Issue 2
This is the Bankless Africa governance Newsletter, a newsletter about staying up to date on governance and operational needs within the guild and the DAO ecosystem.
gm Bankless Africa fam,
Super excited to bring you another edition of the Growing Governance newsletter!
We’ve got some interesting proposals up on Commonwealth that need your insight, and more importantly, your vote! Ensure you take your time to go through each one, especially the Great Migration proposal. In this issue, we take you through what governance means in DAOs and shed some light on the realities and complexities of member participation in decision-making across some DAOs.
Enjoy!
Inside BA Governance 💬🕳️
Stay updated on all the latest governance ideas and needs in our media node, share your opinions and get governing!
Active Proposals 🔥
- The Great Migration: Chapter 1 — MUST READ
Bankless Africa is rapidly evolving into its own autonomous community, with many projects in the pipeline and enthusiastic and talented contributors, but it’s getting increasingly hard to coordinate all of our efforts within the DAO’s Discord channels because of the restrictions on the amount of channels projects can create. ThinkDecade is suggesting that it might be time for the community to create and move to its own Discord server. Community operations and governance must be a priority for each and every one of us if we are going to remain relentless and fulfill our mission.
To start with, we need to create a new governance framework, as the old one no longer serves the community. A Bankless Africa governance workgroup will soon be created and members will develop a roadmap for a good governance framework for the community.
Although many members are in support of this proposal, Ernest of Gaia has countered by pointing out that members need to be appropriately skilled in Notion and Discord operations and management before migration begins.
- Bankless Africa Representing BanklessDAO at Global Events in Africa
As we continue on our relentless journey of onboarding one billion Africans, Yofi has put up a proposal for individuals in BA to start attending and representing the DAO in events across Africa. He also proposes the creation of Bankless Africa merch which can be worn to these events by BA representatives. Go drop your thoughts on the proposal!
- Bankless Africa x Fight Club Apprenticeship Program
Yofi has some ideas on how to accelerate contributors’ learning paths by partnering with Fight Club to offer members an apprenticeship program. This is an opportunity for members to learn from more experienced DAO contributors. Go share your thoughts on the proposal!
Key Actions for the Week
- Go Vote and share your opinion on The Great Migration proposal.
- Get involved in governance by signing up on the BA CommonWealth and contributing to discussions.
- Contribute to the BA weekly newsletter by writing an editorial, editing, or designing a cover.
DAO Governance: The Realities of Decentralized Decision Making
The Byzantine Generals Problem
In 1982, a group of mathematicians published a paper exploring the psychology behind most decision-making processes called the Byzantine generals problem. Imagine this, a group of Byzantine generals has split into different camps around the walls of their enemies, with very few communication options, the generals have no option but to rely on messengers to communicate on important decisions such as a common battle plan. But messengers aren’t reliable, there’s a likely chance any of the messengers could be spies or traitors who would deliver an entirely different message and as a result, confuse or deceive the other generals.
In this instance, there’s no true way of knowing what message is false or not and no way of knowing who to trust, yet the generals must make a decision or come to an agreement before the enemy attacks. But how do they reach it?
Considering the circumstances, the mathematicians propose that this problem is solvable only if more than two-thirds of the generals are loyal, receive the same message, and can agree on a unanimous action. The authors asserted that “with unforgeable written messages, the problem is solvable for any number of generals and possible traitors”.
By creating a permissionless, immutable, and trustless distributed ledger known as Bitcoin, Satoshi Nakamoto managed to solve the Byzantine problem. Using Proof of Work, a mechanism that demands that nodes on the blockchain reach a majority agreement before transactions can be validated, Bitcoin provides a technological solution to the problem of middlemen and trust, and so can DAOs.
Let’s Dive Into What Governance Means in DAOs
Governance isn’t something we hear much about in our everyday lives, mainly because decisions in centralized organizations are determined by CEOs, investors, and stakeholders. A typical company operates in the interests of its founders, boards, and shareholders. As a result, employees, customers, and the general public have no clear idea of how a decision is made or what mechanisms are in place for governance. Not only are operational and governance processes controlled by a select few, but the information is known only to those whose job it is to know.
DAOs offer us a change from these centralized systems, an opportunity to participate in coordinated decision-making, access to information, and the daily operations of organizations.
DAO governance is simply the process or mechanisms by which people make decisions and operate in decentralized autonomous organizations (DAOs). Although DAOs are digital communities with most of their core rules and framework encoded in smart contracts, they still rely on community members who hold decision-making power to make decisions. In essence, DAO governance is the process by which members of a DAO reach consensus on organizational issues.
Governance Tokens: How DAOs Are Incentivizing Participation in Governance
If DAOs have no central authority, how do they choose the community members who make decisions? It’s simple: through governance tokens. Governance tokens are tokens issued to community members for governance purposes. Holding these tokens gives members of a DAO authority to vote on decisions and suggest improvements through proposals (a proposal is a request made by a member[s] of a DAO).
Aside from decision making, DAOs use governance tokens to differentiate between people who are core members and contributors; this is what is referred to as token gating. For instance, some DAOs require that members hold governance tokens before they can start contributing to the day-to-day tasks, while others do not. This creates two types of DAO members, those who simply contribute to tasks and day-to-day operations, and those who hold governance tokens and make decisions. There’s often no separation between both. A person can contribute to the day-to-day tasks and also hold governance tokens.
