On the nature of DAOs and their projection on Electoral & Corporate structures

[inplco]

This should serve as a help to the legal subgroup and to wherever else applicable.

(work in progress)

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DAOs are unique in their structure, not particularly because of the manner in which they are structured but how their structure is in fact a ‘hybrid sum’ of two well-known organisational structures – Electoral and Corporate, both of which try to organise two very unique and exclusive systems.

• In a simplified electoral structure (ignoring the legislative layer), the voting system is sybil-resistant, i.e. 1 entity = 1 vote. The imposition of 1-entity-1-vote constraint is necessary to ensure equal representation of all voters (human capital) which is desirable in a social framework. When looked at from human capital perspective, 1-entity-1-vote constraint encodes the principle that human capital is equally distributed among all participants; in other words, everyone is equally important. The resulting 1-entity-1-vote system then folds onto public governance through the elected legislative assembly.

  

• In a (simplified) corporate structure however, 1-entity-1-vote constraint is relaxed and voting system is sybil-agnostic since the end resource to distribute and maximise is not human capital but instead financial capital; this leads to replacement of ‘equality’ with ‘equity’ as a measure of contribution to the system. The further discretisation of total financial capital in ‘shares’ is then performed to distribute the financial capital among shareholders in a sufficiently fractionalised and equitable fashion. The resulting 1-share-1-vote system then folds onto the inner corporate structure through board of directors; in a loose sense board of directors are equivalent to legislators in an electoral system.

  

  It appears that from a strict analytical/mathematical perspective, both systems are effectively the same except for a transformation that maps human capital to financial capital.

• DAOs, it seems, are a hybrid sum of the two since they intend to map the ‘end node’ in an electoral system (a voter) to an end node in a corporate system (share).

  

  This comes with certain consequences; as pointed out above, the two systems – electoral and corporate – are similar but not precisely the same; therefore there is no direct 1-to-1 map between the end nodes of the two. They can in fact only be mapped accurately by a transformation that captures all the elements of human and financial capitals and their correspondences. The ‘forced’ hybridisation of the two to yield a DAO structure results in a bunch of paradoxes and loopholes that DAOs have only begun to unearth.

ENS DAO: (edits by @ENSPunks.eth )

(to be continued)

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Original Post: On the nature of DAOs and their projection on Electoral & Corporate structures - DAO Infrastructures - Interplanetary Forum

[alisha.eth]

Thanks for this post @inplco. Please note I am moving this thread to Meta-Governance > DAO-Governance.

[fig]

Hey team - this is interesting, I particularly enjoyed the third image, illustrating the structure of a DAO.

I am proposing a sub-Layer, beneath “$TOKEN” where ENS names hold voting power.

Would love your feedback and thoughts here: RFC: ENS Governance Enhancements (Flipside Crypto)

Feel as if you two are qualified and elevates equality within the DAO.

[berrios.eth]

As an owner of 13 domains (also 1 in a wallet that I can no longer access), 5 subdomains, and 1 sub-subdomain, I would like to have a say, based on investment, but I can understand that vote manipulation can occur. Also, the ability to create multiple ENS accounts is a workaround on some proposed limitations. Perhaps, only letting 3-4 character domains vote would lessen vote manipulation, because of the cost. But greater vote manipulation can occur based on the current price of ENS tokens, which would be more effective. You could purchase 10,000 $ENS for about $140,000, then divest after a vote. I don’t know what is the answer.

One answer is to limit the time of delegation to, perhaps, three months, then have a central forum with tools to assist redelegation, including delegates making pitches for support based on their positions of pending votes, but still have the option to keep one’s delegation. Access to neutral information is very important.

[berrios.eth]

@inplco

I think that if the by-laws, still not drafted, would prohibit directors and stewards from voting (including being unable to have votes delegated to them), as a condition of serving in such positions might be the answer. But they should be fairly compensated for giving up such an important right in addition for the responsibility they accept and for time they are expected to put into their duties.

I question the conflicts of interest notation, if they are not voting on compensation or benefits.

