This article, a follow-up to The Age of DAO - An Introduction explores, evaluates, and showcases the essential responsibilities and functions of a DAO’s governance module. It examines the variety of options and models available that are crucial for realizing a DAO’s full potential.
Definition of Governance
The Governance concept, as defined by the Cambridge Dictionary, is defined as:
“the way that organizations or countries are managed at the highest level, and the systems for doing this.”
The later emphasis on systems and processes is related to the act of governing. This involves conducting policies, actions, and the general affairs of an entity, be it a state, organization, or community. Essentially, it’s about the process of making and executing decisions, reflecting the reactive organizational capabilities of the entity. At the heart of any organizational body, there is a vector or fundamental mechanism for proposing, voting on, and funding operations.
In a dictatorship, the dictator wields absolute power, enabling them to enact proposals unilaterally without requiring a formal voting process. This extends to the allocation of funds, often carried out with the backing of the dictator’s coalitions.
In a democratic system such as that of France, The legislative process in France involves several stages: A bill can be proposed by the government or by members of the parliament. The French Parliament (the National Assembly and the Senate) performs readings, amendments, debates, and deliberates on the proposal. A parlementary vote is held. A simple majority is usually required for a bill to pass. Following parliamentary approval, the President of France shall approve (veto or reconsiderations right) and sign the bill for it to become law. Once enacted, the implementation of the law and the allocation of funds are overseen by the government. Budgetary decisions, including taxation and allocation of public funds, are made through separate executive and legislative processes.
In the context of a Decentralized Autonomous Organization, governance takes on a particularly democratic dimension. It involves a collective approach where members actively engage in the constitution of this reactive body. The governance module embodies the rules and tools to propagate such functions. Governance emanate from a collection of smart contracts, crafted by a core development team within the community. These contracts codify the organization’s rules, offering transparency and verifiability. They are accessible publicly, ensuring that operational procedures of the DAO can be understood at any time by interested parties. Critically, any alterations to these smart contracts require collective consensus, which is achieved through the DAO community member voting, effectively safeguarding against unauthorized changes. In contrast to the multi-stage legislative processes and bodies in democracies, The participatory and inclusive decision-making system of proposing, discussing and voting decisions sees proposals immediately implemented upon approval, without the need for subsequent procedural steps. All aspects of the proposal, including implementation methods, are fully detailed and codified within the proposal itself. The review process, assessing the proposal’s viability and compliance with existing standards or regulations, occurs concurrently with the approval process. The proposal explicitly states all potential outcomes and consequences, ensuring transparency and clarity for all stakeholders. This ensures that whatever outcomes is reflective of the collective will, interests, inputs, and consensus of the community members pivotal in the core concept and functioning of a DAO.
Why is decentralized governance important?
A decentralized and well-designed DAO governance model primarily enhances transparency, providing a clear understanding of operations and decision-making processes. This supports a sense of ownership, fairness (by reducing opportunities for corruption), and equity among community members. It creates a structured environment that fosters predictability, thus trust, promoting optimal collaboration and incentivize broad participation and empowerment of all DAO stakeholders, an essential character for organisational agency and resiliency (vs centralized power). Additionally, it promotes adaptability and innovation, equipping the organization with the flexibility to respond to evolving circumstances and ensuring continued operation even in challenging situations. All the beforementionned uphold the DAO’s commitment to its foundational ethos and serve its strategic goals.
What Makes a Governance Model
Decision-Making Process: How proposals are introduced, discussed, and voted upon. For instance, proposals may be initiated through methods such as Open Forum Submissions, Staged proposals, or Holographic consensus. Voting methods differ from Consensus Voting, Token-Based Voting, to even mechanisms like Rage Quitting, and more. Discussions are facilitated through various means, such as Discussion Platforms, Scheduled Meetings, and Feedback and Amendment Periods which forms of proposal interactions play a crucial role in this process.
Distribution of Power: As a direct consequence of the aforementioned factors, it pertains to the allocation of voting rights and the extent of influence held by each member. This allocation can take various forms, such as Token-Based voting, Reputation-Based voting, or ensuring Equal Voting Rights among participants.
