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The DAO of Governance in the DeFi World

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In the future, the governance model or organizational structure of DAO will be further developed, and more DeFi projects will be governed by DAO.

Original title: "DAO of Governance under the DeFi Carnival"

Original source: IOSG< /p>

Introduction

The epidemic has changed the logic of the world's operations, and to a large extent Transforming the way people work and collaborate. Not only for blockchain practitioners, but also in traditional enterprises, people are beginning to be more inclined to a free, open and equal participation. DAO was born on the blockchain, but not limited to the blockchain. At present, the value locked in the global DeFi market is about $26.98B (defipulse data), and the data of DeepDAO shows that the total AUM (Asset under management) of DAO is also as high as $804.2M. Since the second half of 2020, new DAO and DeFi projects have exploded, and their decentralized governance methods have attracted more and more attention and participation.

1 New form of organization

Can you imagine an organization No leadership or hierarchy?

The company's management structure tends to be flat, allowing most people to speak freely. However, in the traditional corporate structure, the decision-making of the organization is still in the hands of very few people. There are shareholders in the company, the shareholders elect the board of directors, and the board of directors elects the CEO. This structure often has complex principal-agent problems, that is, shareholders rely on the board of directors to represent their own interests, and the board of directors relies on the CEO to represent them. Interests. Members of the organization did not actually participate in its major decision-making and development process. Even in today's affirmative organizations that advocate freedom and openness, centralization is still the mainstream.

God V once said: "The blockchain is decentralized politically and structurally, but logically it is centralized (because of consensus) ” On the issue of decentralization, people are constantly trying, and DAO has brought new possibilities.

DAO (Decentralized Autonomous Organization) is a decentralized autonomous organization that is not affected by any centralized subject. It uses open-source code programs for decision-making, and the organization's financial records and programs are kept on the blockchain. DAOs are certainly a huge challenge to many of the traditional hierarchical and exclusive organizational structures in today's world. It uses the "wisdom of crowds" that allow for better collective decision-making, which in turn makes organizations run better.

Compared with traditional corporate governance methods, how does DAO perform decentralized governance? Existing, especially some popular DeFi projects have also begun to use DAO for governance. What are the special features of them? Will we finally see a utopia of perfect equality and order?

It is worth noting that Bitcoin is the first DAO, which was improved by the core team through BIP without centralization Proposals are decided and run. So far, we can see a complete and ongoing DAO governance evolution history

2 Governance of DAO

The core strength of DAO lies in its diverse governance models and synergistic effects. It is not only a form on the blockchain, but also an extension of the traditional OB and OG (Organizational Behavior and Organization Governance) theories. DAO is mainly divided into two types: Share-Based and Governance Based. The difference between the former and the latter is that the former has its own fund pool to facilitate the exchange of token holders, while the latter’s tokens can only be used as governance tokens.

We take Moloch and Daohaus as examples to explain the governance of share (share) DAO, and see how they can better distribute and execute rights and interests. Take Daohaus as an example, it is the service platform of DAO, and its core is derived from Moloch. Through it, you can create your own DAO, submit decision-making proposals, and invite members to join for free. It is governed through guild banks, rage retreats, guild kicks, and proposals. The steps are as follows:

1. To apply to join a DAO through Daohaus, you only need to submit a proposal and provide some information about yourself so that other DAO members can understand you. Secondly, confirm how much Tribute (also can be understood as how many Tokens are pledged) you plan to exchange for how many Shares (Shares are similar to company equity, representing your rights and interests in the DAO, including voting rights, income rights, etc. Usually a share represents a voting weight ).

2. After the proposal is submitted, go through the voting period, grace period and processing period. If most If the members agree with your proposal, then you will be accepted into the DAO, and the Tribute will officially enter the DAO’s Guild bank (Guild bank, which is the public fund of the DAO, which is jointly created and managed by all members, and the fund is also owned by all members. Guild bank funds The source is generally the Tribute pledged by members, the business income of DAO. The use of funds generally includes income distribution or collective investment, and each expense needs to be approved by multiple signature votes before it can be released).

3. If the proposal fails, your Tribute will be returned to you. If a member disagrees with the voting result, he can choose to quit in anger (Ragequit), burn Share, and redeem Tribute of equal value. Of course, in addition to submitting membership application proposals, you can also submit funding, Tribute whitelist tokens, kick-offs, and transaction-related proposals. The final execution of all proposals will be based on the voting results of members.

Different from Daohaus, Aragon is more biased towards Governance Based. Members can directly use the native token of the DAO to click yes or click on a proposal be opposed to. The voting result is determined according to the set passing threshold. During the voting process, members also need to bear the main network gas fee consumed by the signature. However, many projects have begun to try to use Snapshot for off-chain voting to reduce governance costs.

