Kaal claims by topic: governance-design, page 2

814 atomic, individually citable claims from the published work of Wulf A. Kaal tagged governance-design.

Token concentration in existing decentralized protocols is extreme: on and around September 12, 2017, 4.11 percent of bitcoin addresses controlled 96.53 percent of the total bitcoin supply. 2019
In delegated proof of stake protocols the significant block validation power of elected nodes leads to corruption, because those nodes are incentivized to bribe voters to be elected as delegates in exchange for some of the newly inflated tokens. 2019
If a community cannot agree after a hard fork on which chain is the true chain, the result can be two blockchains competing in perpetuity, and the only viable remedy is abandoning one branch, which causes some miners to lose re-allocated transactions. 2019
Rulemaking via code is not itself a cure for static regulation, because coded solutions are subject to natural flaws such as bugs and cannot evolutionarily change protocols, making them another stable and presumptively optimal attempt. 2019
Static complex sets of DAO rules inevitably produce corruptive opportunistic gaming and arbitrage behavior, so effective DAO governance designs should be focused on dynamic elements. 2019
Ex post code based majoritarian rules generated by DAOs are superior to ex ante majoritarian default rules because they rest on more accurate real time information from the edge and decentralized feedback effects, and are not subject to the same information asymmetries. 2019
A decentralized on chain precedent system makes reputation based DAO governance dynamic: a post or template that is increasingly referenced gains non fungible reputation weight and associated fungible salaries, while unused precedent dissipates over time. 2019
On chain governance is a necessity for most public blockchains because all existing blockchains need to calibrate soft forks for protocol upgrades. 2019
Reputation based staking removes the corruptive elements of fungible tokens from voting because third parties are less likely to be able to take over a non fungible asset that is organically grown and maintained through actual expertise in the DAO subject matter. 2019
DAO member reputation should be designed as inflationary rather than as a permanent stock, so that non use such as non staking or non voting leads to value depreciation. 2019
Private blockchains are the rational transitional vehicle for cautious enterprises, because they let firms experiment at relatively low cost and be better positioned when mass adoption occurs, while allowing the corporation to screen access to transaction records. 2019
As a foundational technology, blockchain technology builds the infrastructure for decentralized networked governance, which over time creates an environment in which the internal and external monitoring mechanisms previously necessitated by agency problems in corporate governance can be removed. 2019
Blockchain technology produces a substantial increase in the efficiency of the agency relationship and lowers agency costs by orders of magnitude. 2019
The core agency conflicts that emanate from the separation of ownership by shareholder principals and control by manager agents cannot be fully addressed by the existing theoretical and legal framework, because monitoring agents is inevitably costly and transaction costs abound. 2019
Applying blockchain to corporate governance requires the relevant authorities, who most likely understand the governance use case but not the technology, to reach consensus on how and when to implement it. 2019
The standard remedy of appointing outside independent directors to separate decision management from decision control is undermined because CEOs often dominate the board, which makes the separation much more difficult and hurts shareholders. 2019
Shareholder activism reform by itself has been unable to sufficiently improve the corporate governance system. 2019
Government-sponsored organizational experimentation that enables new business models and new organizational structures is desirable and may be one of the few ways to facilitate the needed corporate governance reform. 2019
The continued popularity of existing corporate governance mechanisms may be a product of path dependencies created by the historical evolution of internal and external monitoring mechanisms, rather than of their effectiveness. 2019
Existing governance mechanisms work well in some firms but are ineffective in others, because agency conflicts and their specific scope differ from firm to firm. 2019
Supervisory tasks traditionally performed by principals to control their agents can be delegated to decentralized computer networks that are reliable, secure, immutable, and independent of fallible human input and discretionary human goodwill. 2019
Blockchain provides an alternative governance mechanism that eliminates agency costs, meaning the principal's cost of supervising agents, by creating trust in the contractual relationship between principal and agent. 2019
Because governance guarantees are embedded in code, there is no need in the blockchain infrastructure for the principal to institute oversight and monitoring, and the associated agency costs disappear. 2019
The removal of checks and balances, agent monitoring, audit requirements, disclosure regimes, market pressure, and executive compensation schemes produces a qualitative shift in efficiency in the agency relationship and in corporate governance overall. 2019
Decentralized Autonomous Organizations have begun to challenge the core belief that governance necessitates agency, because blockchain enables the removal of agents as intermediaries through code, peer-to-peer connectivity, crowds, and collaboration. 2019
