Go Fork Yourself

Internet-Native Evolutionary Governance with David Phelps & Luca Prosperi

Aug 1

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Programming Note: We’re due with our second kid any day now. Whenever she comes, I’m taking off for a month. We’ll still have some great guest posts and the Weekly Dose of Optimism, but this Thursday, if we make it there, will be the last essay I write until September!

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Hi friends 👋 ,

Happy Monday!

If you read “governance” and thought about skipping today because that sounds boring, I implore you to read on. Flipping DAO governance models is one of the most fascinating rabbit holes I’ve gone down recently. Incentivizing dissent over consensus creates both an internet-native model for organizing humans and directing resources, and a source of real differentiation versus incumbents.

But like Tokenomics, for which we needed to borrow Tina He’s brilliance to explain, DAO governance is a topic so complex and fast-evolving that we needed to tap not one, but two, people who live and breathe the topic.

Today, I’m teaming up with two of my favorite people / writers in web3:

Luca Prosperi, the author of the truly excellent Dirt Roads, mathematician, ex-MakerDAO, and advisor to Cherry Ventures.
David Phelps, the author of Three Quarks, co-creator of ecodao and jokedao, investor at cowfund, advisor to TCG Crypto, Gitcoin steward, and more.

Luca and David are two of my favorites because they’re simultaneously optimistic about web3, vocal about its shortcomings, and actively engaged in building solutions. If you don’t already, follow them on Twitter and subscribe to their newsletters to get a sense of what I mean.

Bringing old models online isn’t the goal. Creating new ones that weren’t possible offline is.

Let’s get to it.

Go Fork Yourself

(Click this 👆 to read the whole thing online)

In video games, “speedrunning” means completing a video game as fast as possible.

The world record speedrun for Super Mario 64, for example, belongs to the inimitable cheesecheese, who beat the entire game in 1:37:50 while singing and responding to Twitch commenters.

Crypto has borrowed the term. It’s speedrunning the history of financial markets. It’s speedrunning the history of governance.

Speedrunning is a catchy analogy, but it’s not quite perfect. For one, the best speedrunners play games that they’ve played thousands of times nearly flawlessly. For another, a speedrun video game ends at the same place that a game played at regular speed does.

What’s happening in crypto is different. No one is playing flawlessly. DeFi protocols (and CeFi entities) are doing many of the things that have been done in the financial markets, making many of the same mistakes, and learning many of the same lessons. DAOs are experimenting with the same governance models – from direct democracy to representative democracy, from direct shareholder vote to boards and management – that local and national governments and corporations have tried. They’re just doing it really fast, compressing thousands of years of experiments into less than a decade. In a piece by the same name for a16z, Andy Hall and Porter Smith call it Lightspeed Democracy. That gets closer.

But the game shouldn’t end there. Just like online advertising started out as a copy-paste of print ads in the form of banner ads and evolved a richer and more sophisticated toolkit than would ever be possible offline, DAO governance can and should move beyond offline models.

We think that DAO governance should be more like a biological process run at internet speed: Internet-Native Evolutionary Governance.

The goal shouldn’t be to recreate offline governance, online, after a period of trial-and-error. Internet-native organizations can’t and shouldn’t operate like geographic governments because they don’t face the same constraints. Once online governance models evolve past a certain point, they should be both different from and superior to offline ones because of the speed, scale, granularity, programmability, composability, and unboundedness of the internet, and the blockchain.

So what if we flipped the model?

What if we viewed the goal of DAO governance not as a way to agree on a limited number of decisions proposed from the top, but as a way to force people to disagree on a whole host of decisions proposed by the community—so that larger groups that are unwieldy to coordinate could continue dividing into smaller, more efficient ones while building value for each other?

The real promise of DAO governance might be forking: using governance to get people to disagree and through the process, discover subcommunities where they're aligned and create their own version of a project. Forking, in that sense, is the ultimate form of decentralization. And it enables governance to become the basis of social graphs where people find others who share their interests so they can pursue those.

