The Good, the Bad and the DAOs Only a Founder Could Love in 2020

Every year the industry optimistically announces that 2018 or 2019 or 2020 will be “the year of the DAO.” Just watch, any minute now someone will tell you that about 2021. 

While, personally, my favorite theme is how DAOs (or decentralized autonomous organizations, a way to organize capital without a centralized corporate structure) fall short, when judged on their own promises and merits, in fact, we’ve seen lots of DAO action this year. And much of it is in the right direction. So let’s take a look at this year’s good, bad and ugly in the world of DAO.

The good: Use cases, new developments, better proposals

Real DAO use

The most positive development in the space is that DAO is being used for more than just random funding. While the technology is still far away from a full governance solution, the following use cases indicate that the range of applications is expanding beyond stablecoins and exchanges to include other DeFi apps and even some decentralized art collectives.

In terms of decentralized exchanges, dxDAO, Curve and Nectar all saw notable appreciation, while MakerDAO, mStable and Bancor continued to make their presence known in the world of decentralized finance (DeFi). The launch of the LAO, a law focused DAO, had notable experiments with governance while Trojan DAO and Dada.art attempted to gain a foothold in the burgeoning crypto art scene.

New developments

Aragon is the only DAO technology platform to date that is anywhere close to developing its own self-governance. In fact, it’s the only one even talking about it. This is a huge step towards the vision of DAO tech, which is to provide truly self-governing distributed software. 

Aragon has continued to demonstrate outstanding leadership in developing a portfolio of improvements, both in governance – moving into phase 3 to launch a full DAO for its own governance and updates to the Aragon Court System – and technologically (OS Upgrade, ANT token upgrade, off-chain polling). The DAO Governance module was a particularly bold transition. 

However, the Aragon Foundation has been a bottleneck in the proposals process. It found that the more time it invested in guiding and filtering proposals, the less time it had to develop the governance it wanted in the long term. With the approval of ANT holders in an open vote, phase 2 of governance was closed and on-chain governance is frozen until the release of the DAO Governance module, which should be some time in Q1 2021. 

Meanwhile, the Hypha Earth DHO (Distributed Human Organization) became active in 2020, representing a break with the industry direction in defining what a DAO is. Hypha is built on the Telos network and is associated with the SEEDS cryptocurrency project. 

The DHO is much more like a freelancing platform and is significantly more decentralized. The framework in Hypha is that teams within a project can define the work they want done, review and accept proposals for that work, hire people, hold money in escrow and pay upon the delivery of said work. 

Given that this is how freelance platforms have been working for a decade, why reinvent the wheel? The Hypha team comes from the DigiLife collective and have thought deeply about the problem. Rather than copying from the existing DAOs, they’ve come up with an elegant solution that would circumvent complex configurations such as those faced with BrightIDs multi-tiered DAOs-within-a-DAO setup.

Pre-vote improvements

The concept of “anyone can propose anything” sounds fair, but the flaws are so deep that, this year, major DAO technologies have created additional layers beyond reputation and staking to combat potential issues.  

Most notably is Holographic Consensus, which is a way to signal the best proposals to voters by having members stake tokens on the likelihood of a proposal’s passing. Unfortunately, there’s never been a direct correlation between the popularity of an idea and its quality. At the Genesis DAO, a popularity contest led to such a divisive culture that professional community organizers threw up their hands in despair.  

In 2020, there’s been a wide-scale (though tacit) admission that just throwing proposals around isn’t the ideal form of democracy. The recent release of Cardano network’s Voltaire system recognizes the importance of maintaining and rewarding a panel of reviewers prior to the vote. The reviewers give a ranking to each proposal, so voters are still free to vote for any proposal, but the rankings reduce overwhelm and give voters a solid starting point. 

Another extremely welcome development with Voltaire is that Cardano is developing positive relationships with other chains and DAOs, taking advice from Dash, the longest-running and arguably most successful DAO in the industry. Setting the tone for collaborative relationships is a tremendous relief after the unspoken but visible tension among other DAO platforms that we’ve seen historically.

