A Case Against "Flat DAOs"

You can have a republic on the blockchain too
Aug 21, 2021

Early vs. Late Stage Companies

I was talking with my friend Andrew about blockchain project ideas. He has one for a crypto pinata idea which could be really funny. We got into DAO (decentralized autonomous organization) territory, and the question I asked is:

"What kind of communities would benefit from having democracy as the company scales?"

It reminds me of how companies differ between their early and mature stages. To start, they are often working directly with their customer. They are doing things that don't scale, and they're in touch. In the late stages, there are so many customers and shareholders, that the whole thing becomes more abstract. The company often pivots in a way that differs from what many of the users want.

Democracy Fetish

I came across this idea of "Progressive Decentralization," from Packy McCormack's, Not Boring post on DAOs. The idea is that projects start off centralized, and over time, they gradually transition power over to the community. A common mechanism is the "governance token," which lets holders vote on project proposals. It's all very open-source.

With DAOs (and crypto in general), there seems to be this idea that democracy trumps all. A community that is completely peer-to-peer, where everyone is equal, is better than a community owned by a few shareholders. Democracy is beautiful (in both theory and practice), but there are so many cases in real-life, where if you gave everyone equal power, no decisions would be made, no actions would be taken.

Why can't DAOs have a CEO? What if they had a board of executive directors, who were autonomous to make decisions on their own? Isn't that against the ethos of crypto? Wouldn't that be centralized?

DAO + Representative Government

Well, my argument is, we focus on how much blockchain can enable true digital-democracies, that we forget about how "representative governments" can be transformed too.

  • Why couldn't token holders vote on the CEO of a company?
  • What if there were 1-year term limits on positions of executive power?
  • What if all meetings, actions, and financials within an executive branch were transparent? (on-chain?)

Flat DAO vs. Classes

Most DAO's, as I currently understand, aim to be flat. A Flat DAO is one where the "token holder" is the only role to play, and power is relative to the amount of units you hold. With Flat DAO's, there usually comes an "origin company," who, over time, transitions themselves out of power.

What if "token holders" were just one of several classes within a DAO. I don't mean for this to trigger "caste system" paranoia. Imagine a DAO with different roles, with the equal opportunity for a member to pursue what they're interested in.

The US government has 3 classes (branches): executive, legislative, and judicial. Big picture: one makes decisions, the other amends the rules, and the other evaluates and interprets. You can imagine a DAO broken up into many (perhaps dozens) of functions. Each branch holds specific power to keep others in check.

Thinking through the intricacies of a new digital government for the Internet Age is outside the scope of this twenty-minute ramble, but here's a brainstorm of roles within a non-flat DAO:

  • Token Holders - users of the network, ability to vote
  • Information Aggregators - knowledge workers, rewarded for curating complexity
  • Developers - submit proposals to the build out specific components
  • System Architects - design research around the entire network
  • Executives - carries out decisions that would be hard to arrive at by committee

Checks and Balances

How does this differ from DAOs of today?

There are different branches, and the power of one helps check the others.

  • A centralized group of executives can make tough decisions, but they are elected by token holders, and have a high rate of turn-over.
  • Developers can submit improvement proposals, but information aggregators are in charge of presenting them to token holders and adding important context.
  • Systems Architects can't profit from development proposals, but are rewarded for academic research that helps support or refute developer proposals.


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