This thread on Twitter popped up just over a day ago. It is a list of what the author considers to be the biggest unsolved issues faced by decentralised governance. The idea seemed interesting, so I wanted to have a crack at seeing how Index Coop stacks up when faced with these tough problems.
The text in italics are responses, and I used the key below to make it clear where we might improve.
Solved - a solution exists that meets our goals today, but may change in future
Partially solved - something is in place but can be improved
Unsolved - we don’t currently have the answer
Problem #1: Lack of ownership definition. Partially solved
Unclear on the roles, responsibilities, liabilities and legal rights to parts of the system, IP, and assets.
Some members of the community have taken on specific roles (Talons for BD, Hooters for Marketing) but this will expand organically in future. There are solutions to help organise decentralised teams and I believe Kiba has some ideas on that. Having the gov token accrue value through fees ensures all holders get the rights to IP and assets. DFP team handed over DPI to the community willingly, how do we ensure other teams do the same?
Problem #2: Securities Regulation. Unsolved
Not if something is or is not a security, but the burden of legal fees and opinions in this space that stifle innovation.
Would legal fees be paid from the treasury? Opinions are just that until voted on and passed to become a concrete part of the protocol.
Problem #3: Short Term v Long Term Interests. Solved
Like the stock market, holders are motivated by short-term gain rather than long-term health of the project putting stakeholders and creators at odds
Index Coop is already the least price motivated group I’ve ever been a part of. The way the token has been and will be distributed actually incentivizes long term thinking as the treasury becomes a war chest to benefit the protocol, and with only small distribution so far, $index holders have to plan carefully to pull in AUV and thus fees to accrue value to the token. Prioritising short term gains will be detrimental to holders which is why it doesn’t seem to be a problem so far, as the community seems to share this understanding.
Problem 4: Tyranny of the Majority. Partially solved
Avg users are often not involved or experienced enough to make nuanced management decisions, but, often hold the largest amount of voting sway or social noise.
While there are definitely examples of this, I have to disagree with the assumption. Average users might hold most sway, but it’s the job of the proposal/IIP process to inform those who will be voting on a change why it will be good/bad for $index and thus themselves. The economic incentives align token holders, within the framework of the IIP.
Problem 5: Bystander Effect. Unsolved
Without companies driving innovation, many community projects lag while waiting on other people to take on challenges or assign responsibility despite the same lack of motivators.
This is the first problem that I consider immediately relevant to the Coop. Phuture DAO are launching a product which allows anyone to create an index so the space will move extremely quickly when they go live. My thoughts would be that we offer a solid product backed by data and a community that users can trust and will evolve over time. Do we just focus on delivering more of the same, ignoring the noise of flashy competitors and a million new indexes?
Just keep building?
Problem 6: Unclear Voting Standards. Partially solved
Systems often fail to define their governance models in terms of quorums, voting terms, majority standards, veto powers, how proposals are brought to stage or what can be voted upon. This creates massive community conflict when it fails.
Currently our system consists of Discourse voting which allows things to move quickly while the community is still small, with plans to move to snapshot in future. Would be good to flesh this out and get a clear picture of quorum/majority requirements when that goes live @dylan @puniaviision
Problem 7: Red Tape Slow Downs. Unsolved
Projects with an over dependence on community voting get bogged down by red tape in each decision and long delay times for implementation due to needing long enough for communities to vote and ratify.
True this is a risk, how can we stay nimble while growing within the current framework?
Problem 8: Charisma Bias. Partially solved
In a DAO or community may only have a certain amount of vote, their influence is disproportional to their stake when they have strong charismatic communication skills that can bias other voters creating internal political cults of personality.
While the Set and DFP team have been immense so far in kickstarting the project, they do still have a disproportionate amount of tokens coming to them compared to the community. This should balance over time as future contributor rewards are given to community members and new liquidity mining opps come online. It’s still a near term risk in terms of snapshot voting weight however.
Problem 9: Perceived Authority Bias. Solved
Avg users don’t have experience in assessing candidate backgrounds and so communities managing hiring or representation give an extended bias to resumes with flashy names that may not lend actual authority or capability.
This is kind of happening with the Set team but I think that is an advantage. They have already launched a successful business and that gives them great credibility. They followed up with useful content and by pushing the Index community forward in a number of ways. As their influence reduces over time authority bias may still be a factor but the community will be well established and should be fairly resistant to some new superstar turning up and changing the direction. In the meantime we have community proposed plans to grow the Coop.
Problem 10: Trial by Public Opinion. Partially solved
Projects and their leadership are put on trial by public opinion and not fact. The communities that support them quickly turn into mobs during a price drop demanding actions and changes with no set due process.
Again the Index community isn’t focused on token price for now but that can’t be relied on forever. I think the Hooters in the marketing department will go some way towards acting like a moat for the protocol, building up a following and trust externally.
Problem 11: Vague Brand Limits. Solved
Community projects run into major issues of brand limits. Who is an Eth contributor? Who is part of the Sushi team? Who represents these entities?
If anyone can, then anyone can also damage their brand.
Covered by IIP-003 the code of conduct, which will be expanded in future by some commitments that methodologists/delegators etc agree to. Community members are expected to conduct themselves in a way that is respectful and inclusive, those that don’t would likely face some pushback from the rest of the community. Economic incentives are also aligned here in that $Index holders shouldn’t be acting in a way that harms token value
Problem 12: Personal Professional Divide. Unsolved
Where does the project end and the individual begin?
