DAOs may appear similar on the surface: decentralization as a core value, trust-minimized distributed networks, and token-based governance. Digging deeper, however, each DAO has its own unique culture, operations, and governance processes that significantly impact the protocol, its community, and its trajectory. Despite this diversity, I have noticed common challenges persisting across DAOs.
In my first two months as a professional delegate, I've had a front row seat in governance at LidoDAO, Starknet DAO, SafeDAO, and ElementDAO. It's been an interesting journey of discovery, watching democracy in action, observing power dynamics unfold, and experiencing firsthand the teething challenges in our nascent systems. Reflecting on this journey of mine, several lessons stand out – lessons that I believe are crucial for the evolution of DAOs and the broader decentralization movement.
It’s All Tradeoffs
DAOs must make difficult decisions to reduce reliance on trust while staying agile in a fast-paced world. I have witnessed scenarios where stewards and contributors must balance benefits with drawbacks and the potential for pitfalls. Such issues include decentralization vs. efficiency, short-term vs. long-term gains, growth vs. stability, and an appropriate financial stake for participation that promotes inclusivity and offers protection against undue influence.
Decentralization vs. Operational Efficiency
Striking a balance between decentralization and operational efficiency is often as delicate as it is crucial. This dance is most evident when a DAO bootstraps with a core protocol team, giving rise to what is termed 'key-person dependency.' While these core teams have the context and influence to drive pivotal decisions at a fast rate, they also bear the responsibility of empowering those beyond the core team to participate in the stewardship of the protocol. This measure is vital to maintaining the spirit of decentralization and making the DAO resilient to the loss of key individuals.
For example, at SafeDAO, facilitators from the Ecosystem Foundation (SEF) function as the essential gears in the machinery of governance, guiding proposals through the pipeline. However, the recent exit of a single facilitator threw this process into disarray, with critical proposals stalling indefinitely and the community left feeling unheard. Only until very recently was a new facilitator appointed to pick up where the other left off. Fortunately, there were no urgent or time-sensitive changes related to the Safe protocol requiring swift action from the DAO. This disruption underscored the need for additional facilitators beyond the core team to maintain operational efficiency.
The dilemma lies in preserving our core values of decentralization while ensuring that DAOs can function effectively without an excessive burden of lengthy, procedural formalities. Despite the potential inefficiencies, the compromise we must seek is a balance between core principles and operational efficiency. Introducing mechanisms such as a Fast-Track process, which has proven useful in crisis and time-bound situations, alongside broadening powers to include community members, can provide a viable path forward for upholding decentralization principles while ensuring DAOs remain efficient.
Short-term Gain vs Long-term Viability
DeFi DAO communities are often divided into two camps: those seeking immediate rewards and those advocating for long-term stability. The former see DAO treasuries as a reservoir to be tapped into, leveraging opportunities in yield farming and staking programs to raise protocol metrics like TVL. These aggressive strategies, while promising short-term gains, risk bypassing thorough due diligence and can lead to unsustainable incentive programs that inflate the protocol's perceived value and status amongst competitors. I observed an example of this recently in LidoDAO, with members prematurely proposing $LDO staking alongside a protocol revenue distribution mechanism. DAO operators have to strike a balance between leveraging promising opportunities, maintaining reserves, and making challenging tradeoffs for the longevity of the protocol. There is no right or wrong decision here per se, only one that best serves the community’s collective interest and values.
Upgradeability vs Immutability
In decentralized and trust-minimized systems, people often advocate for minimal governance. The rationale behind this perspective is that highly decentralized governance can be highly inefficient. This viewpoint is rooted in the historical failure of humans in preserving equitable and consistent governance systems, which effectively turns any governance framework into a potential target for both internal and external corruption. While this viewpoint carries some truth, it's not absolute, and calls for closer examination. Social systems are inherently dynamic and continuously adapt to meet the needs of their constituents. In the context of the blockchain space, this dynamism is significantly amplified.
DAOs must face a balance between dissenting opinions, one advocating for the ossification of the protocol’s rules and functions and slowly disintermediating the DAO from the protocol over time, versus continuing to grow the protocol and expanding the DAOs scope to capture new opportunities in the ever-expanding market. This challenge emerges across various DeFi DAOs that are continuously faced with the existential problem of growing and adapting to the environment beyond original use cases in an environment that transcends their original purpose or sticking to a protocol’s initial vision. Essentially, this all boils down to having a codified manifesto that the DAO members can align and rally around. This manifesto would ideally incorporate agents for adaptability, allowing for any necessary shifts due to changes in values, priorities, or circumstances.
The Delegate’s Impact: A Force Multiplier
Serving as a delegate across these DAOs, I've observed firsthand how crucial the delegate role is in enhancing participation and upholding the democratic principles of a DAO while balancing the aforementioned tradeoffs. Delegates act as a force multiplier and represent the views of many participants who might not have the time, attention span, or inclination to get involved in every governance decision. They facilitate a wider community representation, bridging the chasm between passive token holders and active, diligent governance.
In the complex realm of DeFi DAOs, a small group of knowledgeable and resourceful individuals hold the key to understanding protocol functions, smart contracts, and the wider implications of decisions. These experienced DAO members play a vital role in bridging the knowledge gap, researching proposals, and providing insights to the community. However, the challenge lies in incentivizing and valuing these delegates without stifling diverse opinions. Without active delegates, the governance process suffers, making it essential to establish effective delegate frameworks, as exemplified by AAVE DAO's Recognized Delegate program, while acknowledging the need for further improvements in DAO functionality.
The recently concluded Tally Delegation Week, Uniswap Foundation's Delegate race, and Optimism Foundation's Delegate discovery initiatives are notable delegate focused events in the ecosystem. These activities underscored the strong involvement and dedication from new and experienced delegates, who bring a wealth of diverse skills, time, and efforts to the governance of their respective protocols. They also signal that there is indeed a promising prospect for the evolution of tools and systems designed to enhance delegation comprehensively. This encompasses boosting awareness of delegation roles and their importance, incentivizing quality delegation, providing retroactive rewards for delegate activities, and enhancing governance tools to better serve the needs of token holders and delegates.
Source: Orca Protocol
Looking Ahead: Wen Robust DAO Governance?
With the expansion of the SEF core team and the ongoing SafeDAO Grants Council elections set to precede the official launch of the Safe Grants program, SafeDAO is on the brink of substantial change. We can expect notable amendments to the Safe protocol and significant improvements to the SafeDAO governance architecture. The recent Lido V2 upgrade has also introduced transformative changes to the protocol, most notably the introduction of the staking router, a new modular architectural design primed to welcome a broader more diverse range of node operators resulting in a more distributed validator ecosystem. Given that these new node operators are key stakeholders in the Lido ecosystem, it will be the responsibility of the LidoDAO to effectively manage the appointed stewards, systems, and processes in order to sustainably grow Lido and its community. Emerging DAOs such as ElementDAO and StarknetDAO are poised for increased activity and critical votes that will shape the evolution of their respective protocols.
My journey as a delegate across these DAOs has been an eye-opening experience, highlighting the various strengths and areas for improvement in decentralized governance. As the decentralization movement evolves, so should its governance structures, tools, and our approach toward them. Together, we can strive for stronger, more inclusive, and effective governance by continuously refining our processes, leveraging data-driven insights to develop and expand governance tools, and by welcoming more diverse perspectives into the space. In this journey, every delegate, every token holder, and every individual involved in a DAO has a critical role to play. I look forward to delving deeper into the space and upholding my role as an architect of this decentralized future.
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