Ethereum co-founder Vitalik Buterin has come forward in defense of decentralized autonomous organizations (DAOs), arguing that they can be more efficient and fairer than a traditional corporate structure in some circumstances.
In theory, DAOs are collectively owned and managed by their members and do not have central leadership. All decisions regarding aspects such as the use of treasury funds or protocol improvements are made by voting on proposals submitted to the community.
In the long Sept. 20 post on his website, Buterin outlined that critics often argue that DAO governance is inefficient, that DAO idealists are naive, and that traditional corporate governance structures involving boards of directors and CEOs are the optimal methods for making important decisions. to take.
DAOs are not corporations: Where decentralization in autonomous organizations mattershttps://t.co/PDh9tIRXcm
— vitalik.eth (@VitalikButerin) September 19, 2022
However, the Ethereum co-founder believes that “this position is often wrong” and argues that even naive forms of compromise will on average outperform centralized corporate structures in certain situations. Though he believes it depends on the type of decision he thinks falls into two categories; convex and concave.
Examples of convex decisions include pandemic response, military strategy, and technology choices in crypto protocols. While hollow decisions concern court cases, financing of public goods and tax rates.
“If a decision is concave, we prefer a compromise, and if it is convex, we prefer a coin,” he wrote.
According to Buterin, when decisions are convex, decentralization of the decision-making process can lead to “confusion and low-quality compromise,” but when they are concave, “relying on the wisdom of the crowd can provide better answers.”
“In these cases, DAO-like structures with large amounts of different inputs involved in decision-making can make a lot of sense.”
DAOs usually embrace decentralization to defend themselves from outside attacks and censorship. Due to the nature of the space and the remote and online nature of some projects, it can be more difficult to “run background checks and casual personal ‘smell tests’ for character.”
Buterin argues that this is precisely why DAOs are needed, arguing that the decentralized world “must divide decision-making power among Lake decision makers, so that each individual decision maker has less power, and thus collusions are more likely to be clocked and revealed.
He does admit that DAOs are not without problems. In certain situations, a more centralized structure is required, such as when an organization operates with a central core leadership and has separate groups that all work independently.
Core leadership is decentralized, but Buterin says it may be necessary for the individual groups to follow a clear hierarchy and adopt a “clearly idiosyncratic perspective that guides decisions.”
Related: Ethereum Co-Founder Vitalik Buterin Shares Vision for Layer-3 Protocols
“A system that was meant to function in a stable and unchanging manner around one set of assumptions, when faced with an extreme and unexpected change in those circumstances, needs some kind of brave leader to coordinate a response.”
Buterin elaborates, saying that in some cases DAOs need the “use of corporate-like forms” to “handle unexpected uncertainty.”
He concludes by saying that for some organizations, even in a crypto world, “much simpler and leader-driven forms of governance that emphasize agility will often make sense.”
“But this shouldn’t distract from the fact that the ecosystem wouldn’t survive without some non-corporate decentralized forms that keep it stable.”