Emerging Consensus

A Way to Accelerate Decision Making in DAOs

This article was originally written for Flipside Crypto and has been updated and slightly revised for this portal.

“Whenever you see a successful business, someone once made a courageous decision.” ― Peter F. Drucker

DAOs need to make decisions. And for some reason, decentralized organizations have taken to democratic processes like polling and temp checks.

I’m going to argue that not only are democratic processes slow, but they also tend to select suboptimal decisions. They also tend to induce division and political strife because everyone is operating under the illusion that they can pitch in and “govern” everything while having no say over anything. This sense of disenfranchised frustration is further exacerbated when whales and strong personalities sway decisions unilaterally, or voting systems select a choice that is really among the least accepted, as I have discussed in my blog post about voting systems.

I want to propose a different way to come to consensus. A roundabout, indirect way, where consensus emerges rather than being approached directly.

This new method leans heavily on the organizational self-management concept of Holacracy. Holacracy focuses on surfacing so-called “tensions” when specific organizational roles or functions sense a difference between the current state and where the organization should go. Instead of aiming for consensus, Holacracy optimizes execution while offering a framework so that important signals get heard, even when they come from roles that do not have the authority to make a decision in a given domain.

My blog post here is not a fully-fledged organizational concept. It is intended to start a dialogue and a thinking process. Most DAOs chose democratic voting systems because “democracy is good and right.” And we’ve all heard the Benjamin Franklin phrase “democracy is the worst form of government except for all others“. But is that true? Have all the experiments really been done? I’d argue that they haven’t, and further that what is right for a country might not be good for a DAO.

What I’m proposing is that instead of asking every member of a DAO or every token holder to vote, we should be empowering the best to run with their initiatives while maintaining fluidity and a rigorous process of surfacing “tensions” so that the organization as a whole can operate like a sensing organism discovering the reality surrounding it and moving towards its purpose.

I argue that most governance token holders couldn’t care less about risk parameter changes or contributor compensation packages. They want to see the DAO succeed and their bag go to the moon.

Democratic polling and canvassing introduce drama and friction while not achieving what it sets out to do. Making smaller voices heard allows the organization to operate at its maximum sensory potential.

Of course, organizations do not have sense, strictly speaking. But every contributor or token holder sees an aspect of the reality, the relationships, and the potential around the organization. It can only be positive if an organization can devise a system to integrate as much information as possible while remaining nimble and effective. Holacracy offers such a solution, at least in theory.

This blog post is not about how to implement Holacracy in a DAO but wants to unearth key questions that DAOs should ask themselves. Brian Robertson, the founder of Holacracy and a crypto investor, has written an excellent article about the possible implementation of his brain-child self-management system in decentralized organizations.

Introduction to Holacracy

Let me introduce the key principles of Holacracy to establish a common vocabulary and understanding of the process. We’ll return to the pertinent matters of DAO governance shortly ;)

Definition and key principles of Holacracy

Holacracy is a system of organizational governance that aims to distribute authority and decision-making throughout an organization. Instead of the CEO having a say (at least in theory) over every aspect and action taken in an organization, Holacracy distributes the sole authority to control a specific domain to so-called roles.

The key principles of Holacracy include:

• Decentralization of authority and decision-making: In a Holacracy, authority and decision-making are distributed throughout the organization, rather than being centralized at the top of the hierarchy. This allows individuals and teams to make decisions without consulting others, as long as they are within their roles and responsibilities.
• Clear roles, domains, and accountability: In a Holacracy, everyone has one or more specific roles to play, with clear and defined domains. Roles, accountabilities and domains are iterated upon in regular meetings that allow all voices to be heard.
• Use of meetings and processes to facilitate decision-making: Holacracy uses a series of meetings and processes to ensure that decisions are transparent, inclusive, and well-informed. These meetings and processes can help to ensure that all relevant voices are heard and considered in the decision-making process. The two most important kinds of meetings are tactical and governance meetings.

Holacracy focuses on roles, not people (Roles, not souls). It constantly optimizes how work is organized and distributed instead of defining a hierarchy of people.

How Holacracy supports effective decision-making

In a Holacracy, individuals and teams are empowered to make decisions within their roles and domains. This means they have the authority and autonomy to make decisions that affect their work and the outcomes they are responsible for without needing approval from higher levels of the organizational hierarchy.