In its simplest form, this kind of governance is just a process of decentralized curation to incentivize a community to share and rank its preferences: good governance is just good user research. Through healthy dissent, governance can be used to lead to the formation of subDAOs, and to encourage evolutionary growth in the ecosystem. As non-crypto people know, forking leads to procreation.

Viewed through that lens, governance mechanisms might become less defensive – focused less on protecting against hacks that threaten the entire DAO – and more offensive and fun – focused more on governance as a means of entertainment, social discovery, and propagation.

Chase Chapman 🌊 @chaserchapman

Governance as entertainment is underrated Today, we think about governance as "serious decision making" (and that's certainly important) But when governance is re-framed as "entertainment" ‒ it becomes a new form of media Which blows open the design space for what's possible

To be clear, there’s no one-size-fits-all model for DAO governance, and we’re not proposing that every DAO turn on its heels and encourage forking, which should often be a last resort. What we’re proposing is something else. Having different types of governance is a strength that lets different groups with different metrics optimize for what's important to them according to their own system. As in nature, biodiversity protects the entire ecosystem.

There are challenges with this model, too, most notably that fragmentation might reduce liquidity, lower talent density, and add complexity. We’ll discuss these, and ways that DAOs might address them.

But if we’re experimenting and making mistakes anyway, we should make productive mistakes. We should experiment in a direction that doesn’t lead to the same endpoint, and take advantage of new tools and lessened constraints to create new internet-native opportunities. Maybe one day, those new models will circle back and influence the way that humans coordinate offline. Maybe the lines between online and offline will blur to the point that governments and companies adopt new models born through this evolution.

Today, we’ll explore the history, present, and a proposed future of governance:

A Very Brief History of Governance
DAO Governance History and Challenges
Forking Governance
How Governance Might Work
Governance as a Social Network
Internet-Native Governance Evolution

To start our journey, let’s hop in the time traveler and head back to Ancient Greece.

A Very Brief History of Governance

First things first, what is governance?

Governance is the process of overseeing the control and direction of something, like a government, business, or organization. It’s how groups of people decide what their group should do, and ensure that those decisions get enacted.

Humans have been trying to figure out governance since the beginning of time. In Pieces of the Action, Vannevar Bush wrote of organizations:

When Eve joined Adam, there was formed the first organization in history. It is a simple one, yet its essential relations and the regulations governing it have not even today been fully worked out. And ever since Eden, man has been building more and more complex organizations with which to carry on his affairs.

“Building more and more complex organizations with which to carry on our affairs” is a good summary of the history of governance models, but we’ll take a slightly longer walk. Most of us learned this stuff in school, but it’s worth going over quickly in this context to ground ourselves in the basics before we get weird.

For most of human history, people lived under autocratic rule, a system in which the power over the state is concentrated in the hands of one person: a king, queen, empress, emperor, or dictator. Whatever the autocrat decrees, the people must follow. Oligarchic rule, also popular throughout history, feels similar to those being governed, but differs slightly in that the power is concentrated in the hands of a small group of people instead of one person. Autocratic rule was so popular early because it’s the simplest form of governance – one person decides and that’s it – but history has shown that it has some uhhh flaws.

In the 5th Century BCE, the Ancient Greeks implemented a new form of governance (one practiced by tribal societies far earlier): democracy. In Ancient Athens, one of democracy’s earliest homes, all citizens – defined as native-born free men – were required to take an active part in government. Those who didn’t were fined and occasionally shamed with a splash of red paint. Athenian democracy worked kind of like very long jury duty, in that each year:

Each year 500 names were chosen from all the citizens of ancient Athens. Those 500 citizens had to actively serve in the government for one year. During that year, they were responsible for making new laws and controlled all parts of the political process. When a new law was proposed, all the citizens of Athens had the opportunity to vote on it. To vote, citizens had to attend the assembly on the day the vote took place.