[inplco]

@berrios.eth

I think that if the by-laws, still not drafted, would prohibit directors and stewards from voting (including being unable to have votes delegated to them), as a condition of serving in such positions might be the answer.

This is also the conclusion that I’ve come to. It is not possible to reconcile delegation and inner working group of DAO simultaneously. It’s one or the other.

@berrios.eth

I question the conflicts of interest notation, if they are not voting on compensation or benefits.

Yes, indeed. I’ll update the diagrams with more input as it comes. Like you said, conflict is conditional in this case (probably should just add the word ‘conditional’) and limited to matters of benefits, compensation and the likes.

[inplco]

@berrios.eth

One answer is to limit the time of delegation to, perhaps, three months, then have a central forum with tools to assist redelegation, including delegates making pitches for support based on their positions of pending votes, but still have the option to keep one’s delegation. Access to neutral information is very important.

This is the answer right here as you just wrote; easier said than done though. Having a re-delegation platform is in fact necessary otherwise the ENS tokens will diffuse into more and more wallets created over time thereby becoming more and more inactive (from delegation perspective). We are already seeing this trend as most delegates are losing their voting power as tokens get mixed into trading and get un-delegated, and very little ENS is being bought back by the delegates to compensate for this diffusion. Overall, the ENS supply in effective governance is reducing. Without a re-delegation strategy, the only means of governance stimulation left are the token unlocks. Food for thought.

[akito.eth]

@berrios.eth

One answer is to limit the time of delegation to, perhaps, three months, then have a central forum with tools to assist redelegation, including delegates making pitches for support based on their positions of pending votes, but still have the option to keep one’s delegation.

It’s important to regularly highlight to token holders that they can delegate and redelegate their votes, but larger delegates simply wouldn’t participate if they had to pitch for votes on a regular basis. To some, this may seem like a good thing, but it’s more likely to lead to a situation where token holders simply don’t delegate at all. Before attempting to address issues of perceived bias, it is far more important to encourage delegation and redelegation in the first instance.

@berrios.eth

I think that if the by-laws, still not drafted, would prohibit directors and stewards from voting (including being unable to have votes delegated to them), as a condition of serving in such positions might be the answer. But they should be fairly compensated for giving up such an important right in addition for the responsibility they accept and for time they are expected to put into their duties.

This would lead to a situation where larger delegates simply would not put their names forward to be stewards. I am not sure that this is a “win” here given that some of the larger delegates are the most qualified and knowledgable people participating in the DAO.

[berrios.eth]

@akito.eth

but it’s more likely to lead to a situation where token holders simply don’t delegate at all. Before attempting to address issues of perceived bias, it is far more important to encourage delegation and redelegation in the first instance.

Not true, because they can always select to keep their selection without having to justify it. For example, the first choice should be to continue to keep their selected choice and a sub-choice to keep it until revoked.

As to your second point, you have a valid point, which is why they should be appropriately compensated. Also, it could be limited to only removal, compensation, and benefits.

I’m just not in favor of disenfranchising voters, based on one’s delegation.

[akito.eth]

@berrios.eth

Not true, because they can always select to keep their selection without having to justify it. For example, the first choice should be to continue to keep their selected choice and a sub-choice to keep it until revoked.

Sorry, I might not have understood you correctly.

Aren’t you proposing that vote holders have to actively make an on-chain selection every three months?

If so, large token holders would likely get to a point very quickly where they lose interest and don’t redelegate.

This also necessitates active engagement from vote holders. One of the benefits of the delegate system is that vote holders can delegate and remove themselves from having to monitor everything going on in the DAO.

[berrios.eth]

No, I’m not in favor of forcing anyone to affirmatively choose. If they don’t choose, their choice should stay. They would just be informed of the option to redelegate, but can also opt out for future notices.

[akito.eth]

Got it. My mistake. Completely misunderstood what you were saying.

Makes perfect sense.

