Vitalik Buterin, co-founder of Ethereum, has come out swinging to defend Decentralized Autonomous Organisations (DAOs). He argued that they can be more efficient in certain circumstances than traditional corporate structures and are therefore better suited for the purpose.
The theory behind DAOs is that they are owned and managed collectively by members. There is no central leadership. Voting on the proposals made to the community determines how to use treasury funds and improve protocol.
Buterin explained in a lengthy Sept.20 blog post that DAO governance has been criticized as inefficient and that DAO idealists can be naive. Traditional corporate governance structures, with boards and CEOs, are the best for making key decisions.
DAOs are not corporations: where decentralization in autonomous organizations mattershttps://t.co/PDh9tIRXcm
— vitalik.eth (@VitalikButerin) September 19, 2022
The Ethereum co-founder, however, believes that “this position can often be wrong” and that even naive forms to compromise are more likely than centralized corporate structures to perform in certain situations. He does however believe that it all depends on the type of decision, which he categorizes as convex or concave.
Convex decisions can include military strategy, pandemic response and technology choices in crypto protocol protocols. Concave decisions also include judicial issues, public goods funding, and tax rates.
He said, “If a decision was concave, then we would prefer to compromise and if it is convex, a coin flip.”
Buterin says that when decisions are convex, it can lead to decentralization of decision-making processes. However, when they are concave “relying upon the wisdom and the crowds can provide better answers.”
“In these situations, DAO-like structures that combine a variety of inputs into decision-making may make sense.”
To protect themselves against censorship and external attacks, DAOs often embrace decentralization. It can be difficult to conduct background checks or informal in-person “smell tests” for character due to the distance and online nature of certain projects.
Buterin argues that this is precisely why DAOs are needed. She argues that the decentralized world must “distribute decision making power among more deciders, to ensure each decider has less power and so that collusions can be whistlebloofed and revealed.”
However, he acknowledges that DAOs can have their problems. Sometimes a more central structure is needed, such as in organizations that have a central leadership team and separate working groups.
Although the core leadership is decentralized and not central, Buterin states that it may be necessary for individual groups to adhere to a clear hierarchy. They should also have a clear opinionated perspective, which will guide their decisions.
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“A system designed to work in a stable, unchanging manner around one set assumptions will need a leader who can coordinate a response when confronted with extreme or unexpected changes.”
Buterin goes on to say that DAOs might need corporate-like forms in certain cases to manage “unexpected uncertainty.”
He concluded by saying that even in a crypto-world, some organizations will find that simpler and more leader-driven forms if governance emphasizing agility make sense.
“But this shouldn’t distract from the fact the ecosystem wouldn’t survive without some non-corporate, decentralized forms keeping it stable.”