This form of governance, in which every citizen can vote on every decision, is called direct democracy. Every citizen has their say, and then all must follow what the majority decides. Direct democracy worked in Ancient Athens because the scale was small and local, and even then, the Athenians eliminated 70% of eligible voters (women, slaves, and immigrants) in order to maintain a small group.

Even though the Ancient Greeks introduced democracy 2,500 years ago, and Rome remained ruled by a republican government between 500 and 27 BC, autocracy remained the dominant form of governance around the globe, with a few exceptions, until the United States Constitution came into force in 1789.

But while direct democracy worked well enough in the context of ruling a city, the American experiment required a governance model that could handle 13 colonies (and eventually 50 states) spread over a large area. As Hall and Smith highlighted:

As James Madison wrote in Federalist No. 14, “In a democracy, the people meet and exercise the government in person; in a republic, they assemble and administer it by their representatives and agents. A democracy, consequently, will be confined to a small spot. A republic may be extended over a large region.”

New contexts require new forms of governance. America’s Founding Fathers built a republic, a form of representative democracy. The people elect their representatives, and the representatives propose and pass legislation.

Since then, the world has been on a bumpy but inexorable march towards representative democracy.

A 2019 Pew Research report found that 57% of countries with populations over 500,000 are democratic. Modern democracy is representative democracy.

Corporations, too, most often behave like representative democracies. Shareholders elect the board, and the board hires and fires the management team, who in turn hire and fire employees, and run the company day-to-day. Unlike a national election, votes in the corporate setting are weighted by the number of shares each party holds, and the number of votes each of those shares has.

While representative democracy has its issues, it appears less bad than previous forms of governance. As British Prime Minister Winston Churchill famously quipped, “Democracy is the worst form of government – except for all the others that have been tried.”

The whole history of governance has been a series of attempts to find solutions that are less bad than their predecessors, and that best fit the context and capabilities of their time. It would have been hard to imagine the rise of national representative democracy before the invention of the printing press, for example. As Thomas Jefferson wrote, “a well informed electorate is a prerequisite to a democracy.”

New tools, challenges, and constraint sets open the door for new models. The best system of governance for a large nation comprised of colonies connected by wagons and ships that needed to unify for economic and military reasons might not be the ultimate form of human governance, or the one best-suited to internet-native organizations with very different goals, challenges, and capabilities.

Governance can and should keep evolving. While it’s not easy for countries or even companies to try new forms of governance, DAOs have the opportunity to rapidly experiment in ways that are only possible on the internet.

DAO Governance History and Challenges

To date, however, DAO governance models have mostly been skeuomorphic versions of national and corporate ones. (For a primer on DAOs, check out Packy’s The DAO of DAOs.)

Most (if not all) governance mechanisms in crypto today revolve around some sort of implementation of the one-token-one-vote concept, akin to token-weighted direct democracy or shareholder democracy.

When DAOs have strayed from one-token-one-vote, mechanism designers have used novel on-chain capabilities to fortify the old model, as opposed to experimenting with entirely new ones. Among the more popular enhancements are:

One-Wallet-One-Vote: Akin to direct democracy, OWOV is an attempt to give an equal vote to each member. There are challenges here, including the fact that less well-informed voters or those with less skin in the game have the same voice as people with more knowledge or skin, and the fact that it’s often trivial for one person to set up multiple wallets to vote.
Quadratic Voting: Meant to decrease the voting power of large holders while still giving them more of a voice than smaller holders, QV increases the cost of each vote. One vote might cost one token, but two votes would cost four, three would cost eight, and so on.
Proof of Participation: Proposed by people including Vitalik Buterin, PoP would only give votes to those who have actively participated in the DAO or protocol, which should make it harder and more expensive to wage governance attacks.

There are others, but the majority of variations seem to focus mainly on deploying protection layers to improve productivity and mitigate or delay the effects of governance hacks – so called Optimistic Governance – but not much more. All are important improvements, but they don’t answer a key question: are the underlying governance frameworks adopted able to incentivise virtuous behaviors while tackling complex tasks?

Our guess is that, for the vast majority if not totality of DAO governance models out there, the answer is no.