Part III of DAOs: New Horizons and Challenges in Depth

Summary

The article discusses the implementation of Opaque Liquid Voting in DAOs to improve decision-making and crowd wisdom, while also acknowledging the challenges and potential of decentralized autonomous organizations.

Abstract

Part III of the series on DAOs delves into the limitations of traditional voting systems within decentralized autonomous organizations, such as The DAO, where token holders often lack the expertise to make informed decisions on investment proposals. To address this, the article introduces String's Opaque Liquid Voting mechanism, which allows token holders to delegate their votes to chosen leaders based on priority lists. This system aims to leverage the collective intelligence of the community by enabling a more informed and efficient decision-making process. The article emphasizes the importance of maximizing participation by potentially linking rewards to voting activity and suggests that the fluid graphs of influence that emerge from this process will reflect the diverse expertise within the DAO. The author concludes by cautioning against over-optimism in the pace of innovation within the decentralization industry, despite its potential for rapid development and deployment, as evidenced by The DAO.

Opinions

The current voting system in The DAO is inadequate for leveraging the full intelligence and knowledge of token holders.
Opaque Liquid Voting is proposed as a superior alternative to enhance DAO decision-making by allowing token holders to follow the votes of selected leaders.
The Opaque Liquid Voting system is designed to be private and client-based to prevent the identification of influential parties and to reduce the risk of bribery.
It is suggested that DAOs could incentivize participation by distributing rewards in proportion to the votes made by token holders.
The author believes that the decentralization industry could be an exception to the cautious venture capital approach due to its openness and ability to quickly deploy capital, as demonstrated by The DAO.
Despite the excitement, the author warns of the challenges ahead, including the potential for new types of villains and the need for due diligence (Caveat Emptor).

Better Crowd Wisdom using Liquid Democracy

One problem with the existing voting system used by The DAO is that it cannot not leverage more than a fraction of the intelligence and knowledge of the token holders. Most presented with the narrow task of evaluating investment proposals in fields they know nothing about will simply defer to the enthusiasts and insiders, who may have special interests, or not be especially talented at making investment decisions in aggregate on a one token one vote basis themselves. For these kinds of reasons, at String we are developing a different mechanism for enabling DAOs to vote on decisions called Opaque Liquid Voting, and will make the source code freely available to the community shortly.

In essence, in Opaque Liquid Voting, each holder of tokens configures a priority list of “leaders” whose voting they would follow should they not have the inclination or time to vote themselves. When a new proposal is submitted, their system waits a sensible grace period that allows them to vote themselves if they so wish, but then automatically determines whether their highest priority leader has voted. If that leader has voted, the system automatically follows their vote on behalf of the holder, otherwise it waits for another period and then determines whether either of the top two leaders has voted and follows if they have, and so on until a vote is made. The follow relationships of the token holders creates a directed graph.

Token holders run special software on their client systems, such as laptops, that performs this functionality, providing two benefits: firstly the Ethereum chain is not loaded by the system, and secondly the graph of influence that is created exists entirely on the clients and is therefore unknowable to anyone. This is important because it prevents hostile parties claiming that some small group has special influence and is perhaps responsible for the actions of the DAO. It also makes it much more difficult for powerful parties to nobble other voters by bribery.

Our purpose with the design is that all token holders might exercise their intelligence. We envisage that DAOs may only choose to return rewards to token holders in proportion to the votes they make, with the aim of ensuring the maximum possible participation. Token holders are then able to exercise their judgement to select leaders they believe have the time and capacity to make the best decisions. For example, some might follow core developers or key figures linked to the project, while others might follow activists on reddit that they respect. In this way, complex but fluid graphs of influence can arise from the judgement of token holders that naturally and accurately reflect expertise. For example, if Warren Buffet held voting tokens in The DAO, many token holders not wishing to evaluate investment decisions themselves might feel comfortable simply following his vote.

Summary

A classic refrain of venture capital investors is “never mistake a clear view for a near thing”. What this means in technology is, just because you can see the future clearly, you should still be cautious in your estimates about how long things will take to get there. Personally speaking, I think the decentralization industry may prove somewhat of an exception because its openness allows for a wider variety of ideas and approaches to be tried more quickly, for more brain power to be lent by inventors, entrepreneurs and the crowd, and more capital to be deployed — with The DAO providing an amazing example. Nonetheless, we still need to be careful as some of the issues I have covered show. Our expanding field will see fortunes made and fortunes lost and dastardly new villains created, some of whom will end up in jail just like MagicalTux (Mark Karpeles, the ex-CEO of Mt. Gox). Caveat Emptor! But the genie is out of the bottle and The DAO marks the beginning of a very exciting new era.

Part III of DAOs: New Horizons and Challenges in Depth

Better Crowd Wisdom using Liquid Democracy

Summary

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