The world has a long history of difficulty modeling governance systems. In ancient Greece, philosophers and historians developed a theory of political evolution called anacyclosis. It’s a cycle that starts with monarchy, followed by tyranny, aristocracy, oligarchy, democracy and finally mob rule. This cycle was said to persist and repeat due to corruption and the greed of its participants.
Historian Victor Davis Hanson covered issues present in pure democracy in books, including A War Like No Other and The Western Way of War, where he details the way political opportunists manipulated votes using demagoguery to eliminate political opponents — too often in brutal ways.
One could (and should) anticipate similar issues arising in the coming world of DAOs. Just ask yourself how many competing projects may attack a DAO. Think about how many traditional and foundational institutions are threatened by the disruption made possible with blockchain and cryptocurrency technology — and how many of those institutions might consider employing funds to attack particularly threatening DAOs.
Larry Sanger, co-founder of Wikipedia, has mentioned to me several times his concerns surrounding governance in the crypto space, including the concept of “your keys, your coins.”
This phrase is a simple way of saying that ownership of private keys means ownership over your crypto tokens. In terms of governance, this means that owners who have the most keys (and specifically whale-sized keys) have the most influence.
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Sanger’s concerns are justified. The keyholders with the most tokens — the whales — are the ones who really govern in such a system. This is why many DAOs based solely on tokenomics will fail.
I’ve been experimenting with models that address this major issue and several others. On Den.social, we’ve developed a system of decentralized governance that employs user behavior as recorded on-chain to determine every user’s influence in deciding governance issues. This is designed to directly counter the effect of whale action in token acquisition to negatively affect system governance.
This is important because behavior-based voting can’t be easily attacked or influenced by the acquisition of tokens alone. Such an attack would require sacrificing invested token value while influencing the actions, behavior and time necessary to build weight in voting (including learned skills to compete in contribution to the platform by which the behavior is measured).
Including behavior components in a DAO system also organically favors usability because participants don’t necessarily need to be aware of the crypto components of the system. They will ideally be more aware of the behaviors required for success in the system.
The ideal system will also require a scalable blockchain — that is, both technically scalable and economically scalable, as such a system will need to be able to record any substantive user action and participation in defined processes. These actions can be analyzed to objectively measure user contribution for the betterment of the system and its philosophical and business goals.
As a simple example, consider a System Governance Board made up of three independent votes — two of which come from participants based on their behavior toward the goals of the organization, including their direct contributions and token health measures.
Each of these two votes is split with 50% controlled by participants in the organization based on their role and contributions to the system and 50% controlled by those who have provided liquidity for the token economy. The third vote is made up of a set of founders. This model lets participants control the direction of the system, and would allow for a variety of coalitions between community groups, founders, and token holders, for a common cause on any issue of governance.
There are many advantages to this model, and I’ve been progressively building it out based on lessons learned over the past two years of development on the Den.social platform. I hope those of us within the DAO space can continue to have productive discussions and debates as we work toward more effective governance structures.
Joe Roets is the CEO, architect and founder of Dragonchain.
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