DAOs use tools like Discord to discuss proposals and make off-chain day-to-day decisions like appointing members to lead a project, voting on favorable times to meet, and various other aspects of operations, while they use decentralised governance tools like Snapshot to vote on proposals like funding requests, hiring external talent, marketing plans, changes to the constitution and lots more.
Here’s a Practical Instance of How DAOs Use Governance Tokens
Gitcoin, a DAO focused on funding open-source projects and public goods, uses a governance token called GTC. There are three main roles in Gitcoin governance.
- Stewards serve the community and lead workstreams; they are delegated power by community members.
- Delegators are community members who hold GTC but want to rely on a Steward to exercise their voting power for them — they delegate their voting power to that Steward.
- Contributors are members who contribute to the day-to-day tasks.
The DAO has its governance forum where anyone can make proposals to discuss solutions to certain issues, create workstreams, or request funding. Anyone who holds GTC can participate in voting or delegate their voting power to others. For a proposal to succeed, a minimum of 2.5 million GTC must participate in the vote and it must receive input from at least 5 Stewards.
Above is an example of a Gitcoin workstream funding proposal. It had about 477 votes from community members and surpassed the minimum token requirements. You can read more on how some other DAOs handle governance in Cointelegraph’s DAO governance models article.
The Cost of Decentralizing Decision Making
DAOs have significantly impacted the way organizations approach decision-making; they’ve also incentivized community members in terms of taking ownership and coordinating, but this system is nowhere near perfect. Data from DeepDAO shows that out of more than 3.7 million governance token holders, only 678,000 of them are active voters and proposal makers.
Also, a high concentration of voting power resides among only a few community members. According to a study of 10 DAOs by Chainalysis, only about 1% of token holders hold 90% of the voting power. Although any token holder could vote, only members with 1% of the total token supply could create proposals.
Having such a minority group influence decision making threatens the very principles of decentralized organizations. It’s a threat to DAOs because one bad actor with a large percentage of token holdings can successfully pass arbitrary proposals in the DAO. Solend, a lending platform on the Solana protocol, tried to avoid going insolvent by passing a proposal to take control of a whale's account and liquidate his position (which in itself is the opposite of what decentralization stands for). The DAO called a vote which saw about 1.1 million ‘yes’ votes to 30,000 ‘no' votes. The tricky thing here however was that over 1 million of those ‘yes’ votes came from a single whale account. Without that account, the proposal wouldn’t have passed. After many criticisms from the crypto community, the DAO passed another vote to invalidate the previous proposal.
Conclusion
The Solend saga is a good example of how the current iteration of DAO governance remains dysfunctional and could likely harm the ethos of decentralization. Although some DAOs currently use mechanisms like quadratic voting to avoid the concentration of voting power on just a few, many still struggle with getting decentralized governance right.
DAOs leverage Web3 to empower independent entities to govern open-source infrastructure together. DAOs try to expand the notion of trust-minimization to collective decision-making by humans.
It is not as easy as it sounds to collectively make decisions and the importance of forming consensus cannot be overemphasized. Let’s examine some challenges DAOs experience in the matter of governance by looking at the tradeoffs of DAOs.
Tradeoffs of DAOs
Early-Stage vs Late-Stage Members
When a DAO that implements token-weighted voting allocates a greater percentage of the governance token to DAO founders or early investors, it presents a situation where late members may consider their opinions overshadowed by a few select members making them question the value of their participation.
Decentralization vs Efficiency
The bid to have centralization of power prevented by decentralizing it can breed inefficiency. This inefficiency slows down the DAO, making it fail to capitalize on real-time opportunities. Loss of agility and time that accompanies multi-layered decision-making can make a DAO lose its edge against more centralized competitors.
Stabilization vs Growth
Every DAO begins with a particular vision. Over time, it begins to look like growth is inevitable. Expanding the DAO’s original vision to capture a larger market usually causes internal debates between those who are in support and those who want to follow the original vision.
Leaderless vs Leadership
The concept of decentralization makes many argue that a DAO should be without a leader. While leaders may become malevolent when allocated too much power, a leaderless organization leads to a power vacuum which in turn leads to internal conflicts when people rush to fill it.
Knowledgeable vs Unknowledgeable
Many members of DAOs don’t understand the very technology a DAO is built upon. This makes members who understand how the blockchain works very important because they help explain and provide insights on technical issues that influence decísion making in the DAO. This raises the question of whether these technical members should be rewarded more or if they have more weight in decision-making.
Although there isn’t a perfect governance system, builders in Web3 are afforded the opportunity to experiment and see governance systems that align with their personal values and beliefs.
How Can I Help? 💪🏾
This governance newsletter is currently created by only Abidemi; the newsletter would very much benefit from contributions by more members interested in writing, design, editing, and researching.
Note: Contributions are currently pro-bono (unpaid).
Upcoming Operations Call 📢
Don’t forget to RSVP to the Bankless Africa weekly operations call at 10:30 AM UTC every Thursday to get plugged in on how things get done.