For example, imagine a marketing team in a Holacracy. The team might have the authority to make decisions about how to allocate their budget, which marketing campaigns to run, and how to measure the success of those campaigns. This means that the team can make decisions quickly and effectively without going through a lengthy approval process or waiting for input from other teams or departments.

This has a number of benefits. It can help foster a sense of ownership and responsibility among team members, increasing their engagement and motivation. It can also make the organization more agile and adaptable, as teams can make decisions and take action quickly without needing to wait for approval from higher levels of the hierarchy.

Overall, giving individuals and teams the power to make decisions with clearly defined roles and specific domains can help to unlock potential and unleash creativity. It’s a bit like giving someone the keys to a car — they can go where they want, when they want, and drive as fast or as slow as they like. But, just like with a car, there are still rules and responsibilities to follow to keep everyone safe.

Clear roles, responsibilities, and accountability within the organization

In a Holacracy, roles are a key element of the organizational structure. A role is a specific function within the organization, with clear accountabilities and a defined domain the role controls. For example, a marketing team in a Holacracy might have roles for a content writer and a social media manager. Each of these roles would have specific responsibilities and domains, such as creating marketing materials or managing the organization’s social media accounts.

Roles in a Holacracy are not static — they can and should evolve over time to meet the needs of the organization. They can also be reassigned to other team members or be discarded if they are no longer needed. For example, if a new marketing channel is launched, a new role to manage that channel might be necessary. The new role could be filled by the same person who already fills other marketing roles. This fluidity is very close to how DAOs should ideally operate. Contributors fill roles for as long as they want or as long as they are a good fit.

Roles are part of “Circles’’ in a Holacracy. A circle is a part of the organization, like a department. But instead of grouping people, a Circle groups roles. The marketing circle, for instance, would contain all the roles necessary for the organization’s marketing. DAOs often have functional groups in the form of Pods, so the Circle concept is easy for most governance contributors to get behind.

Use of meetings and processes to ensure transparent and inclusive decision-making

In a holacratic organization, a series of meetings are used to facilitate decision-making. These meetings are designed to ensure that decisions are transparent, inclusive, and well-informed. The two key meetings in a Holacracy that facilitate decision-making are:

• Tactical meetings: are used to make decisions and take action on specific topics or projects within a team or department. They are typically attended by the roles that need to hash something out quickly and effectively. I won’t go into the details of how a tactical meeting is run here, but I recommend everyone interested to read the documentation on the Holacracy.

Tactical meetings have action items as output that the respective roles then act upon.

• Governance meetings: Governance meetings are used to make decisions about the overall structure and operation of the organization. They are typically attended by representatives from different teams or departments, and are focused on making decisions about roles, policies, and other organizational-level issues.

Governance meetings are not concerned with “what to do?” but with the structure of the organization. Roles, domains, and accountabilities are defined and updated in these meetings. All decisions about actual work are deferred to tactical meetings. While this boundary might seem artificial and constraining, it allows everybody’s attention to shift to the whole and make decisions from an elevated perspective.

These meetings provide a forum for all relevant voices to be heard and considered, and help to ensure that decisions are transparent, inclusive, and well-informed. They also make sure that the organization constantly adapts to the world around it. Holacracy is a process, not a destination.

Examples of organizations that have successfully implemented Holacracy

Two examples of organizations that have adopted Holacracy and seen success are:

• Zappos: The online retailer, adopted Holacracy in 2013 as part of a broader effort to improve its organizational structure and culture. Since implementing Holacracy, the company has seen a number of benefits, including increased agility and adaptability, and more empowered and engaged employees.
• Morning Star: The tomato processing company adopted Holacracy in 2010. Since then, the company has reported increased productivity and profitability, and a more engaged and motivated workforce.
• Medium: The online publishing company started out using Holacracy and has since moved on. They’re deeply thankful for what the organizational paradigm has enabled them to do and the kind of culture it fostered, but reported problems in hiring because some of the business press has painted a very dim picture of the paradigm.

Emerging Consensus

Armed with our newfound understanding of Holacracy, let’s turn our attention back to DAOs and their decision-making processes. We’ve seen less than 3% of the token supply participate in polls in a roundup of the top ten DAOs using Snapshot. Token holders are clearly not interested in participating in governance. But of course, they are interested in seeing their bags moon and in not getting rugged.