At present, DAO does not seem to be a completely autonomous whole. One of its characteristics is that the two aspects of DAO's human governance and automatic management are often parallel to complement each other. Human governance is mainly responsible for improving the existing structure, discussing major topics and ensuring reward mechanisms, while automatic management is a further extension of these human activities to achieve more convenient and time-saving management. Take MolochV1's MetaCartel as an example, it divides the content of governance into "housework" and "things that need to be coordinated". The housework part mainly includes sorting out records, accepting new members, and demonstrating the tasks created by members. Coordination is focused on strategic development, including discussing plan implementation, organizational expansion, and improving some of the organizational rules and regulations. MetaCartel's time allocation tends to focus on the latter, while discussions on the former can theoretically be fully automated or routine to a large extent. In addition, this also proves that DAO, like the process of financial valuation, often finds a balance between Art and Science, rather than taking it out of context and going its own way.

The second characteristic of DAO governance is step by step. The distribution methods of many DAOs are mostly based on centralization and democratization. Mechanisms like this are the basis for a democratized Internet 3.0. The design of DAO covers the understanding of new things, adopting different modes of habit formation and long-term adaptation instead of forced indoctrination.

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< em>DAO’s hologram

From the collection of DAO products we have collected, DefiDAO is a part that cannot be ignored. DAOs and Decentralized Finance (DeFi) have many intersections, and new products are being born at this intersection. Using DeFi products as a payment/distribution method, DAO becomes more decentralized and more digital, and it can be used to raise funds and distribute capital. The landing of DeFi allows token holders to customize and optimize the parameter design of the application through DAO governance, so as to create a better and unique user experience, which is quite powerful. DeFi enables DAOs to bypass the traditional banking sector to improve efficiency. This is important because it creates an organization that is trustless, borderless, transparent, accessible, interoperable, and composable. As DAO manages more and more DeFi assets, and more and more community members participate in the governance of DeFi projects (even if most members participate in governance voting due to considerable incentives), it is foreseeable that there will be more and more projects in the future. DeFi products interact with DAO, and DAO will also become the guardian of DeFi products.

03 The Road to the Future

First of all, there is no doubt that DAO's decentralized governance The model is indeed superior to the traditional governance model in terms of governance democratization. DAO can maximize the participation of stakeholders in the decision-making process, and realize the transparency of governance that has been kept secret in the traditional governance model. Furthermore, DeFi tools may not be revolutionary without decentralization. Only with decentralization can DeFi platforms and projects achieve revolutionary results. All management rules are written into the public code of smart contracts that can hardly be changed. Therefore, more decentralized governance has become the basic element pursued by DeFi, and more DeFi protocols will be managed through DAO in the future. However, it is undeniable that in the early stage of development, DAO still faces challenges in the following aspects:

Decision-making efficiency: the democratization of decision-making process inevitably brings decision-making efficiency lack of. When all the minutiae decisions need to go through the voting process to make a decision, the progress may not be as expected.

Centralization trap: Although DAO advocates the democratic decentralization of decision-making power, the final discourse power is still determined by some prerequisites. The direction of complete decentralization cannot be compromised at all, otherwise it will be difficult to achieve a self-sustaining balance. Decentralized governance means that you must achieve true decentralization, and you must go step by step on the road to true decentralization, otherwise there may be a power vacuum and you will be trapped.

Interest-driven and community structure: Compared with the traditional governance model, governance teams often share a highly consistent interest orientation, DAO has a low concentration of interests and an organizational structure Relatively loose. Therefore, DAO still has the risk of eventually falling into the mob politics of "Spartan democracy". In addition, excessive reliance on material incentives to attract more community members to participate in governance (especially for DeFi-type DAOs) is actually preventing them from participating in random voting. Most people just vote for incentives, so giving voting incentives actually reduces governance efficiency and makes it more difficult for proposals to pass.

Conclusion

It is foreseeable that the governance model or organizational structure of DAO in the future will be improved With further development, more DeFi projects will adopt the DAO method for governance. But it is too early to say that DAO will pose a threat to traditional governance models in the near future. In the future, DAOs and traditional equity governance models are likely to occupy different ecological niches rather than constitute direct competition. In the future, DAO will continue to control the deep cultivation positions of DAO such as encrypted native projects. Traditional enterprises may diverge, or form a new governance model that mixes the two, and realize DAO democratic decision-making on a small scale while continuing to adopt equity governance at the high level of the enterprise. What the future holds is worth looking forward to!