Fundamental flaws in the DAO code enabled hackers to transfer one third of total funds to a subsidiary account, and that hack combined with additional technological limitations brought down the first DAO initiative. 2019
The unifying interest of DAO token holders in raising token value means they will voluntarily perform optimization tasks, because doing so is directly in their own interest. 2019
Once an optimization proponent has made a deal with the DAO, the deal is recorded in the blockchain and the proponent must deliver on the proposal or the contract is cancelled, which enforces performance without a supervisor. 2019
Blockchain-based corporate governance solutions in DAOs require evolutionary blockchain governance protocols, and socially optimal hard-forking rules cannot suffice. 2019
The basis of coded blockchain guarantees will itself evolve and require protocol upgrades, and without evolutionary governance upgrades the cost reduction achieved for the agency relationship cannot be maintained. 2019
Because blockchain is a foundational technology, blockchain-based governance solutions for agency problems depend on the creation of infrastructure components that have not yet been conceptualized in the decentralized technology evolution. 2019
Decentralized Autonomous Organizations challenge the core belief that governance necessitates agency, because a DAO can operate a governance structure built entirely on software, code, and smart contracts. 2019
Democratized banking is more responsive to regulation than centralized structures because ideas at the edge have greater opportunity to affect policy, unlike the existing global hierarchy in which a single group in Basel provides the dominant voice. 2019
Without a core common ethical denominator, decentralized systems cannot last: they lose coherence, become attackable, and can be corrupted, leading to suboptimal societal outcomes. 2019
A DAO's profit distribution weights across present workers, past workers, protocol designers, and governance designers should match the DAO's current values, since a greater share for new workers attracts new workers, a greater share for older workers signals long term stability, and a greater share for protocol designers attracts innovation. 2019
For any static set of rules in an infinitely repeated game using reputation stakes there is a way to subvert the rules for individual profit at the expense of the group, a result the author attributes to the Folk Theorems of game theory. 2019
A dynamic, changing set of governance rules can address the problem that any static rule set is gameable, and can establish the incentives necessary to stop such abuses. 2019
General Electric's decentralization under Jack Welch worked because each business unit was made fully accountable through its own profit and loss statement and market price internal transactions, which removed inefficiencies and drove up market value. 2019
Decentralized Autonomous Organizations challenge the core belief that governance necessitates agency, attacking organizational design at a fundamental level rather than merely reforming it. 2019
The first DAO removed, in essence, all of the core control mechanisms that principals typically employ in agency relationships, having no directors, no managers, and no employees. 2019
Because governance guarantees are embedded in blockchain code, there is no need for a principal to institute oversight and monitoring, which eliminates the associated agency costs. 2019
DAOs are in their infancy and cannot currently overcome core governance problems while maintaining a decentralized structure; the two objectives are, as of 2019, in tension. 2019
Without a core common ethical denominator, decentralized systems cannot last: they lose coherence, become attackable, and can be corrupted, leading to suboptimal societal outcomes. 2019
For any static set of rules in an infinitely repeated game using reputation stakes, there is a way to subvert the rules for an individual's profit at the expense of the group, which is why static decentralized governance rules can always be gamed and only dynamic, changing rules can address the problem. 2019
Participation in underwriting is gated by token ownership: only token holders may underwrite insurance policies in the DAO, and inbuilt processes assign new business among them. 2019
The governance rules of the DAO can be set up so as to ensure that minority token holders are appropriately protected. 2019
Assuming all agents are active underwriters, the DAO's rules can be designed so that the proportion of policies an agent writes in the long run is commensurate with that agent's proportion of token holdings. 2019
Full hardcoding is impossible: no stable cryptocurrency can encode all required policies and policy actions with full transparency, because future policy needs cannot be anticipated ex ante. 2019
Monetary policy for stable cryptocurrencies should combine hardcoded transparent rules with protocols enabling decentralized autonomous organizations, with decentralized but fully transparent policy DAOs functioning as the policy makers for what cannot be hardcoded. 2019
Good governance principles are crucial to every aspect of a long-term stable currency because markets inevitably change and because the Folk Theorems of game theory pose a fundamental obstacle to any fixed protocol. 2019
The Folk Theorems of game theory imply that no matter how complicated a stable coin protocol becomes, a powerful and patient player has strategies to subvert the system and profit at the expense of the group. 2019
