Disclaimer: I wrote this article in 2023. Thanks to SheFi, 've learned a lot since then, including about liquid democracy, reputation-based governance and hybrid models of those approaches but I feel like what I wrote is still relevant. Let me know what you think.

A while ago I wrote an article about DAOs. I was very much of the opinion that a DAO without the capability to provide its members with a truly decentralized experience is going to fail. But I’ve grown older and wiser. There are several reasons why I’ve changed my stance to say that there’s no way a DAO can be completely decentralized and succeed.

Don’t get me wrong. I still stand by what I said in my article. Any human organization has to have a clear cut structure and standard operating procedures to be effective. People have to know what their role is in the DAO as token holders, as employees or in any other capacity without leaving room for interpretation. A DAO with the main focus of making the core team rich is not a viable community except for those core team members and their friends. And when transparency is sacrificed on the altar of “get rich quick,” there’s no real difference between that DAO and a corporation who likes to pretend its customers really mean something to them other than liquidity.

That being said, there must be a centralized authority controlling a DAO at some level. The bigger a DAO is, the more chance there is for what we call in Hebrew a bailegan — a big bad mess. Bad actors, uninformed community decisions that hurt a project, lack of participant education and misplaced trust, lack of clarity, undefined roles and inability to enforce penalties on community members need to be taken into consideration in the initial DAO setup.

Make a list of possible challenges and have solutions ahead of time.

Most of the things I wrote about here happened in real DAOs. Humans being human unfortunately have the capacity to mess things up for everybody else because of their limited viewpoints, usually limited to their own self-interest. Stunted decision making, toxic community members and a lack of clear structure can destroy a DAO.

The Shiny Red Button

Sometimes decisions have to be made that are in the best interest of the DAO, even if a majority of community members do not agree with them. This should not be the usual case at all, but it especially rings true when the core team has the most to lose. Stunted decision making that takes forever whether it’s due to a lack of participation or due to the corporate stereotypical environment of meetings where everybody has to run off at the mouth to take 12 hours to decide what color the toilet paper in the bathroom should be does not keep a project viable.

Borderline Personalities Breaking Boundaries

And what do you do with a community member who was there from the start, doesn’t like how things went and is now suing the DAO? What do you do with a narcissistic bully who creates constant drama, creates bad outside press, abuses people and even threatens to murder other community members? What do you do when someone’s public actions crash the price of the DAO token? Do you allow him to keep making governance decisions and submitting proposals? How does a DAO handle someone who is publicly pretending to be a community member that actually wants what’s best for the community, but is doing everything in his power to tear it down? Do you let this person remain in the community? Do you even have a way to take him out of it? When people in a community are afraid to speak up and only egg on or thank the people that do behind the scenes because they’re afraid of this community member, there has to be some kind of procedure to get the guy out of the picture or the DAO is at stake.

Take It From The Top

The solutions to these problems have to be thought out in the initial DAO setup. It’s tricky. Once somebody’s a token holder there’s not much you can do (buy him out?) unless there are serious guidelines up front for mediation and punitive measures. Even in situations of lesser toxicity, there’s always going to be a need for mediation within a DAO. A bit of foresight will save a lot of headache later. It might even save your project.

Mediation

There must be some sort of mediation process with the best principles of that art integrated with the decentralized voting processes of a DAO.

The loudest mouth with the biggest grudge should never have the power to be judge, jury and executioner of another community member.

Public voting tends to be a popularity contest because of lack of education on a specific issue. Front-facing and behind-the-scenes lies and manipulation also sway community perception. So, there should be a way within the mediation process that voters are presented with the cold hard facts of a problem. Secret Network’s private voting capability is very cool because people can vote without their choice being public. That way they can have their voice without any fear of retribution. But that only solves for one aspect of this multifaceted issue.

There might also be a need to take an outside arbiter and pay community funds to do so to make sure the arbiter is objective.

But if the core team sets certain rules and breaks them all down before people even join the community, it will prevent a lot of problems and lessen the need for mediation.

For example, if a salary for a service provider comes from community funds, the community needs to be clear on what role they actually have in the breakdown of those salaries. Does the community vote on these salaries beforehand? These are all things that need to be codified so when there are complaints, the core team can just say “This isn’t part of the responsibility you signed up for” or conversely, address the valid claims.

It’s important to keep these possibilities in mind when you’re launching a DAO. You don’t want one toxic person messing up everything you’ve worked so hard to build. You need to maintain some level of control in case things get crazy. And you need to be super clear in the breakdown of every role within the community before you launch. I don’t remember the platitude that would probably close this paragraph well, but I am speaking from the heart. CYA. You’ll thank me later.