Economic DAO Governance: A Contestable Control Approach by Jeff Strnad

Core Concepts

Proposing a sequential auction mechanism for DAO governance to address control issues and promote investment.

Abstract

Introduction:

DAOs operate through code with decentralized management.
Governance experiments focus on voting mechanisms.

Interaction of the Mechanism with Voting:

Addressing social choice problems in voting approaches.
Mitigating empty voting risks through auctions.

Conceptual Overview:

Economic DAO setting for value-additive projects.
Addressing free rider issues through auction mechanisms.

A Sequential Auction Mechanism:

Basic auction structure and bidding parameters explained.
Optimal business plan selection and bidding strategy outlined.

The article proposes a novel approach to DAO governance using sequential auctions to overcome control challenges, enhance investment, and address social choice problems associated with traditional voting mechanisms. It introduces a detailed conceptual framework and outlines the core components of the proposed mechanism, emphasizing its potential benefits for economic DAOs.

Stats

"The bidder’s toehold, tbq, is deposited into the applicable smart contract simultaneously with the bid."
"The total token deposit is tdq where td = tb+tf ≥0, assuming all the tokens are sold."
"The dynamic vote pool consists of vT(qT, tdq) additional voting rights assigned to the bidder."

Quotes

"The mechanism avoids potential public choice problems inherent in voting approaches but at the same time provides a vehicle that can enhance and secure value than inheres to DAO voting."
"Empty votes can easily be created at little or no cost by a variety of means."
"The basic auction moves the DAO from a default governance state that typically is a voting regime into a control period in which the winning bidder controls the DAO independent of holding the majority or supermajority of tokens required to secure control under the voting regime."

Key Insights Distilled From

Economic DAO Governance

by Jeff Strnad at arxiv.org 03-26-2024

https://arxiv.org/pdf/2403.16980.pdf

Deeper Inquiries

How might this sequential auction mechanism impact decentralization within economic DAOs

The sequential auction mechanism could have both positive and negative impacts on decentralization within economic DAOs. On the one hand, by introducing a system where control is temporary and contestable, it can prevent centralized control from accumulating in the hands of a few token holders or entities. This can promote a more decentralized decision-making process within the DAO, allowing for greater participation and representation among token holders. Additionally, by shifting control based on business plans rather than token ownership alone, it may encourage diverse perspectives and approaches to governance.
However, there are potential drawbacks to consider as well. The auction-based system may introduce complexities that could hinder smaller token holders from participating effectively in governance decisions. It might also create barriers for new entrants or those with limited resources to compete in acquiring temporary control through auctions. This could lead to centralization of power among larger players who have more resources to bid aggressively in these auctions.

What counterarguments exist against implementing such an auction-based governance system for DAOs

Counterarguments against implementing an auction-based governance system for DAOs include concerns about market manipulation and strategic bidding tactics that could undermine the integrity of the process. There is a risk that parties with significant financial resources could exploit the mechanism to gain control without necessarily having the best interests of the DAO or its community at heart.
Another counterargument relates to stability and continuity within the DAO ecosystem. Constantly shifting control through auctions may introduce uncertainty and disrupt long-term planning or strategic initiatives within the organization. It might also deter potential investors or participants who prefer more stable governance structures.
Additionally, some critics may argue that an auction-based approach deviates from traditional democratic principles by prioritizing financial strength over other forms of legitimacy or representation within a community-driven organization.

How could this approach influence broader discussions on democratic communities beyond blockchain governance

This approach has implications beyond blockchain governance discussions as it challenges conventional notions of democracy and community decision-making processes. By emphasizing meritocracy based on business plans rather than pure voting rights tied to token ownership, it introduces a novel way of incentivizing value creation while ensuring accountability through competitive bidding mechanisms.
In broader discussions on democratic communities, this model raises questions about how decision-making power should be distributed and exercised in decentralized organizations across various sectors beyond blockchain technology. It prompts considerations around balancing efficiency with inclusivity, transparency with competition, and innovation with stability in governing collective endeavors towards common goals.