Because no fixed rule set can resist a patient adversary, any stable coin scheme requires a nimble and responsive governance process whose rules can always be adjusted to changing market conditions. 2019
The day-to-day stability mechanism can be fully automated by algorithm, but monetary and fiscal policy choices cannot be: the algorithm's parameters must be chosen by hand and adjusted regularly to balance security against efficiency. 2019
Parameter and policy choices for a stable cryptocurrency should be made by a decentralized autonomous organization, the Stability DAO or SDAO, which functions as a transparent, decentralized, open analog of the US Federal Reserve. 2019
The Folk Theorems of game theory prove that no protocol, however complex or well engineered, can eliminate corruption, understood as behavior that profits a minority at the greater expense of the majority. 2019
No static set of rules can prevent the corruption that will eventually cause any stability design to fail, but a changing rule set administered by nimble governance can prevent that failure if enough resources reward anti-corruption effort. 2019
Because the Folk Theorems make governance protocols permanently provisional, long-term stability requires that the group be organized around a transcendental value, a goal meaningful and commonly held that cannot be captured by any logical rule set. 2019
Commonly held expressions of organizational values are essential to designing and implementing any governance structure and are far more important in decentralized organizations, which inherently have less motivational structure than centralized hierarchies. 2019
The authors recommend an SDAO governance design coordinated through reputation-weighted democratic governance, whose core objective is to create incentives that lead independent and selfish actors to collaborate productively toward a common goal. 2019
Power in a blockchain system is exercised through the consensus protocol, which places control of data with multiple networked parties and thereby creates checks and balances that prevent any single vested interest from controlling the system. 2020
Under a quadratic style microdemocratic allocation, each voter receives a capped number of votes to distribute by priority, so voters concentrate votes on the issues most relevant to them and outcomes track actual preference intensity. 2020
Microdemocratic vote allocation improves outcome quality because a voter's proportional allocation of votes to an issue is itself evidence of that voter's higher knowledge of the issue, and voters are unlikely to give top priority to issues they know little about. 2020
Vote delegation inevitably reintroduces corruption into a microdemocratic system, because representatives may seek to bribe or purchase votes to gain power, so delegation necessitates a policing system. 2020
Representative democracies in the early 2020s were slow and inflexible because of their constitutional and institutional infrastructure and their legal systems, with change typically depending on the election of a new government after around four years at the earliest. 2020
A blockchain based microdemocracy's key advantage is speed of change: because technology enables incorruptible instantaneous counting and tallying of votes, voting becomes dynamic and incremental and political will is exercised more directly. 2020
Decentralized voting pools can become supplemental voting systems that help overcome the legitimacy deficit of representative democracies, but installing them as upgrades to existing representative democracies would require constitutional or democratic support that is dubious at best. 2020
Blockchain voting solutions require political will as well as technical capability, and incumbent governments may refuse to surrender control over the voting process, preferring private blockchains that preserve their control. 2020
Regulating centralized technology conglomerates addresses only part of the problem, because even fully regulated conglomerates retain the power to set standards and norms for emerging technologies that government cannot effectively trace. 2020
A DAO realigns the otherwise disparate interests of principals and agents because all participants in the DAO share the same goal, which reduces behavior contrary to the interests of the organization. 2020
DAOs require values shared by their members in order to unify the membership and guarantee stability of cooperation while the structure remains decentralized. 2020
The longevity of a DAO depends on its ability to maintain the fluidity and decentralized order that existed in the DAO's initial stages. 2020
Absent continual effort to maintain decentralized order, the very values that initially unite DAO members tend to produce ever tighter and more complex hierarchical structures inside the DAO, ending in a fully centralized tree structure. 2020
Overcoming attempts by rational and opportunistic internal and external constituents to game a DAO's governance design requires a duality of incentives, in which actors improve their own utility while their actions simultaneously benefit the whole institution over the long run. 2020
The identity of actors in a DAO governance design typically creates corruptive elements, and merit identifiers other than individual identity remove the most corruptive influences. 2020
Stable and presumptively optimal static or constitutional rules for DAO governance typically enable gaming and arbitrage opportunities, because rational opportunistic parties will circumvent complex static rules to increase their share of power and profit. 2020
To avoid the corruptive gaming and arbitrage that static complex DAO rules invite, effective DAO governance designs should be focused on dynamic elements, including members' ability to re evaluate existing precedent in the system. 2020
