June 24th 2020
Although human kicked off a quite challenging start of the year 2020, for most governance protocols of DAOs, they have made pretty great progress and gained a lot of attractions alongside DeFi.
Well, let’s take a dive into these protocols and see what kind of pain points they hope to solve, what their methodologies are, and what will be their next move.
Why Governance matters?
The world is made up of chaos and uncertainty, law and order make it run sleeplessly.
It has been working for over 400 years in one of the modern human organizations – companies. With the clearly designed hierarchy governance structure of shareholders, the board of directors, the management team, and the related documents and practice, the company’s boundary is defined, stakeholders of different interests are organized to accomplish the business goal in a centralized way collaboratively.
According to the collaboration efforts, the stakeholders can gain incentives by sharing the profit of a company. It is the governance that makes companies prosperous and becomes the primary value creation entity to dominate the dynamic running of the social economy.
It will also work in the Web 3.0 era, where every individual sovereign constitutes DAO (Decentralized Autonomous Organization). Distributed and cross-domain collaborations are the primary way for DAO to create value. Actually, the governance structure will become even more critical as there is no predefined boundary or practices for DAO.
Most of the distributed collaborators may come from different backgrounds and have no trust foundations among them. Taking DAO as the counterpart of the “legacy” company, it is not hard to understand that a set of governance and management framework needs to be built to regulate the relationship among these distributed collaborators, to provide a fair, protectable, and easy-to-follow mechanism for them, and to incentivize collaborations in the community.
In the wide west era of Web 3.0, the governance layer (and more) will be the infrastructure for new organizations (DAOs, DACs, LAOs, etc.) to survive, thrive, and evolve.
Comparative Review of the governance protocols of DAOs
DAOStack creates a platform where blockchain projects could launch DAOs to manage their ecosystem funds and applications via the voting power from the collective intelligence of the community.
Strategic Focus: How to make decentralized governance (decentralized decision-making) efficiently is the focus of DAOStack.
When it comes to decision making, a DAO needs ways to determine: 1)who can make proposals and how; 2)which proposals should get the attention of the voters; 3)who should be involved in each decision, according to reputation or subject-matter credibility.
So DAOStack has introduced a “holographic consensus” cryptoeconomic mechanism using small numbers of participants (with voting power) to make decisions. The mechanism functions by incentivizing a network of “predictors” to place bets on whether a proposal will pass or fail. Then the predictions are used (along with many other rules) to emphasize or de-emphasize proposals and modify the quorum requirements necessary for the proposal to pass (for example, it may take fewer total voters to approve a highly boosted proposal). A DAO using holographic consensus can scale its proposals and numbers of participants without sacrificing either decision-making speed or quality.
2020：DAOStack is switching its focus to collaborative networks, which extend the reach of traditional social networks (generally limited to conversations and content sharing) with collective fundraising and budgeting via DAO. So, Alchemy Mars (to be launched) will support the basic collaboration needs of large communities that wish to collaborate on well-defined and straightforward agendas. These needs include creating a community, defining its mission statement, growing it, bottom-up fundraising, making decisions together & facilitating discussion.
Aragon is a suite of applications and services that enable new forms of global communities. Aragon provides mechanisms to incentivize contributors to join the community and work together, to raise funds from people anywhere united by shared values, and to make financial decisions with transparency and group participation.
Strategic Focus: Aragon hopes to enable new organizations to reach their full potential via freeing them from the jurisdictions of kleptocratic governments and biased judicial systems.
To do so, Aragon not only provides basic financial tools like tokenization but also creates reproducible and broadly applicable templates for defining the boundaries of a community and flowing value to contributors over the internet without traditional intermediaries.
Aragon Court is also a powerful mechanism for fast and fair dispute resolution. The basic idea is that when an organization must escalate its dispute to Aragon Court, a small number of jurors will be randomly selected from the juror pool to review and rule on the dispute.
Moloch is seeking to create the “minimum viable process”, which allows people to allocate shared resources towards a shared goal. Moloch DAO is awarding grants to advance the Ethereum ecosystem.
Strategic Focus: Moloch is focusing on how to govern collective action to solve the problems where individual incentives are misaligned with globally optimal outcomes.
The problem is quite popular when the cost for any one entity to invest in developing infrastructure is disproportionate to the benefit accrued by it, which often leads to the infrastructure not being developed at all.