What impact on $YFI should Andre’s personal statements or actions have? How do we separate these?
This is an interesting question and something that will form over time. Seems difficult and counter-productive to make it black & white?
Problem 13: Appeal to False Idols. Partially solved
Due to our need to have personified leadership we place an over dependence on individuals (like Andre) on teams, or talking heads (BTC Maxi’s) which gives skewed authority and ties consumer confidence to people not communities.
Building a ground up marketing team should go some way to mitigating this. We are part of something really new here so just because there aren’t many good examples yet, doesn’t mean we can do a great job of it. In fact I think the way we are marketing right now is already a good example of how to deal with this problem. A number of different community members are marketing Index Coop in different ways to a wide audience, with the official twitter page acting as the hub for it all.
Problem 14: Legal Liability Assignment. Unsolved
It’s unclear who is legally liable for which aspects of a smart contract or project. Who is on the receiving end of regulatory action and who foots the bill? Is front-end less liable than back-end? Is the treasury a defense fund?
I don’t have an answer here. How decentralized are we? This is a question that will be faced by anyone building on Ethereum over the coming years
Problem 15: Ability to Enter into Partnerships. Unsolved
Large BD deals can often require legal entities, agreement terms and indemnification - having an entity that can do this makes a regulatory target, but not having one may slow down partnership reach.
Another fair point on the legal side of things, has anyone in the BD Talons group thought about this?
Problem 16: Tax Obligations of Decentralized Systems. Unsolved
Who owes tax when a smart contract makes a profit? Should tax be calc’d if it distributes a dividend?
If a company or entity owns it then yes, but where is this arms-length line, if anywhere?
Does this apply to Index Coop?
Problem 17: Definition of Roles. Partially solved
What is the core team vs a contributor? What are the expectations of a multisig holder? Are they subjective judges or mere escrow agents?
Lack of expectations creates in-fighting and can leave those in the roles legally exposed.
Seems like there could still be more clarity around this. Set team and contributors are already separate in that the current treasury rewards will only be distributed to contributors. At what point do the Set team fade into the hedge?
Can the team expand on IIP-004 to add some thoughts/timeframe perhaps? @setoshi @inje
Problem 18: Behavioral Reinforcement. Solved
Most ownership economies lack a system that motivates and reinforces positive behavior contributions - primarily because many of these actions are qualitative rather than quantitative and thus harder to account for in code.
IIP-004 sets out a roadmap to overcome this issue with the eventual goal to combine quantitative methods like Source Cred to help define worthy contributions. A clearly defined system is a strong start to addressing lack of motivation.
Problem 19: Diametrically Opposed Stakeholders. Partially solved
When an asset becomes tradeable for currency, we now have stakeholders who are simply involved in the process for sake of short-term process. They may not vote, or will vote in favor of bias action.
This is unavoidable and the whole reason the governance process exists. The idea of rewarding positive contributors also goes some way towards addressing the issue as over time productive community members accrue greater voting weight and are more aligned with success of the protocol.
Problem 21: DAO Actions Superseded by Law. Unsolved
We may think that all DAO’s follow code by law, but in most cases a corporate entity still must have legal documents which can ultimately supersede and bind the actions of any individual stakeholder in the system.
True but what’s the point in any of this if we are gonna stop for reasons outside our control.
Problem 22: Cross-Jurisdictional Exposure. Unsolved
A system is only as strong as its weakest link, governments can take aggressive unfounded legal action against stakeholders to coerce cooperation within a system which effects all holders even outside that jurisdiction.
Are there actions we can take early on to minimize this risk?
Problem 23: The Blind Map Problem. Partially solved
Contributors and large funders nearly always end up with insights into road maps and announcements (both good and bad) the decentralized nature of this results in it being tougher to make insider trading controls.
Anyone can be an $index holder or even a community member without holding. One of our core principles in transparency and all plans can be found in Discord/Discourse or on community calls. Perhaps I’m being ignorant but how are execs at companies like Kodak and Moderna allowed to announce huge funding injections then sell their stock as the price pumps, having purchased stock before announcing it?
Problem 24: Monetary Distribution. Partially solved
Right now most systems reward, uncapped, early adoption and financial contribution (through either sale, yield or fee use)
This creates a reinforcement system where the same stakeholders monopolize most protocols.
$index token distribution is fairly well set up to prevent this. While it’s true that the liquidity mining event(s) will attract whales and they will have outsize token allocations, the community rewards and Set/DFP allocations will mitigate this. The first liquidity mining event is only 9% of total token allocation:
Problem 25: Trial by Community. Unsolved
Because of community ownership most projects will aim to solve employee/stakeholder by public vote. Facts presented will always sully reputational standing and likely lean guilty until innocent just like trial by media.
Not sure I understand this one.
And thats it! Hopefully some food for thought, at least something that can be referred back to as the Index community grows and we can measure success against it.
This is just a first attempt to show how we currently solve the problems, or will do, but mainly opening it up for comment/thought. There is no call for action here, it was more to dump some of my thoughts, capture where we are and get other community members thinking about what a successfully decentralised protocol looks like. I will update the doc with any input in the comments and it can act as somewhere to capture our development over time.