The enthusiasm for decentralized autonomous organizations (DAOs) continues to gain momentum as the crypto industry recognizes that monetary systems need governance.

Grace (Rebecca) Rachmany

Yet the gap between promise and implementation is demonstrated by the incidence of rage quitting, forking (where a blockchain splits in two because the existing protocol is changed) and abandonment of DAOs. Despite millions of dollars having been invested in development, DAOs suffer from a failure to find product–market fit. How did this happen?

It starts with the emphasis on revenue and profit-making.

DAO technology is not a better way to run businesses. Businesses are running just fine. It’s not a better way to raise or allocate money. People know how to raise and allocate money. DAO technology should be applied to areas we haven’t solved yet, areas where everyone’s interest is at stake and therefore everyone should have a say.

People are seeking new forms of organization in areas where hierarchical organizations are failing: public health, climate change, preservation of cultures, inequality, etc. DAOs offer the potential to organize collective intelligence to address complex questions and manage shared resources. In a recent talk at ETHDenver, DAOstack Founder Matan Field announced the move towards governance of common resources rather than businesses, and The Commons Stack has the word “commons” in its name, signaling a clear aim of creating tools to maintain the commons. Yet the actual tech still falls short.

In 2019 and early 2020, the blockchain industry observed dozens of attempts at creating DAOs, most of them ending in failures or partial solutions, as reviewed in recent DAO case study research by the author, funded through the Genesis DAO. The source of these failures was twofold: application of DAO technology to organizations that don’t need a DAO; and limiting the capabilities to budget allocation and voting. Because of their myopic focus on ‘on-chain’ governance of blockchains, the DAO technologists have failed to create compelling technology for the problems that society is facing.

To date, technologies such as Aragon, Colony, DAOstack, GovBlocks, Moloch and other DAO tech projects have had one primary function: allocation of funds, more specifically, cryptocurrency (usually ethereum or dai). In some way, this is the only function you can implement on a group that has not preformed. If you start with a neighborhood, a political party, gamers playing a specific game or other group with a common interest, you can implement and enforce decisions. If all you have is a random group of participants, you can’t impose much of anything on the group behaviour other than allocation of budget. If you want automated allocation through a smart contract, the budget needs to be in ethereum.

In other words, the technologists have built systems that are close to useless for anyone outside of their small circle. As a result, there are dozens of “zombie” DAOs, organizations that were created but are no longer active. These failures contribute to the outside perception that DAOs are just a fad or scam.

The appeal of the DAO movement is fueled by the sense that almost all of the democratic processes are broken in today’s society – in that, despite ever greater interconnection, our national and international governance structures are failing to solve problems of the commons. Mismanagement of public health, food supply, water and air quality has dire impacts worldwide. Whether we like it or not, the actions of one person in Wuhan can have global ramifications.

See also: Newest DAO Project Was Thrown a Curve, but the Team Is Rolling With It Anyway

Organizations such as the United Nations, World Health Organization and World Bank are neither democratic nor designed to collect intelligence and respond efficiently and effectively to complex issues. The problems with these control-and-command structures have become painfully evident in the current health crisis. On every level, citizens’ interests are pushed aside for the interests of big business, political heavyweights and even foreign interests who have captured the media. The idea of a DAO appeals to people because the current systems are simply inadequate to meet complex global challenges.

Unfortunately, DAO technologists have tried to map simple systems onto complex issues, rather than referring to historically successful models for governing commons. The current public health crisis is an example of the failure of centralized systems to govern a common good.

While we don’t have large-scale models for commons governance, we do have examples of how commons are managed on a small to medium scale.

Examples include neighborhood and community councils, cooperatives and traditions of Indigenous peoples for preserving the environment as well as justice and social cohesion. A neighborhood committee may require people to keep their lawns mowed and their sidewalks shoveled, and if you do not, someone will knock on your door and let you know. In Indigenous communities, rituals and traditions are enforced through storytelling and social norms.

In other words, social norms and social enforcement are the proven methodologies for commons governance. Incentives are proven to polarize and exploit public goods. Whether the incentive comes in the form of financial compensation, attention to a social media post or improved page ranking, all types of incentive are distorting behaviors in undesirable ways. In a commons, decisions tend to be reached by deliberation, mutual respect, consideration of environmental carrying capacity and consensus.

It is possible to use technology to govern common resources for large communities. To facilitate better commons-based intelligence and decision-making, DAO technology needs to address the following aspects of collective governance. (Identity and reputation are key elements as well, but these are beyond the scope of this paper.)

To make good decisions on complex issues (e.g. public health), participants need to feel safe to express divisive perspectives and have the listening skills and willingness to consider opposing opinions. During the COVID-19 crisis, the WHO implemented wholesale censorship across both traditional media and social media. Even within the scientific community, open discussion is censored.70,71,72 This top-down control is reducing the variety of discussion and proposals that could potentially be considered. In a healthy ecosystem, multiple perspectives could be considered and tested. The structure of a DAO has potential for better sense-making and richer discussion.

While many social media platforms have caused increased antisocial behaviour, well-designed systems can cause better sense-making. One of the earliest and most long-standing threaded chat platforms, Slashdot.org, included mechanisms for people to indicate the quality of others’ responses to discussions and to acquire reputation over time. Loomio offers a discussion platform with mechanisms that encourage collaboration and safety. More work needs to be done to develop platforms and mechanisms for inclusion that are not driven by market incentives, but rather designed to provide psychologically safe places for thoughtful discussion and deep consideration of alternative viewpoints and ideas. Recently, the emergence of channels such as Rebel Wisdom and The Stoa have shown the public’s desire for in-depth discussion, but these are generally moderated discussions between experts and not designed for the general public to engage in such discourse.