Member Participation and Roles: How members can participate and what roles they can assume. this aspect encompasses the ways in which members can engage within the organization and the specific roles they may undertake. For instance, contributors actively participate by contributing to various projects or tasks, investors provide capital in exchange for tokens and voting rights, delegates are elected or chosen to represent a group of members in decision-making, and curators take on the responsibility of managing and maintaining the DAO’s assets or projects.
Enforcement of Rules: Mechanisms for ensuring compliance with the DAO’s rules and objectives. These include smart contracts, which autonomously execute rules and transactions, voting for penalties where members collectively vote to enforce penalties on those who violate the rules, the use of escrow and multisig wallets to control funds and release them contingent upon compliance with rules, and the incorporation of Dispute Resolution Mechanisms, such as arbitration or secondary voting, to effectively resolve disputes within the organization.”
Adaptability and Evolution: How the governance model can evolve over time in response to new challenges and opportunities. A DAO may employs various strategies to stay agile and responsive. These strategies include the ability to modify the DAO’s constitution or governance rules through amendable governance documents, creating new DAOs with different rules in cases of significant community disagreements (known as forking), adjusting proposal approval requirements dynamically as the DAO grows or undergoes changes, and staying at the forefront of innovation by incorporating emerging blockchain or voting technologies as they become available.
An analysis of a DAO governance model provides material to appreciate the organization’s purpose, objectives, and true potential. The choice of governance modality varies, as they balance community-driven decentralization, efficiency, and expertise. Several major models of DAO governance have emerged, each with distinct characteristics. These models define the overall framework of how a DAO operates, including decision-making processes and member roles. Models reflects a different approach to how DAOs can be structured and governed, highlighting the versatility and adaptability of DAOs. The following covers some of the many governance paradigm.
Examples of Governance Models:
- Token-Based Governance: Decision-making power is tied to the ownership of the DAO’s tokens. In this model, governance rights are linked to token ownership. The approach can encourage investment and active participation but may lead to centralization if token distribution is uneven.
- Reputation-Based Governance: Influence is based on members’ reputation, which is gained through contributions and behavior within the DAO. The approach aims to reward active and constructive participation, reducing the risk of wealth-based centralization.
- Flat Governance: All members have equal voting rights, promoting a more egalitarian approach. The approach promotes equality but may face challenges in scaling and efficiency generally varies.
- Liquid Democracy: A hybrid model where members can vote directly on proposals or delegate their voting rights to others they trust. The approach combines direct democracy with representative democracy, allowing flexibility and expertise-based decision making.
- Holographic Consensus: Focuses on ensuring minority opinions are considered through preliminary thresholds before wider voting. The approach aims to balance broad participation with efficient decision-making.
- Futarchy: Uses market predictions to make decisions, betting on outcomes of proposed actions. The approach utilizes collective intelligence to forecast market mechanism’s positive impact on the organization’s value, but is at risk of market manipulation and speculative predictions.
Example of Governance Purposes
Where the model of a DAO may differ, so too does the very reason for its creation. The specific motivations behind the gathering of individuals and the subsequent formation of a DAO naturally imply certain intentions, practical modalities, and significant consequences for the original design and long-term evolution of the organizational rules.
This section aims to offer a broad (non-exhaustive) high-level categorization of recent developments in the blockchain market. The landscape of DAOs is thriving, with new types emerging regularly. Given the benefits discussed earlier, such as enhancing stakeholder engagement, enabling decentralized funding, providing automation capabilities, ensuring resiliency, and more, let’s examine some common purposes of DAOs:
Protocol DAOs: Protocol DAOs focuses on the development and management of platforms like Exchanges protocols, Lending protocols (Defi). The governance votes make up and draw evolutions of these platforms and their native tokens. Example: Uniswap, and Curve, MakerDAO, Yearn Finance
Investment DAOs: Investment DAO are vectors to facilitate investment for their community members. The governance pool capital and manage invesment funds. Example: BitDAO, Metacartel, Orange DAO, The LAO
Media DAOs: Media DAOs focus on content creation and distribution thanks to community-run media platforms . The governance support and empower creators (usually community members), enabling them to publish and monetize their work. Example: DAOrecords, BanklessDAO, RugDAO, DecryptDAO
Collector DAOs: Collector DAOs acquire and manage digital art and collectibles. The governance curate and maintain valuable collections, while allowing complete or fractional ownership of art and content by their members. Example: FlamingoDAO, Fingerprints DAO
Grants DAOs: Grants DAOs provide financial support by strategic capital allocation and charitable donations. The governance establishes the criteria for successful proposals. Example: Moloch DAO, Aave Grants DAO
SubDAOs DAOS: A SubDAO is a new kind of DAO that is a subset of DAO members that are organized to manage specific functions such as operations, partnerships, marketing, treasury, and grants.