To solve that, Moloch introduced several mechanisms. The Moloch DAO pools user funds and locks them up in a contract called the Guild Bank. Contributors to the Guild Bank are given voting rights over how those funds should be spent, proportional to their contribution relative to the total pool, so the cost and benefit are aligned. Joining the guild is not easy as well, existing members will vote on new entrants in a similar fashion to funding proposals. Moloch DAO also has a “rage quitting” and “guild kick(in v2)” mechanism, in which participants are able to exit or forced to exit (with their portion of the resources) if they are unhappy with the decisions of other members. All these innovations create a disincentive for malice and implicitly places social pressure on participants to remain aligned on the organization’s goals.
Colony protocol is built for native internet organizations, and it is designed to enable people to collaborate and manage shared funds without needing to trust one another. Different colonies (like smaller sized DAOs with predefined domains) exist to facilitate collaboration between their members and direct collective efforts towards common goals.
Strategic Focus: Facilitating effective division of labor, managing incentives, and allocating resources are some of the essential functions of the Colony protocol.
Colony protocol eliminates the need for voting in daily operations. Instead, just like traditional companies, Colony protocol leverages the top-down hierarchy to define a certain kind of autonomous colonies, which can make their own decisions within the boundary. And resources in different colonies are allocated based on the reputation accumulated(decaying over time) and the work that has been accomplished.
Metis Protocol is a Layer 2 protocol on Ethereum leveraging the Optimistic Rollup mechanism to provide the governance and collaboration implementation framework for the Distributed Autonomous Company (DAC, a subclass of the DAO).
Strategic Focus: Metis Protocol aims to bridge the gap between the current DAO governance protocols and real business needs.
For the general internet communities or distributed business, voting (which most DAO governance protocols focus on) is only a small fraction of all the business scenarios. Businesses are more caring about how to set up a DAO easily (which is still of high stake now), how to enable trustless distributed collaborators to buildup the collaborations and get things done, and how to protect the interest for all the collaborators.
Metis Protocol believes that the best governance is no governance at all, so it leverages staking as the foundation of governance (relationship establishing, disputes resolving, and collaboration terminating among these distributed collaborators). The stakes will act as the commitment and will be returned (along with the incentives and reputation power) if everything goes well (no governance needed). However, if something goes wrong in the process, the hidden governance mechanism will be triggered. The staked deposits will be frozen, the off-chain Arbitrator will jump out to help, and the deposit of the “bad party” will be forfeited to repay the “good party”, the reputation power of the “bad party” will be downgraded as well.
To facilitate the collaborations among the community, Metis Protocol is leveraging the Optimistic Roll sidechain (high scalability, low cost, high privacy), smart contract (as the witness of what have been promised), and the microservice tools (implementing various collaborations and acting as the track record) to make the collaboration done.
As you may find, the governance protocols of DAOs are evolving when they come to a much bigger audience other than just blockchain fanatics or experts.
1. The use cases have been expanded to real business scenarios, such as sharing economy, gig economy, internet communities, Defi, etc.
2. There is no pure decentralization, and for most web3 applications or internet communities, even they are decentralized, they have initiators or some key persons/teams to drive the direction. Crowd decision mechanism is essential, but it is definitely not the whole governance structure. So, as you can find from Aragon, Colony, and Metis Protocol, they are building a much more comprehensive framework to cover:
- What kind of SPV should be built to contain the collaborations? Just like in the traditional scenario, the company or the department is the SPV.
- How to establish collaboration among unacquainted people?
- How to incentivize(rewards and penalty) people to achieve the goals?
- How to protect the interest of all the collaboration parties, especially when handling disputes?
3. On-chain governance is not enough, providing an environment for these distributed collaborators to accomplish their work is the most prominent stuff to do. As you can learn from the practice of Aragon, Metis Protocol, and DAOStack, interaction with off-chain implementation is highly needed.
- Off-chain and digitalized tools will be used to implement the collaborations. All the implementation has a track record on the blockchain to serve the governance mechanism.
- Off-chain governance, which is human intervention, is also necessary. The business scenarios are so complicated that it is not just “Yes” or “No” when you came to some disputes. Human intervention off the chain will increase the flexibility of the business operation.
4. Defi will become a valuable tool for the DAOs project to get funding from the community. But the practice in the community of the project will be different from the Defi project on the market.
- A legal structure may be needed, as you may find that Moloch DAO is introducing the concept of LAO.
- If you hope to get the funding from the community, you should show your work to prove that you have accomplished what you have promised, so a framework to support the project’s track record will be necessary. And (I believe) that is what Colony, DAOStack, and Metis Protocol are doing.
Finally, although the governance project is not as sexy as the Defi, which is so hot a trending, it is the governance layer that determines which Defi project will last.
With the backbone of governance protocols, distributed and cross-domain collaboration(value creation) and Defi(value application) will become the infrastructure to boost the Cambrian Explosion of the Web 3.0 era.
Contributed by Kevin Liu