It could be argued that it would be enough if token holders had a way to make themselves heard if they felt they needed to. At the same time, DAOs are most likely to succeed if they can move and adapt quickly without cumbersome political and bureaucratic processes. The initial vision for DAOs was to see these organizations automate as much of the decision-making as possible.

Holacracy offers a very interesting path to that because once roles and their interactions are well-defined, they are more easily automated. One important caveat is that smart contracts don’t sense their environment but act like an unstoppable machine.

Beyond Democracy

I propose to use polling processes very sparingly. As little as possible, but as much as necessary. Instead, DAOs should define Circles / subDAOs / Pods and a lead role within each of these.

This initial process can be done via polling to get as much community input as possible. Furthermore, the community should initially decide on a budget for each Circle.

After that, the Circle lead should have sole authority to run their domain as they choose, but they would have to give the community detailed updates and provide key metrics about their progress.

The community should be able to remove a circle lead whenever it feels they’re not performing their task as they should via a simple offboarding poll so contributors do not become too entrenched.

The circle lead could now define roles they deem necessary for the work at hand and then have ecosystem members bid on filling the role. This could fill roles in a fluid way, as some actors get outbid by others or decide to move on. It would also soften the “iron law of bureaucracy,” which states that sooner or later, “in any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals that the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.”

The most contentious discussions in any organization seem to revolve around budgets. After all, contributor budgets are deducted from revenue and are a tax on the profits of the DAO. I think that Circles should ask the community via polls to confirm their budgets every year, at the very least. In theory, there could be a budget and accounting circle checking the work done and the funds available, and working with other Circles leads to establishing budgets. If this budgeting Circle would report transparently and make sure interested community members are up to date, such a system would work. We think that it creates incentives for the community to sign off and not even check, which would then give rise to insider dealings and rampant corruption.

Let’s recap the most noteworthy points of my proposed governance system:

• Poll sparingly. After an initial confirmation of the DAO’s structure, it’s enough if community members vote on budgets and have a simple but effective way to offboard Circle leads or teams if they find the work is not done to satisfaction.
• Define Circles. Each Circle (or subDAO) covers an aspect of a DAO's process. Examples are Marketing, Development, or Content circles.
• Elect a lead per Circle. Each Circle needs a lead contributor to draft initial budgets and initial role specifications. The lead is the sole authority over the whole Circle in the beginning but yields authority over aspects of the Circle’s work once they have defined roles and these get filled.
• Define budgets. Circles need budgets to pay for work done. At the very least, a budget should be confirmed by the community or another Circle. Budgets are drafted by a Circle’s lead and discussed in the Forums.
• Define accountabilities. Defining what the Circle should deliver and how it is measured should be in the founding charter of a DAO. Circles are a result of what the DAO wants to achieve and are only there to support it. A Circle’s lead should clearly define what they set out to do and how progress is measured so the community can effectively gauge the work done.
• Regular meetings. Tactical or at least governance meetings should be open to the community and allow non-circle members to speak to create the most inclusivity possible and use a DAO's full sensory capabilities.
• Maximum transparency. Circle leads communicate the work done and provide easy-to-understand dashboards of agreed-upon metrics and spending. Interested community members should be able to understand quickly if a Circle is healthy or not.
• Let it rip. Token holders should be able just to lean back and enjoy the progress and only check in from time to time to see if everything is alright. Very few have enough time on their hands to be fully active in governance unless they are paid delegates or other professionals.

Conclusion

Why is voting so divisive? First, token holders have to vote “No” on proposals they don’t like, and most DAOs have no privacy around voting. Voting against a proposal is often seen as a personal attack, leading to much drama.

Polls also create the illusion of control. Every vote counts… but it really doesn’t. Unless you control a significant percentage of the voting token supply, an individual choice rarely makes a difference. Cognitive dissonance is unpleasant, and it shows.

I propose a system that lets a DAO run effectively and with lots of autonomy. The system is not hierarchic but allows contributors sole authority over their domain, something that many in the web3 space deeply desire.

At the same time, the community still retains supreme control over where the DAO evolves by setting budgets and recalling Circle leads whose direction or style they don’t agree with. But polling frequency is a fraction of what it is now in “democratic” DAOs.

Instead of aiming for consensus, it emerges through constant iteration and introspection. It’s a slower, less direct, roundabout process. I believe it would lead to better results.