Presumptively stable ex ante majoritarian rules are flawed because they are inevitably suboptimal in an environment that has evolved away from the conditions that produced the rule. 2020
Kaal accepts that the arguments against on chain governance remain strong: in an off chain model miners supply checks and balances over protocol changes, and on chain governance arguably removes those checks and balances. 2020
The one token one vote designs popular in the early 2020s produced suboptimal voting outcomes because they allocate more power to holders of a large share of total token supply, leaving majority holders more powerful than all remaining holders combined. 2020
Reputation based staking removes the corruptive elements of fungible tokens because a third party is less likely to be able to take over a non fungible asset such as reputation that was organically grown and maintained through actual expertise in the DAO's subject matter. 2020
Only the most basic common denominator required to operate a fully functional Swiss Association can be run entirely on chain. 2020
Where a DAO's internal voting mechanism is centralized and burdened with legacy voting problems, any higher degree of decentralization achieved in its external legal design will typically be cancelled out over the long run. 2020
ICO sale terms are not fixed at launch: promoters can alter the smart contract to change the sales rules mid course during an offering, a risk factor for retail investors that has no analogue in a registered offering. 2020
Accountability is a structural concern in DeFi: without a central entity it can become unclear who is responsible for wrongdoing, and when problems arise no central party can freeze transactions, fix problems, or restore normal operations. 2020
The concept of a DAO fails if it becomes centralized, and centralization in governance is the largest single threat to a DAO. 2021
Decentralized governance must be dynamic and evolutionary, otherwise the system becomes centralized and brittle over time; most DAOs fail to accomplish this. 2021
The focus on value enhancement of fungible tokens can drive short termism in DAOs and cause ethical and governance issues to be ignored. 2021
Under current securities laws, DAOs governed solely by smart contracts are restricted in pooling assets and generating profit, because those laws limit their ability to fund ecosystem development and deploy capital efficiently. 2021
When fungible assets are the dominant incentive design in the governance of a DAO with identifiable actors, rational and opportunistic internal and external participants will typically attempt to corrupt that governance design for their own gain. 2021
The identity of actors in a DAO governance design is itself a source of corruption, so merit identifiers other than individual identity remove the most corruptive influences. 2021
Governance is the common denominator of the shortcomings in existing DAO infrastructure; it is not a bug or an afterthought in system design but the key feature. 2021
If a DAO's internal voting mechanism is more centralized and carries legacy voting problems, a higher degree of decentralization in its external legal design will typically be canceled out in the long run. 2021
The DAO of DAOs uses a duality of internal and external governance: internal governance runs on reputation token staking, while external legal relationships are handled by a legal wrapper that represents the DAO of DAOs in real world legal contexts. 2021
In any open and democratic system, naturally opportunistic rational parties will attempt to circumvent and game the applicable complex static rules to increase their share of power and profit. 2021
Because static complex DAO rule sets bring inevitable corruptive gaming and arbitrage behavior, effective DAO governance designs should focus on dynamic elements such as members' ability to re-evaluate existing precedent. 2021
Suboptimal voting outcomes in existing decentralized protocols trace to one token one vote mechanisms, which allocate more power to holders of a significant share of total token supply. 2021
Reputation based staking removes the corruptive elements of fungible tokens because third parties are less likely able to take over a non fungible asset such as reputation that is organically grown and maintained through actual expertise in the relevant subject matter. 2021
Reputation voting has two advantages over one token one vote: it is non fungible, which avoids corruptive elements, and it aligns incentives for members individually and for the institution as a whole at the same time. 2021
In the bifurcated DAO of DAOs token design, non fungible reputation tokens give members voting rights while fungible reputation salary tokens let members earn a salary in proportion to their non fungible reputation holdings. 2021
Reputation based governance creates a positive sum game because members have incentives to build lasting non fungible value through a long term record of productive cooperation. 2021
Precedent in the DAO of DAOs is replaced dynamically: if a newer template is referenced more often it becomes the prevailing precedent, while the old precedent dissipates over time through non use. 2021
Superficial identifiers such as language, race, culture, social media profiles, and credit scores play less of a role in DAO of DAOs voting design, which allows inclusion of constituents who have no agency in centralized systems. 2021
Any set process or set of rules that can ever be designed will ultimately fail to secure a network for all time, so no static rule set can serve as the permanent foundation of a DAO. 2021