[inplco]

@fig @berrios.eth

Your comments have been incorporated

[ENSPunks.eth]

I thought your post was pretty interesting and modified your diagrams in an attempt to depict The ENS Foundation for another perspective.

[inplco]

Fantastic! It had been on my mind to elaborate the DAO structure including WGs. Thanks, I will incorporate your changes to the original. Some questions:

“Members” to the left of Directors would be Board Members who are not Directors?
Can you elaborate the top later a bit? I am guessing that not all of these entities exist yet, or do they?

[ENSPunks.eth]

Members

For example if you were to modify your Corporate Structure from a for profit corporation to a not for profit corporation the shareholders title would be replaced by members. Legally non-profits do not have owners; therefore, as a general rule they do not have shareholders (there are exceptions and some non-profits do have stock/shareholders but generally it’s done for voting purposes and they still are not owners because legally non profits cannot be owned). The Members of a Foundation Company are similar to Members of a non-profit, but the Cayman Island Foundation Company Act allows a Foundation Company to have no members as long as it has a supervisor, and that is our situation currently, we have a supervisor and no members at this time. In practice the DAO/Council has some of the voting rights typically associated with members. Also I should note that in the case of The ENS Foundation both the council/DAO and Directors have powers to appoint and remove members and the supervisor (I wasn’t sure the best way to depict these co-rights).

Top Layer

As to the top layer, I added it because our Articles expressly gives our Directors the power to fill those specific roles. So I would say those positions exist in our Foundation structure, they are just vacant and may be filled by the Directors from time to time as necessary.

Other thoughts

In practice the Steward Led Working Groups are probably not all that different than what would be commonly associated with the “committees/local boards/agencies”, so perhaps we should memorialize somewhere the DAO/council power and right to establish “committees/local boards/agencies” along with the Directors.

[KLeong]

@ENSPunks.eth

With confirmation by @nick.eth that the Treasury wallet/funds are an asset of The ENS Foundation controlled by the DAO/Council (the “Account”),

First - amazing chart! Very helpful to visualize the structure! From the comment/diagram in the Bylaws thread (quoted above) - will the Treasury be included as a box somewhere in the chart in the ENS Foundation section - along with any clarity on process and control (vote, resolution, relationship with DAO)? The way EP1 is worded, I would have put Treasury in the DAO area. However, as confirmed, it is within the Foundation - and I would suggest the chart needs to reflect this for clarity - as well as an understanding of how/who controls it - and by what mechanism (or what mechanisms, delegations, etc. do we need to effectuate in the future to ensure appropriate and clear control.)

[ENSPunks.eth]

Thanks, as I was making the diagram I had actually considered depicting the Treasury Wallet and the governance documentation. There are some other things omitted/not depicted, such as the beneficiaries and the co-rights of the Directors, in addition to the rights of the DAO/Council, to admit members or appoint a supervisor.

Like you, I would have initially gotten the Treasury wallet wrong and considered it an asset of the DAO independent of The ENS Foundation, but also like you I don’t see anything wrong with Treasury wallet being a legal asset of the The ENS Foundation that is “controlled” by the DAO. Conceptually I think of it as somewhat of a business bank account (the business being the legal owner of the account) but there being one or more authorized signatories for the account.

I only created this diagram to provide an alternative perspective to the other diagrams in this thread, not as anything official for the Foundation. However, I do think an interactive diagram for the Foundation would be a nice tool (I don’t think I’d be the best person to undertake that effort).

Before deciding against depicting the Treasury wallet in my draft diagram, my thought was to include a list of assets, this could of course include a list of assets owned by the Foundation and a list of assets owned by the DAO, if required, though I’m not entirely sure if the DAO will be the legal owner any assets independent of the Foundation. If my diagram were interactive the assets could be clicked to reveal additional information including your suggestions, specifically:

@KLeong

as well as an understanding of how/who controls it - and by what mechanism (or what mechanisms, delegations, etc. do we need to effectuate in the future to ensure appropriate and clear control.)

[inplco]

Your comments/edits have been incorporated to large extent.