Criticism of DAOs
If you’ve followed this blog series so far (6 total blogs entries and counting!) then you should know that I believe DAOs are the next evolution for how humans organize and that the advantages of using a DAO (bottom-up, secure and efficient decision making and ownership) will result in both their wide adoption through natural selection and speed up the progress for human development. However, not everyone shares my enthusiasm and there are a lot of valid arguments on why DAOs will never lead to the vision I have laid out. I’d like to address some of these criticisms and provide counter arguments where appropriate.
Criticism 1 - DAOs suck at making decisions
I believe this is the most fair and meaningful argument against using DAOs. The fact of the matter is humans are, in general, bad at bottom-up decision making and DAOs at this early stage seem to lack the leadership needed to ensure that decisions are made and executed. DAOs today feel a lot more like The Lord of the Flies, with a bunch of competing interests from different parties and little in the terms of progress towards a central goal. If DAOs continue to operate as they currently do, then there’s no hope of DAOs being used beyond a few use cases, let alone change the world.
My counter argument is that it is still early days and leadership and operations theories and behaviors will change and be refined to make DAOs more efficient. Never before have humans had access to technology to allow for the scale of bottom-up decision making that is possible with DAOs, so it should come as no surprise that humans don’t know how to efficiently use these new tools. However, that will change over time.
The chaos around current DAO operations is not unusual; innovation implementation has always been chaotic as humans figure out how to make best use of new innovation. This was the case when the joint venture was first created, but this evolved to corporations with complex governance structures. It was the case when America adopted democracy, but this led to a strong election and transfer of power standards. While this criticism may be valid against DAOs today, I think over time humans will evolve their behaviors around the new tool of the DAO and that DAOs will continue to evolve around the humans as well.
Criticism 2 - DAOs lack authority
This argument revolves around the idea that DAOs have no legal authority. This may be true in non-digital realms (like the real world), but that may change over time. In the digital world, DAOs have a lot of authority because a DAO proposal can execute code, meaning that any proposal can be automatically and instantly executed without the need for intermediates. In the digital realm, DAOs can and should have complete authority for taking action based on proposals, such as changing code, moving tokens or changing the rules governing the DAO.
I believe that over time governments will create laws to give DAOs more legal recognition and authority and to provide legal standing to the proposals that are passed by a DAO. This will take time to establish and refine, but I believe it is a natural evolution if and when DAOs become more widespread. It’s not hard to imagine a future in which government elections are conducted through DAOs. Beyond that, it’s not hard to imagine a future in which elected officials are obsolete due to DAOs and liquid democracy.
Criticism 3 - DAOs are too slow
There’s no denying that centralized decision making is an advantage in an emergency, one in which a body of people doesn’t have the luxury of evaluating and debating different options and making and voting on different proposals. Sometimes speed is more important than accuracy in decision-making.
I don’t have a good counter to this argument. It’s hard to imagine DAO participants being comfortable with centralized control even in emergencies. However, I do imagine that over time DAOs will evolve to solve this problem… I just can’t imagine what that solution could look like.
Criticism 4 - DAOs lack trust amongst participants
DAOs by nature are completely digital and its participants can come from a very diverse population including any race, nation, gender, etc. In fact, oftentimes DAOs are composed exclusively by unknown entities in the sense that it might not be possible to know any personal information about the other DAO participants. Studies have shown that sharing common traits, whether it is race, nationality, or otherwise, tends to lead to more trust within the group. So it is easy to see that trust amongst DAO participants may be low given that they may not even be able to know whether they share commonalities amongst other participants. This, again, is new to humans.
DAO participants should know that they share at least one commonality, that they are interested in the purpose of the DAOs for which they are participating. However, if you think a lack of trust is a problem for DAOs, then let me provide two counter arguments. First, DAOs tend to operate with the crypto mantra of “don’t trust, verify”, which is made possible in many new avenues with the implementation of blockchain that makes activities public. Second, and most importantly, the diversity of the DAO participants, while causing a decrease in trust, also vastly increases the ability of the DAO to explore new ideas. Remember blog post 2 and my assertion that talent is evenly distributed globally? I believe the inefficiencies caused by decreases in trust will be more than accounted for with increases in diverse thought and access to opportunity for the globe’s talent.
Criticism 5 - DAOs lack relationships
Similar to the trust argument, a digital platform in which participants’ identities are unknowable yields a lack of relationships between those participants. This carries downside for the ability to collaborate as well as hold each other accountable. In my opinion this could be a significant hurdle to the adoption and advancement of DAOs. Humans are social beings and building relationships is a core part of how we operate. An environment in which participants have an established relationship leads to better communication and understanding. However, it can also lead to in-group/out-group behavior and gatekeeping. All in all, I think this criticism is fair and should be an area of focus for people designing the DAOs of the future.
Summary
Hopefully I addressed some of the major concerns people express with regards to whether DAOs can be successful. The short of it all is I think there are valid concerns and criticisms, but nothing that can’t be solved with more experience, behavioral change and innovation. In fact, if you are a writer I think now is an excellent time to begin writing on how DAOs are changing leadership and how to succeed as a DAO designer or a DAO participant. Let’s begin building the body of knowledge needed to educate the future.
In the next (and I believe final) blog entry I’ll recap this series and provide some use cases that I think DAOs could revolutionize. Thanks for reading, Kyle.
By Kyle Langham, Director of Data & Analytics @ DFINITY Foundation