Are We Managing Our Expectations from DAOs Correctly?

If your situation this year is the same as the previous year’s, according to capitalism, you’re actually shrinking. The constant expectation of growth shapes every aspect of our lives. The point that cryptocurrencies have reached in 14 years is so astonishing that the industry’s downturns and the time it takes for new innovations to settle in create discomfort. The industry becomes a kind of victim of its own momentum.

From debates about whether Bitcoin is money or digital gold to the possibility of web3 games, there’s a process that necessitates impatience and taking sides. Capitalism constantly imposes the expectation of continuous growth on us, and the political infrastructure insists that choosing a side is mandatory. The problems we’ve faced in the regulatory field so far stem from our inability to properly articulate ourselves outside of regulators. The potential for BTC to serve as both money and gold forms the basis for the need for unique regulation for crypto. We have a unique, out-of-category technology, and unfortunately, by taking sides here, we are actually harming ourselves.

I’ve been reading many articles about DAOs lately. The debate on which governance model is more accurate and the continuous stream of alternative solution proposals never seem to end. However, unfortunately, when the prices of cryptocurrencies fall, the direction of criticism and expectations becomes quite pessimistic. Support for efforts to create a decentralized infrastructure, unfortunately, moves in parallel with prices.

However, the formation we call DAO is actually the tokenization of management sciences. It can also be called tokenization of politics if you like. The biggest reason behind the rapid growth of the industry that has existed for 14 years is having a broad vision and the infrastructure to achieve it. Initially, the financial sector, and today, both the gaming and media industries, as well as governance structures, are being tokenized.

From monarchies to democracies, societies have gone through long processes and wars for centuries to find the ideal form of governance. Despite this lengthy period, there is still no consensus on the ideal form of governance. The widely accepted democracy is experiencing challenges, especially for non-homogeneous societies. Indeed, with the influx of migration, even well-functioning democracies are facing apparent problems.

DAOs may not be the most reliable places to find a solution to this problem, but it’s a fact that they have advantages that are not present in any society. Testing the governance forms of DAOs, and if approved, being able to implement it immediately with a code change, are their biggest advantages. They can gather data from both the old and new systems and conduct experiments on a kind of small community. It can be seen as a more professional version of what current survey companies do.

The problems of DAOs actually have quite similar aspects to today’s governance problems. The most noticeable ones:

1- Lack of Leadership and Coordination

When powers are handed over to an individual or a group, the coordination problem is resolved, but then an autocratic rule comes into play, which is, of course, highly contrary to decentralization. However, it is not logical to consult token holders on every decision because it cannot be expected that voters are knowledgeable about the topic. Since DAO tokens are generally acquired for investment purposes, this means that everyone who buys shares in a kind of stock market would influence the decisions of the board of directors. Additionally, it becomes challenging for a leader to emerge to implement decisions in such decentralized structures.

2- Conflict of Interest

DAOs are not homogenous in structure; users from all walks of life participate. Therefore, the decision of the majority does not always bring satisfaction. Token holders’ voting often results in a system where the desires of the wealthy prevail, raising debates about democracy. It is assumed that those who invest in DAOs must consider the well-being of the DAO. However, it is possible for a rival entity to manipulate voting by purchasing tokens.
In this regard, alternative solutions such as eye scans and wallet identification, or proposing each individual to have one vote instead of token count, have been suggested. However, in the latter case, the concept of privacy, which the crypto community values, is completely violated. Additionally, it may be assumed that the number of experts on a particular issue within the community is relatively low. Therefore one person-one vote system could still be lack of expert view. Which means wallet identification is not considered a clear solution.
To illustrate, looking at the current income inequality is sufficient. The wealthy designing both the economy and politics to suit their interests causes discomfort in today’s world.

3- Accountability

Everyone can make mistakes, but if you are managing a community, there must be consequences. Many DAO managers do not take any responsibility if the suggestions brought to DAO harm the community or if there are problems in implementing an approved proposal. The community’s reaction is often immediate and can be forgotten afterward, leading to repeated mistakes and the adoption of a misguided perspective.
Even today, we encounter managers who do not resign after serious mistakes and shift the agenda. In DAOs, there is a need for both oversight and opposition structures that will not let the community forget such errors. What is right for one may be wrong for another. Organizing these perspectives is crucial for evaluating the mistakes made by those in charge. Therefore, the politics between the opposition and the existing management team in DAOs will bring the general judgments to life.

4- Low Participation

Having an active community can be challenging not only for DAOs but also for countries. We have witnessed examples where there is a lack of interest from participants in elections, and democracy falls short. If participation is not ensured even in a serious situation like elections, DAOs with active communities should be considered highly valuable structures. Therefore, the number of such DAOs is limited, and low participation is a serious problem. Providing incentives to voters is not an effective method either because users who only buy tokens for investment are not interested in such voting. Even if they were, expressing opinions on proposals that have no relevance to them, as mentioned above, doesn’t make sense.
This situation is actually similar to referendum voting. Most of us do not fully understand what is meant by referendums, the details of it. Brexit is probably the best example of this. Instead of having every proposal voted on by the community, having delegates elected every 1–2 years to discuss such votes could yield more effective results.
Suggestions related to the selection of delegate groups from both token holders, investors, and third-party service representatives that the DAO relies on make a lot of sense. This way, as we approach the fundamental concept of decentralization, the lack of participation can be overcome. Since the management group is small, the coordination process will be relatively smoother. Additionally, these three groups will have to focus on a common interest rather than concentrating on their individual interests by monitoring each other.

Wallet Identification

We see the emergence of a process towards the identification of wallets, driven primarily by regulatory pressure, especially from the EU. This is no secret to anyone. As cryptocurrencies gain legal infrastructure, it is inevitable that DAOs will also reach the status of companies. Indeed, this has already happened in some states in the United States. Based on this process, it can be predicted that there will be special regulations for DAOs that have reached a certain size. For example, it may be mandatory for the identities of the top 10 wallets holding governance tokens to be public. This would ensure transparency, making the operation of public entities more robust. Such regulations are highly valuable as they mitigate money laundering risks on cryptocurrencies. If regulations develop in this direction, the likelihood of a one-wallet-one-vote system becoming an ideal solution may increase. Therefore, the popularity and proliferation of applications like Worldcoin can be expected.

In conclusion, it is evident that DAOs, like all tokenization initiatives in the cryptocurrency sector, are experimental areas of trial and error. Perhaps, problems that have been experienced and resolved in history may be recurring in DAOs. However, the high speed of experimentation is crucial, as it allows these problems to be resolved much more quickly and shows that if an ideal system is to be found, it will likely be found through this system.
While managing our expectations, it is necessary to move away from a perspective based on the continuous growth brought by capitalism. Keeping DAO expectations reasonable, assessing their potential correctly should be our main task. Otherwise, the community may lead itself into a depression, and projects that could be very valuable may be delayed and exhausted due to unnecessary expectations, leading to a waste of time.