Given all of these advancements in the technology and its adoption, the outlook is optimistic for building on this success.

The Bad: The death of a colony

Ethereum transaction fees continue to be a major issue for distributed governance. Paying to vote, even if it’s a small amount, is anathema to any democratic process. DAOs may have multiple votes every quarter, or even daily votes. People simply can’t put up with significant transaction fees. 

Under the weight of this issue, Colony has officially closed its alpha version while it upgrades to xDAI, and Ethereum sidechain. To be honest, this is worse news for Ethereum than for DAO technology itself. Colony recently announced it expects the new version to be out in early 2021. High transaction fees do speak to the fact that most of the active and successful DAOs, particularly on DAOstack, are in the decentralized finance (DeFi) space. 

Low transaction fees on Ethereum are too far away for any other apps to consider using decentralized apps (dapps) on Ethereum for other types of voting. It may be good news for smart contract interoperability, blockchains such as Cosmos and Cardano and for Ethereum virtual machine-based blockchains.  

The Ugly: Lawsuits and active users

Lawsuits are ugly

Ironically, the one project with a court (Aragon) this year found itself resorting to the traditional legal system to resolve a conflict. It is with glee that I can officially avoid labelling this as ugly, because the project hashed it out itself. Everything was settled out of court, which again attests to the industry’s evolving maturity, but here’s the tweet in case you missed it. 

Active users?

In a recent presentation about DAOs, a representative of DAOstack announced the goal of a DAO is to create a kind of organization that is so resilient it can be distributed around the globe and even the strongest national government in the world cannot destroy it. 

He then went on to announce such an organization now exists and has 400 participants! It’s the dxDAO. It’s not even mildly ironic the speaker was speaking in Hebrew, the language of 12.5 million people who belong to an “organization” that has survived repeated annihilation attempts by the strongest governments of the world. Hey, this is the “ugly” section. You knew it was going to get ugly.

This technology isn’t yet being used the way it was intended

So, 445 participants. That sounds, um, well … small. It is, by the way, according to the information I could find through Scout, 10 times larger than the active DAOs running on Aragon, so, yes, it’s relatively large in terms of membership. It’s larger than NectarDAO (128 users), the result of one of the best DAO implementations to date by DeversiFy. 

The ugly truth, unfortunately, is uglier. In researching the top DAOs on both DAOstack and Aragon, the actual number of users is lower – much, much lower. The largest number of votes on a proposal I found was 12 votes, which somehow represented 19% of the reputation in a DAO of 128 people. Most proposals passed with one or two votes. Yes, you could generally propose something and just pass it on your own. In dxDAO, BrightID and the other DAOs, voting turnout was similar. 

So while on the surface the numbers look promising, a bit of scratching finds that somehow this technology isn’t yet being used the way it was intended.

And then there’s this…

‘Nuff said.

Jury’s out

Not everything is good, bad or ugly yet. I’m still not completely sure what to make of Commons Stack, a team that started out talking about commons governance that now says it is working on token engineering infrastructure. It is trying out “praise” tokens that give weighted voting rights in a “conviction voting” system where they provide some kind of matching funding on Gitcoin grants.

Even though I have, and stake, these praise tokens, I can’t say I completely understand how it works. It’s an important project to mention in the context of distributed governance, but it’s not exactly a DAO and it’s not yet clear exactly where it’s headed.

Commons Stack seems to have bottomless quantities of energy, good will and persistence, and it draws a fantastic crowd of intelligent and insightful people. The recent Commons Stack collaboration with the Token Engineering Commons has generated a tremendous amount of activity, with more than 160 people participating actively in one way or another.

DAOism

All in all, 2020 has been an amazing year for advances in DAO technology and there’s every reason to believe 2021 will be even better. While I remain skeptical about the potential of this technology to address the most pressing issues in governance today, when judged for what it is, DAO tech is making tremendous progress.