborations. Recently Shapeshift, a larger and well known corporatized crypto organization, announced it was dismantling its entire business structure so it could become more decentralized. And now one of the most popular Layer 2 protocols, Polygon, has followed suit.  

There is no single solution for creating a DAO, rather it should develop organically with the various skills offered by the community, and over time move towards a structure that is not fully reliant on the initial project developers. To achieve this we must understand that while voting is a critical tool in the DAO structure, it is only that, a tool which is dependent on community interaction. The focus in establishing DAOs should be more on community engagement and integration,and working in coordination with the protocol builders so voting becomes more relevant to those participating. 

The core developers of these  protocols I’ve described have taken important steps to shift the management of the organization from themselves to contributors, which is a critical milestone in the journey to truly becoming a Decentralized Autonomous Organization. Considering this and the regulatory signals that are being sent about pretender decentralization, it is becoming urgent that all projects and token holders ask themselves the question: Is this really a DAO? 

Red is the Community Foreman of Harvest Finance, a leading DeFi yield farming aggregator.