Building effective and efficient DAOs requires three things together: a secure and meaningful reputation system, maximum bureaucratic transparency through a dynamic governance structure, and coherent transcendental values for long-term stability. 2021
Protocol centralization, meaning rigid and immediately enforced rules such as those executed by smart contracts, leads to instability unless it is implemented wisely. 2021
To achieve stability a DAO must institute a dynamic governance system that includes clear and accessible processes both for amending the rules and for appealing the automated conclusions reached by smart contracts. 2021
Because decentralized organizations have no leaders and no hierarchy of control, any governance process must be instituted from the very beginning; it cannot be added later by an authority. 2021
Condorcet's paradox demonstrates that it is impossible to construct any democratic voting method that will faithfully discover the will of a group, because cyclic preferences can leave no clear winner. 2021
Because a group sometimes genuinely has no consensus to be discovered, network forking is at times inevitable rather than a governance failure that better rules could prevent. 2021
Plurality voting predictably produces a system that swings between two polarized parties who are less acceptable to the majority but strongly preferred by interested minorities, because voters are incentivized to vote for their preferred one of the perceived top two rather than waste their vote. 2021
Given a process with static rules and finite, discrete execution, a sufficiently patient and clever minority can always corrupt the process and profit at the majority's expense while following the rules, so no perfect voting system exists. 2021
Across all the alternative polling methods explored in the literature, changes both help and hurt: new approaches solve old problems while creating new opportunities for manipulation, a pattern the authors identify with increasing the attack surface. 2021
Keeping dynamic rules coherent over the long run requires a decentralized organization to commit to transcendental values as primary, where transcendental means values that cannot be specified precisely, logically, and completely with formal rules. 2021
Any set of rules that can be designed will need amendment as the environment changes, and a network that relies eternally on a static rule set will inevitably become corrupt or irrelevant. 2021
For mutually beneficial long-term cooperation to thrive, contracts must be reviewable on the assumption of good faith from both parties when unintended consequences arise. 2021
Since no algorithm can be perfectly secure in all circumstances, protocol developers should redirect effort from proving algorithms correct to building a governance process that updates the algorithm as network circumstances change, rewarding protocol improvement with meaningful reputation instead of leaving attack as the profitable option. 2021
Social networks grow exponentially more powerful through the network effect, but they are stifled by the centralized ownership and governance of the Web 2.0 companies that run them; governing decentralized information flow requires decentralized incentive designs. 2021
If a peer to peer network were decentrally owned by its users, its algorithms could be open source and still remain safe, because the network could reward members for policing exploitation instead of relying on a centralized company to keep the algorithm opaque. 2021
A truly decentralized organization requires that its rules be transparently available to all members; otherwise the keepers of the knowledge acquire higher status and a hierarchy forms. 2021
The Apache Foundation's minimal governance works only because its members are not competing for power and money within the organization, which limits how far the model can be transferred to for profit settings. 2021
Bitcoin and Ethereum have no formal binding governance framework declaring how consensus protocols may be changed in the future, which the authors identify as a deep flaw that weakens the networks and will lead to instability. 2021
Anonymity can exacerbate second and third order discrimination because it makes such discrimination more difficult to detect, so other governance mechanisms in a decentralized organization must be used to combat it. 2021
Anonymity should be balanced rather than absolute: a member's power to broadcast should be tied to a pseudonymous account carrying meaningful and valuable reputation that is lost when the broadcasting power is abused. 2021
The r/place experiment showed that anonymous groups can self correct: each time a hate symbol such as a swastika appeared on the shared canvas, it was replaced with something more positive. 2021
Custodial exchanges are largely unprepared for breach: only 53 percent of small custodial exchanges and 78 percent of large custodial exchanges have a written policy setting out what happens to customer funds if a security breach causes loss. 2021
Applying the trust label to digital asset firms without an accompanying fiduciary duty is problematic, because the typical legal obligation of a trust company is to place customers' interests above its own. 2021
Wyoming special purpose depository institutions may obtain FDIC insurance but are not required to, because they are prohibited from making loans with customer deposits of fiat currency. 2021
Becoming an OCC regulated trust is one route by which crypto exchanges can operate nationwide without securing state level licenses in each of the 49 states that require one. 2021
