Fairness, resistance to censorship, and the ability to make better decisions are among the reasons why highly decentralized DAOs (decentralized autonomous organizations) should resist the temptation to ape more traditional corporate setups, according to Ethereum creator Vitalik Buterin.
Buterin made the claims in an article published on his website. In the post, he also hits back at critics who claim that DAO governance is “inefficient” and that “DAO idealists are naive.”
“Recently, there has been a lot of discourse around the idea that highly decentralized DAOs do not work, and DAO governance should start to more closely resemble that of traditional corporations,” begins Buterin.
However, he argues this position is wrong before going on to outline the three main reasons why.
Decentralization breeds compromise
The first situation in which decentralization is vital is, according to Buterin, when making decisions in so-called ‘concave’ environments. Concave environments are those in which a compromise is preferred over a ‘coin flip’ or ‘convex’ approach.
Concave situations include judicial decisions, public goods funding, and establishing tax rates, while convex environments would include planning a military campaign, responding to a pandemic, or settling on tech choices in crypto protocols.
“When decisions are convex, decentralizing the process of making that decision can easily lead to confusion and low-quality compromises,” writes Vitalik.
“When decisions are concave, on the other hand, relying on the wisdom of the crowds can give better answers. In these cases, DAO-like structures with large amounts of diverse input going into decision-making can make a lot of sense,” (our emphasis).
DAOs are like BitTorrent
Next up, Vitalik lays out how great decentralization is for resisting censorship. He states that a DAO or protocol needs to be able to function and defend itself from external attacks that may come from large corporate or even “state actors.”
He then goes on to draw parallels between DAOs and file-sharing platform BitTorrent, pointing out that, like BitTorrent, DAOs “should be providing a service that isn’t just evading permanent censorship, but also evading mere instability and disruption.”
When it comes to DAOs, there’s safety in numbers
Finally, Vitalik turns his attention to the subject of ‘credible fairness.’ The primary function of a DAO he says, is not just to resist nation states, but to take on some of their functions.
This often involves “maintaining basic infrastructure” and because governments are unable to adequately oversee DAOs, they need to be structured to oversee themselves. According to Vitalik, this requires decentralization.
He then lists three types of DAO and DAO components that all require strict governance, making the case that, “governance being attackable, from the outside or the inside, can easily lead to very big problems.”
Governance, he reasons, “doesn’t just need to be robust, it needs to credibly convince a large and untrusting public that it is robust.”
According to the post, distributed decision-making power — ie less power given to any one person or small number of people — also means that collusion or nefarious activity is more likely to be spotted and revealed.
There’s still (a little) room for a corporate approach
Vitalik does, however, make at least a small concession to the more traditional way of doing things. Specifically, when a DAO is called upon to carry out specific complicated tasks.
“A system that was intended to function in a stable and unchanging way around one set of assumptions, when faced with an extreme and unexpected change to those circumstances, does need some kind of brave leader to coordinate a response,” he admits.
“Realistically, we probably only need a small number of DAOs that look more like constructs from political science than something out of corporate governance. But those are the really important ones,” (our emphasis).
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