Example of DAO Expressions:
Embracing various models and purposes within a DAO leads to distinct outcomes in the marketplace. This has given rise to several symbolic DAO models, each representing a unique approach and philosophy, or organizational dynamics in the decentralized space.
The ConstitutionDAO: The Constitution DAO model is centered around a core document akin to a real-world constitution or governing document . This document outlines the DAO’s fundamental values and rules, serving as a reference for member actions and decision-making, or for how the DAO operates. It details guidelines and principles for all DAO related business, including voting procedures, member admissions, and rule violations. This governance model is favored for its clarity and stability, offering a clear framework for operations, thereby reducing ambiguity in the governance process. It is community-driven, showcasing the power of collective action around stated principle, interest or value. Modalities of implementation aim to tackle challenges in in maintaining governance consistency and in handling large, diverse member contributions around constitutional evolutions or outcome.
The Friends with Benefits DAO: This social DAO modal, personal profiles and skills are emphasized to facilitate mutual benefits among members. The organisation has functions similar to a decentralized social networking platform. Users publish detailed profiles to aid in talent allocation and creative collaborations,. Members can vote on proposals, earning rewards and gaining access to exclusive content or events. The governance has evolved from simple consensus to more complex, multi-group asynchronous system for proposal communication, formalization, and snapshot voting. This approach helps in curating proposals effectively in terms of relevance and timing. However, balancing exclusivity with decentralization can be challenging.
The JuiceboxDAO: Targeted at creators and entrepreneurs, to addresses financial sustainability challenges for projects. The Juicebox DAO model provides core team of stewards (reasonably centralized governance) with decentralized crowdfunding via programmatic treasury management protocols for their projects. It sets the ground for relative game-theory, testing the viability of a proposals and projects by using a merit-based voting system, rewarding positive contributions and funneling decision-making to the most qualified members. Projects are splitted by workspaces, themselves collections of related topics or tasks to strongly incentizie efficiency and productivity in governing processes.
Governance Module Responsabilities
DAOs can adopt diverse conceptual paradigms, purposes, or expressions, each influencing the scope of their governance module’s responsibilities. The following is a summarized excerpt list of what a DAO Governance module typically encompasses:
- Proposal Creation and Management: Allows members to create and manage governance proposals lifecycle.
- Voting Mechanism: Implements a system for voting on proposals.
- Token Staking or Locking: Involves mechanisms for token holders to stake or lock their tokens to participate in governance.
- Access Control and Permissions: Manages roles and rights (permissions) of members over the various activities within the DAO. It typically also handle the joining and exiting processes of members.
- Rule Enforcement: The governance module enforces the rules set out in the DAO’s constitution or founding documents. This includes mechanisms to ensure compliance and address violations.
- Decision Execution: Automates the execution of decisions that have been approved by the governance process. (eg. fund allocation from treasury, automated ERP management, etc.)
- Incentive Alignment: Provides incentives for participation in governance, such as distributing rewards for voting or penalizing inactivity.
- Dispute Resolution: Mechanisms for resolving disputes that may arise from governance decisions or proposal outcomes.
- Transparency and Record Keeping: Involves public logs or records
- Interoperability: Allows for interaction with other collections of smart contracts or systems for execution, communication, etc.
- Security and Compliance: Maintaining the security of the governance process and ensuring compliance with external regulations and internal policies.
- Upgradability: Facilitates changes and upgrades to the governance process itself, allowing the DAO to evolve its governance model over time.
Thanks for reading!
We hops this article provides you with some context regarding the various aspects of DAO governance.
Next Up: DAO - A short on Voting Processes.