Authors: @afromac, @iluscavia, @ncitron, @Pepperoni_Joe
Domain Experts: @afromac, @iluscavia, @ncitron, @jackiepoo
Key Resources
- Workshop Replay & Timestamps
- Workshop Pre-Reading
- Attack Vectors [Fictional] Scenario’s
- DAO’s & Democracy: Voting Mechanisms
The Definition of A DAO Is Ambiguous
The first breakout group focused on answering ‘What is a DAO?’.
It was agreed across all groups that the definition of a DAO is quite nebulous. The consensus was that we think of DAO as a novel, decentralized internet organization that operates without a clear leadership structure. It should be open and enable safe collaboration amongst strangers online. A DAO should demonstrate autonomous sustainability - there should be no single point of failure, making it antifragile.
While no examples of DAOs existing without blockchain were put forward, the question was raised if on-chain decision-making was even fundamental to the structure of a DAO.
Ideally, the ‘perfect’ DAO is an organisation where all contributors are fully autonomous, empowered and incentivized to do everything they need to deliver value. Realistically, most DAOs we can think of do have some kind of centralized leadership. This begs the question, ‘is leadership inherent to all forms of organisation?’
Co-Creation Jamboards: What is a DAO?
Who Holds the Power?
Hard Power
Within Index Coop, hard power was primarily described as tokenomics / protocol ownership. When viewed in this light, it is clear that IC contributors have minimal input on decision-making today, collectively owning 2% of tokens that have been distributed to wallets that are eligible to vote.
Soft Power
Soft power was described as the decision-making groups that exist within Index Coop. To date, that has been largely controlled by Set employees and by Full-Time Contributors. Attention was also paid to the emergent form of soft power created as different contributors and working groups earn trust (build institutions) through effective action.
Social Power
The point was made that there exists another pillar of our power in our structure. Developers are a valuable resource and would be strongly incentivized to leave Index Coop if some kind of capture occurred. This protects us from hostile action and gives us added resilience.
How Vulnerable Are We To Capture Today?
The group asked how vulnerable we are to capture either from TradFi (e.g. hedge funds) or DeFi (INDEX whales). The exercise highlighted that the power to influence decisions via quorum requires only 100,000 INDEX - a minuscule amount compared to the balance sheets of several activist hedge funds or the 900,000 INDEX distributed via liquidity mining.
A hostile takeover was generally considered low-risk due to limited (~40k) on-chain liquidity. While the risk of low contributor ownership (2-6%) is not urgent and in line with, say, tech startup share options (5-15%), it’s important to be aware that the potential risk of hostile takeover increases as on-chain liquidity opens up.
Co-Creation Jamboard - Perceived Threat of Takeover
Governance Structures
The next section of the workshop quickly covered different governance models available to us and how we can evaluate their relative legitimacy, associated risks, and level of appropriateness for Index Coop.
Protocol Ownership
The discussion to this point led to an open debate, shifting focus from enhanced governance solutions back to token distribution and protocol ownership. Primary questions were:
- Do contributors have a substantive claim to increased voting power?
- Should Set and other large investors retain the right to outvote us?
- Do we need to focus on designing governance structures to address the balance of power?
- Will progressive decentralization - as tokens are vested and sold off - solve the perceived imbalance?
Although inaccurate and misleading to assume that we are already ‘captured’ by Set and DFP - such concerns must be considered vis-a-vis the question: If Set has all of the voting power, then how are we autonomous?
Options Besides Protocol Ownership
Following the discussion of protocol ownership, several contributors made the case that if a pure token redistribution (hard power) is not possible or feasible, there are a number of other (soft power) options for empowering contributors that can be considered.
We discussed increased delegation of responsibility, liquid democracy and some kind of Spartan Council - as possible solutions already applied within the industry. How we select and apply governance tools will be central to future governance discussion.
The Outcome Must Be Acceptable To Token Holders
A recurring theme across the entire workshop was that a radical overhaul of governance risks devaluing the INDEX token. Whatever governance model we decide upon must be designed to ensure the central value proposition of the governance token.
Essentially, if we undermine the fundamental utility of the INDEX token, we become unsustainable and, in very real terms, unable to pay people.
Given the current INDEX token distribution, one advantage of preserving the status quo is that it ties the economic actors with the most skin in the game to the decision-making process. Large token holders are incentivized to avoid poor decisions and support responsible choices because they have the most to lose.
This view was not universally shared, and the counter-argument was that contributors also have significant skin in the game yet not enough INDEX to influence decisions.
Token Ownership And Governance Power Are Not The Same Thing
But they are closely related.
While there is significant crossover and overlap, these are two separate challenges and conversations. Should they be approached holistically, or does each have its own separate design space to work within to solve these problems? One suggestion was that there is a duality to ownership - token ownership solely falls under hard power. At the same time, an optimal governance structure may encompass a balance between both hard power and soft power. Getting this balance right without negatively affecting token holders is the challenge.
The Relationship With Set Labs
Several participants highlighted that contributors need to be aware of the central and critical role Set plays in the operation of Index Coop. Designing a governance model that lacks the right incentives could risk Set (and other key and potential contributors) stepping back from operations which would limit our ability to build and maintain products.
Where Next With This Discussion?
To conclude the session, questions were asked of the present members about what they would like to see focused on in forthcoming sessions. The point that was made, that we face an almost overwhelming number of options.
Some contributors asked for a focus on more fundamental questions about the future structure of the organisation, while others wanted to begin discussing available solutions to the problems discussed today.
The key takeaway from the session is that token distribution is central to autonomy, governance and leadership and that any future initiatives must account for the utility of INDEX.
EDITED: 1) For aesthetics, futile. 2) YouTube & Automated Timestamps