Delegation of rights to custody providers is only an incremental step toward centralization via delegation to third party investment managers, and it opens a floodgate because each additional level of investment discretion over digital assets exacerbates centralization concerns and compounds rent seeking suboptimalities. 2021
Agency theory and the existing legal framework have failed to resolve the core agency conflict arising from the separation of ownership and control, so peaceable and productive coordination of human behavior remains wanting. 2021
The DAO focus on enhancing the value of fungible tokens can produce short termism and can cause ethical and governance issues to be ignored, even as it frees non-performance reputational penalties from racial and cultural bias. 2021
Even though the creator of a DEX plays a limited role in its evolution, the code that provides the exchange's operational rules may still be subject to the centralized control of certain developers, and a completely open source DEX with no ongoing developer involvement remains untested. 2021
Applying decentralized technology to optimize a legacy system, for example using blockchain to improve the malfunctioning shareholder proxy voting process, perpetuates the outdated and malfunctioning centralized system rather than replacing it with a better performing decentralized one. 2021
Overreliance on the design of constitutional democracies limits experimentation with decentralized solutions for organizing society, because exclusive reliance on a single legal document combined with widespread voter apathy makes the constitutional model appear to be the only lasting form of organization. 2021
As code proliferates as law, the democratic legitimacy of coded legal arrangements is increasingly called into question, because private actors have assumed governance tasks traditionally belonging to democratically elected sovereign states and may circumvent democratically legitimized governments. 2021
Experimentation with decentralized organizational forms of society is curtailed by the principle of territorial integrity of nation states, a foundational principle of international law under which forced border change justifies war and which sustains a permanent national military presence. 2021
Decentralized networks depend on dynamic governance because evolving blockchain protocols require updates, and the practice of hardforking that remained prevalent in the early 2020s created significant economic loss for such blockchains. 2021
Because basic standards for the governance of digital assets were still missing at the beginning of the 2020s, the digital asset market stagnated and decentralized finance remained in its infancy; without standards and governance, certainty and market confidence cannot develop. 2021
DAO governance designs of the early 2020s failed to take account of the historical precedent on governance, and most DAOs used centralized master nodes to institute blockchain protocol and DAO upgrades. 2021
Effective institutional governance, human or machine, requires a duality of incentives in which actors improve their own utility while their actions benefit the whole institution over the long run, and without that duality rational and opportunistic constituents will game the governance design. 2021
When fungible assets are the dominant incentive design in the governance of DAOs with identifiable actors, rational and opportunistic internal and external participants will typically attempt to corrupt the governance design for their own gain; merit identifiers other than individual identity remove the most corruptive influences. 2021
One token one vote on chain governance produces plutocracy: it allocates more power to holders of a significant share of supply so that majority token holders have more power than all other holders combined, reintroducing the defects of one share one vote legacy designs. 2021
Firms that fare worst under disruptive innovation share a myopic short-term focus on shareholder value maximization, because emphasis on share price and financial metrics obscures the question of whether the firm remains relevant. 2021
The absence of a centralized authority makes open source projects prone to separation movements, because rival developer cliques form their own belief systems about the direction of development with no authority to resolve the dispute. 2021
An optimally incentivized democratic decision-making tool would make separation movements in open source less likely, because voters who know the process rewards truth-seeking are more likely to accept an adverse outcome; emerging decentralization technology makes such a tool theoretically feasible. 2021
The degree of decentralization of an open source project is determined by the degree of hierarchy in its governance: a flat structure with consensus decision-making and no power disparities between developers is the most decentralized form. 2021
Meritocratic allocation of power in open source projects is often a fallacy, because rank can reflect timing and one-off contributions, deflation is not built into the perception of merit, and free riding on past reputation is therefore possible. 2021
Without basic decentralized infrastructure products in place, on-chain governance of blockchains is not possible or is only limitedly possible, and the blockchain ecosystem may not be able to grow without a core decentralized infrastructure such as a functioning public blockchain to build on. 2021
The decentralized economy cannot fully proliferate until it acquires the institutions ordinary commerce depends on, above all a secure and meaningful reputation system for anonymous supranational partners and an effective, dynamic governance system. 2021
