DPS: In 2008, when Satoshi Nakamoto released his famous Bitcoin whitepaper, he did so in direct response to the 2008 financial crisis. Bitcoin and subsequent blockchains were designed as an answer to the dangerous levels of wealth that banks had accumulated. The intention was to distribute financial power, and in doing so, decentralize power.
Decentralized autonomous organizations (DAOs) are the most acute realization of the way blockchains can decentralize governing power; they explicitly reject hierarchy and replace it with a form of direct democracy – letting any individual who owns a governance token propose and vote on any decision. They replace human authority with smart contracts, which automatically enforce actions based on majority votes within each DAO. As a result, DAOs have taken off across the blockchain space in recent years, grabbing the imaginations of many for their ability to organize individuals without regard for borders, identity, or hierarchy.
Yet, earlier this summer, Chainalysis reported that less than one percent of all governance token holders have ninety percent of the voting power in DAOs. If DAOs were designed to reject hierarchy, why then, is power becoming centralized among a select few?
Governance tokens are primarily distributed through a process of buying and selling, enabling DAO members to quite literally buy their power. Unfortunately, this distribution of power in accordance with wealth mirrors the most deep-rooted problems of traditional monetary systems, which blockchain technology was designed to solve.
As DAOs become increasingly common across the Web3 space, it’s time to consider ways power can be decided by factors other than wealth. Think: Expertise, work, contribution, participation, and engagement – actions that advance the work of the organization.
Because DAOs function entirely online, they can measure their members’ actions and reward them with governance tokens accordingly. An investing DAO might reward members based on the success of the portfolios each member manages (expertise). A crowdfunding DAO could reward members for outreach or referrals (engagement). Other DAOs could reward members for the number of tasks accomplished or length of time spent on specific tasks. Each of these instances creates an avenue for individuals who might not otherwise have the necessary capital to become influential members of their respective DAOs.
Safeguarding power
Even these reward systems are not perfect. Those that don’t demand money instead reward time or expertise, things more easily afforded to those with wealth. With that said, there are ways in which DAOs can get creative with the safeguards to ensure that governing power doesn’t lie with a mere one percent of their members.
Voting Power Limits: DAOs can program their contracts to limit the voting power each member can receive for token ownership, setting maximums and even minimums to ensure that members have a fair share of influence.Quadratic Voting: DAOs can program strategic instances of quadratic voting, in which votes are tallied based on individual address support, giving smaller token holders a greater share of allocation power through community decision-making. Mixed Rewards: To ensure that DAO members are incentivized to continue participating with the organization, DAOs can reward members with a mix of governance tokens and monetary rewards, ensuring that nobody accumulates too much governing power.Diminishing returns: DAOs can be programmed to reward the first action of a specific type with a maximum reward, which is reduced by a set portion for each subsequent repetition of the action, so that the first action is valued most, followed by the second, then third, and so on. This action is helpful in rewarding novel activity as opposed to the quantity of activity.
DAOs can represent a real revolution to contemporary power systems
At the end of the day, decoupling wealth and power is not an endpoint we can strive for, but rather an ongoing process. Once explicit wealth is divorced from power, it will more than likely be replaced by expertise and participation – and it should. But that replacement begs the question of how much time and knowledge are afforded by wealth, and whether wealth can ever fully be separated from power. These are complex problems that require intentional development and experimentation.
DAOs have the potential to upend countless systemic problems with contemporary power structures – and many already have. Their online format removes geographic limitations. Their anonymity reduces countless superficial characteristics that impact individuals’ ability to gain power – family history, gender, race, and age among them. And by innovating and implementing creative safeguards, they have the potential to undermine the pattern of wealth deciding power.
About the author
Robbie Heeger is the president and CEO of Endaoment. Operator and developer of consumer technology.
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