The focus on “signaling” and “preferences” ignores facts and expertise. Intelligent decisions include both facts and perspectives. Factual information must be presented as factual, along with information about the clarity or reliability of the information. Scientific studies and known use cases are different from people’s opinions and perspectives. Perspectives are equally important, however. It may be factual that an infectious disease is fatal, and it may be factual that social distancing is causing a rise in suicide and addiction and having a long-term impact on mental health. Facts and statistics can be presented to decision- makers about all of these impacts, but facts are not sufficient: people’s values determine what result is ‘best’ for them. Different cultures and segments of the population have different values about the importance of these impacts. Decision-makers require both reliable facts and multiple perspectives.

See also: The DAO: Or How A Leaderless Ethereum Project Raised $50 Million

Contemporary research of Dr. Anna De Liddo of the Knowledge Management Institute has led to a number of demonstrations of collaboration platforms that help people form better opinions and improve critical thinking. By developing a platform where people must discuss evidence for their claims, her team is looking at how to create a safe environment that allows recognition of expertise and encourages people to understand the content of a claim as well as its source. The Consider.it platform developed by Dr. Travis Kriplean offers a discussion platform designed to help people reach. a deeper understanding of each others’ viewpoints and provide visualization to describe the reasoning behind those opinions.

The problems we face as humanity affect different populations in different ways. Depending on your perspective, damming a river could have positive or negative effects. Almost every interesting problem has paradoxes. Problem definition needs to take into account multiple perspectives, and problem definition must be a prerequisite to proposal-making.

None of the DAO platforms to date have capabilities for problem definition. Yet without problem definition, how can a community determine if a proposal has merit?

See also: Kevin Werbach – How Data Centralization Ends by 2030

Communities need a way to define and prioritize the issues to address. Some platforms, such as Canonizer, identify issues based on the volume of discussion and provide intelligence about how divisive the issues are to a community. However, just because an issue is interesting and divisive doesn’t make it a priority. People may feel very strongly about the gender denomination of bathrooms, but most would agree that it is not as important as the curriculum of the school in which the bathroom is located.

If a ballot has only bad or mediocre options, democracy is meaningless. Organizations use multiple methodologies to brainstorm, compose and revise propositions. DAOs today allow anyone to propose anything, but they don’t recognize or reward collaboration or creativity. While platforms such as Aragon and DAOstack encourage a period of informal discussion and deliberation on proposals, it’s not required.

Aragon enables periodic voting schedules, so discussion is conducted over a period of time, and then voting is on a tranche of proposals together. The DAOstack paradigm allows ongoing proposal-making, so people are voting on proposals as they appear, without comparison to past (or future) proposals.

This type of yes/no, “first come, first served” proposal-making favors speed and competition over collaboration, deep thought or consideration of minority perspectives. Making decisions this way is like walking down a street and deciding whether to eat at a restaurant without knowing what restaurants are around the corner.

You must make a yes/no decision for one option at a time, and if a majority always wins, the person who is vegan may go hungry. The Holographic Consensus mechanism on DAOstack prioritizes popular proposals, but more testing is needed to see if it’s effective. The most popular proposal isn’t always the wisest one.

Distributed technologies have the promise to create a wide variety of solutions for inclusion, but so far, none of the systems in place have demonstrated sufficient capacity for inclusion of minority interests or interests of people with less (or no) capital to invest in the DAO.

See also: Pooja Shah – How Web 3.0 Creates Value for Users, Not Platforms

Quadratic voting, such as that implemented by Democracy Earth, allows people to express strong preferences for specific issues in situations where there is equality of representation to begin with. However, when it comes to cryptocurrency and funding of DAOs, representation is always relative to the amount of money that someone donates, even in quadratic funding, and the funding is independent of the people who are affected by the voting and funding.

For example, Black Girls Code recently raised funding on the Gitcoin grants platform through quadratic funding. The voters are the funders, not the black girls who will be affected by the grant. While there is nothing intrinsically wrong with that, it isn’t a form of democracy where those affected by a decision are those who make the decision. Similarly in the Colorado example of quadratic voting, by the way. The democratic representatives of the people participate in the quadratic voting; the people they represent did not.

One of the great failures of democracy is the disconnect between law-making and results being accomplished. Laws are implemented and continued for decades without review of whether their execution and implementation has accomplished the desired outcome; and when they do come under review, there often is no mechanism for repealing the law, but only to improve or adjust the execution of the law. DAO technology needs to include feedback mechanisms that will allow rapid adjustment when the measures are not met.

DAO technology has excelled in automated execution of decisions. For code changes, this is a complete process. Aragon and GovBlocks include mechanisms that allow code to be integrated automatically into the blockchain. However, this approach falls short when it comes to distribution of funds. Groups and individuals receive funds upon approval of their proposals, but none of the DAO systems to date include an accountability process If the funds are misused or absconded with, there is no mechanism for holding the group accountable for the work. Recent work by the SEEDS project on Hypha DAO technology is developing a mechanism for escrow and then a release mechanism, which will increase accountability.

See also: There’s Now a DAO for Deciding Which Blockchains to Stake On

Accountability for more complex problems is even more difficult to track. For example, to improve the water quality of a river, it’s not enough to just execute a proposal; the water quality needs to be measured. It’s quite possible that the idea doesn’t prove itself in reality or that additional measures are required. Feedback loops should be developed to identify when decisions are incorrect, and adjustments made.

The promise of DAOs has been to create more advanced decision-making systems. Yet, to date, the DAO technology has provided little more than voting and funds allocation mechanisms. To govern at a global level has become an imperative in the pandemic, which affects all human beings on earth. Managing this crisis and those to come requires the development of technologies that cover all aspects of discussion, collaboration, proposal-making and accountability.