Liquidity has always been a problem on decentralized exchanges because meaningful history and reputation cannot form where there is little or no governance structure, no insurance, no appeals process and no reputable decentralized news service. 2021
Reputation must be grounded to be meaningful, so reputation tokens should be minted only when policy premia enter the group, reputation should dictate power, and fees should be shared through reputation weighted salaries. 2021
It is not possible to create a centralized regulator like the SEC for the decentralized economy, because doing so would place a supranational market under competing jurisdictions with naturally contradictory regulations. 2021
Because the tension between efficiency and security demands a careful estimate of the hot money ratio, a sophisticated decentralized governance system is crucial for any efficient stablecoin. 2021
Reputation changes the incentive structure of a decentralized organization from a single stage, zero sum game into a repeated positive sum game, which is why the authors treat reputation as the key to effective decentralized governance. 2021
Corruption has arisen in every organizational circumstance in recorded history, including the least extreme case of identified members of a single culture interacting face to face with deep community ties, so governance design cannot assume corruption can be eliminated. 2021
Every governance process ever implemented is flawed, and no perfect governance system is possible even under very minimal assumptions such as non dictatorship; the goal must therefore be practical and effective structures rather than perfect ones. 2021
Benevolent dictatorship is more efficient and effective than messy democracy in the short run, but centralized governance of that kind threatens the long term stability of a powerful public peer to peer network. 2021
No major blockchain is entirely decentralized, because all of them lack binding, coded, anonymous peer to peer governance; on chain and off chain governance experiments to date fall short of that standard. 2021
Declining to adopt explicit or formal rules is itself a governance choice, and it defaults to rule by might; since might in these systems is defined by wealth, the resulting order is oligarchy. 2021
The absence of a governance process is especially dangerous for peer to peer platforms precisely because decentralized organizations find it extremely difficult to change their rules once established. 2021
Fundamental rule changes in a large decentralized organization are typically demanded when a large minority is treated unfairly, which means the advantaged majority has no incentive to make the change; the resulting deadlock leaves revolution or a network split as the only route to foundational change. 2021
Because no major peer to peer organization has anything resembling effective decentralized governance, none of them are viable in the long term and all will eventually be displaced by superior clones, though the timing of that displacement cannot be predicted. 2021
Designing a single consensus algorithm is vastly easier than designing a consensus algorithm that can incorporate all future updates to itself, which explains why immature decentralized systems lack sophisticated governance mechanisms. 2021
A decentralized network needs a constitution that separates powers into a legislative system which updates the constitution, an executive system which enforces it, and a judicial system which resolves the disputes that inevitably arise. 2021
The engineering assumption that such problems can be entirely avoided through perfect system design is naive: exceptions will always exist because business competition always seeks optimal solutions that sit at the limits of the rules. 2021
The very explicit rules that unify a diverse group destabilize it over the longer term, because internal corruption and external change render a fixed rule structure ineffective or inefficient. 2021
A for profit, open, diverse valued organization run under rigid Rule of Law is maximally unstable, so powerful stabilizing forces must be added to its governance rather than assumed. 2021
The main problem with all current peer to peer governance structures is the lack of proper incentivization: participants are not motivated to improve the whole organization over the long term, so they game the system for short term personal profit. 2021
The alternatives to a reputational system for countering profit driven instability, namely external stabilizing forces such as governmental fiat and rapidly expanding profit opportunities, are inadequate because expansion driven stability lasts only as long as the expansion does. 2021
The two sources of instability require different remedies and must not be swapped: dynamic rules are a mismatch for instability caused by the profit motive, and a reputational system is not an efficient method for attenuating instability caused by a group's diverse values. 2021
Instability generated by the rigidity of rules is solved by making the rules dynamic, with an appeals process stabilizing short term cooperation at the level of the single contract and legislation handling longer term amendment. 2021
If unanimous consensus is strongly incentivized in every validation pool, a DAO will degenerate quickly, because members holding minority opinions will not raise alternatives for fear of losing all their reputation tokens; this is why loosely coupled votes are needed. 2021
Loosely coupled voting, in which staked reputation cannot be lost, encourages dissenting opinions, while tightly coupled voting, in which losing stakes are redistributed, guarantees consensus; a DAO steers deliberation by moving between the two. 2021
