Ethereum co-founder Vitalik Buterin (1) vigorously defended the concept of Decentralized Autonomous Organizations, or DAOs (2), claiming that under certain conditions, they may be more effective and equitable than a traditional corporate structure.
DAOs have centralized leadership since all decisions on things like the use of treasury funds, or protocol upgrades are determined through voting on proposals put forth for the community. DAOs are collectively owned and managed by their members.
Buterin also discussed how detractors frequently claim that traditional corporate governance structures with boards and CEOs are the best way to make important choices. DAO governance is ineffective because DAO idealists are gullible.
The position is frequently incorrect, claims the co-founder of Ethereum, and even simple forms of compromise are frequently capable of outperforming centralized corporate structures. He claims this relies on the decision type, which can be divided into two categories: convex and concave.
Concave (3) decisions include judicial issues such as public goods funding and tax rates, whereas convex decisions include pandemic reactions such as military strategy and technology decisions in crypto protocols. A concave decision would suggest a compromise, and a convex decision (4) would suggest a coin toss.
Concave decisions rely on the wisdom of the public to provide better solutions, while convex decisions decentralize the decision-making process, which causes confusion and low-quality compromises. In these situations, DAO-like structures (5) with many different inputs are used to make decisions that might make more sense.
Due to the decentralized nature of the DAO and some projects’ remote and online nature, it is challenging to conduct informal in-person character smell tests and defend against outside attacks and censorship.
Buterin claims that this is why decentralized autonomous organizations (DAOs) are essential for arguing that the decentralized space needs to distribute decision-making power among more deciders so that every individual decider has less power and thus makes collusions more likely to be exposed by whistleblowers.
DAOs are not without problems either, as there are some circumstances in which a more centralized structure is necessary, such as when a company has separate sections operating on its own while still being led by a central core. The separate groups must follow a defined hierarchy and adopt a clear opinionated position for the core leadership to be dispersed to make choices.
As a system designed to operate in a stable and unchanging manner around one set of assumptions is faced with an extreme and unexpected shift in those circumstances, it may be necessary for DAOs to use corporate-like forms to handle unforeseen uncertainty.
However, this should not take away from the fact that the ecosystem may not be able to sustain itself without some non-corporate decentralized aspects keeping the entire system stable. This is especially true in the crypto world, where simpler, leader-driven forms of governance that emphasize agility are frequently sensible.