Legitimacy requires members to believe the governance process is binding and will persist, which puts legitimacy directly at odds with a dynamic structure whose rules members know will change; in the presence of that tension stability requires the system to be balanced. 2021
It does not matter what a DAO architect intends, because the resulting rules of the game are what tell players what to value; governance parameters therefore determine the organization's actual values regardless of stated intent. 2021
Without the ability to hold representatives to account, representatives are not incentivized to vote for outcomes reflecting their constituency's wishes and needs, but instead promote agendas that serve their personal interests and preserve their own power. 2021
Direct democracy failed to reflect the will of the group once villages grew into cities, because the information technology of the spoken word imposes a hard limit on how many people can speak and on the patience and endurance of listeners. 2021
Against Eric Raymond's argument that love does not scale, the authors hold that reputation does: weighted democracy, properly measured and aggregated, can scale from valuing local expertise to valuing expertise on global issues. 2021
Keeping decentralized networks running productively requires a dynamic design with checks and balances combined with the incentive design insights of game theory. 2021
The governance architecture designed for one decentralized institution can be ported to many other DAOs with only superficial changes, so institutional design effort is reusable across the ecosystem. 2021
Ethereum will not be efficient until it operates inside a robust decentralized economy, and it will not last at all unless its governance is fixed. 2021
Reputation rather than money is the proper motivator of good behavior in business and governance, because properly accounting for reputation switches incentives from short-term zero-sum thinking to long-term positive-sum behavior. 2021
Decentralized power regulation has been a conscious goal for centuries, but only now has technology improved enough to account for good and bad behavior on a near infinitesimal scale and to reward and punish fairly. 2021
A sophisticated governance system is required for a decentralized organization to adjust effectively to market changes and to maintain stability. 2021
Decentralized governance design must address all three branches: executive governance as automated policing, legislative governance as non-automated protocol development, and judicial governance as both automated and non-automated dispute resolution. 2021
Reputation and governance are the two most important institutions missing from the decentralized economy, and once they are solved the remaining missing pieces are relatively easy to supply. 2021
A fully decentralized structure with proper governance could solve the abuses that pervade the gig economy. 2021
Effective decentralized DAO governance necessitates reputation verification systems. 2021
A DAO that is internally well governed by a reputation verification engine lets other entities clone its governance for their own purposes and run with the same governance metrics, so mastery of internal decentralization becomes transplantable infrastructure governance. 2021
Self policing is more effective when the members themselves hold the power, because a centralized hierarchy in which each member holds distinct powers and responsibilities is more prone to structural corruption. 2021
Blockchain based guarantees remove agency costs because principals become less essential for monitoring agents, which addresses the inherent agency problems in modern finance and corporate governance. 2021
An open source design is necessary to run any program in a peer to peer environment, because decentralization means the source code must be shared by all if it is not controlled centrally. 2021
The re entrancy programming bug was not the 2016 DAO's most serious problem; the system would eventually have failed more spectacularly because it was designed poorly on other levels. 2021
Because voting power in the 2016 DAO could be purchased, the exact cost of destroying it was calculable, and had it lasted longer than a month someone would eventually have amassed the money to arbitrage its trivial governance structure. 2021
New DAO proposals appear almost quarterly in the 2020s and most fail because of a lack of decentralized governance solutions. 2021
Aragon's refusal to use its own protocol to arbitrate an internal dispute is testimony to the lack of trust its own system designers place in their system's capabilities, and its reputation and legislative and judicial governance protocols remain trivial. 2021
Because DAO performance assessment is based on optimizing fungible token value rather than on hierarchical or political processes, the focus on token value enhancement can lead to short termism and may cause ethical and governance issues to be ignored. 2021
The unusual multi-millennial stability of Ancient Egypt and Imperial China, despite their strong political hierarchies, is explained by protocol decentralization rather than by any feature of their political centralization. 2021
The unstoppable power of decentralization is threatened by unregulated competition for profits, but it can be maintained even in extreme circumstances by a secure and meaningful reputational system. 2021
Modern Western democracies, which the authors treat as the largest DAOs ever assembled, show that a network whose members hold diverse values can be united by protocol centralization, and that the destabilizing effect of that protocol centralization can be ameliorated by power decentralization through dynamic governance design. 2021