In-depth interpretation: There is no universal model for DAO governance, and fork governance is a good strategy

Original: https://www.notboring.co/p/go-fork-yourself?utm_source=substack&utm_medium=email

In video games, "speedrunning" means completing a video game as quickly as possible.

For example, the Super Mario 64 speedrun world record belongs to the one and only Cheese, who beat the entire game in 1:37:50 while singing while responding to Twitch comments.

The cryptocurrency space has borrowed the term. It is accelerating the history of financial markets. It is accelerating the history of governance.

Speedrunning is a fascinating analogy, but it's not quite perfect. On the one hand, the best racers play games they've played a thousand times with near-flawless perfection. On the other hand, speedrun video games have the same ending as normal speed games.

The situation with cryptocurrencies is different. Nobody plays flawlessly. DeFi protocols (and CeFi entities) are doing many of the things that have already been done in financial markets, making many of the same mistakes, and learning many of the same lessons. DAOs are trying the same governance models — from direct to representative democracy, from direct shareholder voting to boards and management — that local and national governments and corporations have tried. They just did it really fast, compressing thousands of years of experimentation into less than a decade. In a16z's eponymous work, Andy Hall and Porter Smith call it Lightspeed Democracy. That's getting closer.

But the game shouldn't end there. Just like how online advertising started as copy-paste print ads in the form of banner ads and evolved into a richer and more complex toolkit than ever offline, DAO governance can and should go beyond the offline model.

We believe that DAO governance should be more like a biological process running at Internet speed: Internet-native evolutionary governance.

The goal should not be to recreate offline governance online after a period of trial and error. Internet-native organizations cannot and should not operate like geographic governments because they do not face the same constraints. Once online governance models develop to a certain extent, they should be different from and superior to offline governance models due to the speed, scale, granularity, programmability, composability, and unboundedness of the Internet and blockchain.

So what if we change the model?

If we see the goal of DAO governance not as a way to agree on a limited number of decisions proposed at the top, but as a way to force people to disagree on a large number of decisions proposed by the community, then the larger group will how? Can difficult-to-align organizations continue to fragment into smaller, more efficient organizations while creating value for each other?

The real promise of DAO governance may be forking: using governance to allow people to diverge and, through the process, discover subcommunities of their agreement and create their own version of the project. In this sense, forking is the ultimate form of decentralization. It makes governance the basis of a social graph where people can find other people who share their interests so they can pursue them.

In its simplest form, this governance is simply a decentralized process to incentivize the community to share and rank its preferences: good governance is good user research. Through healthy dissent, governance can be used to lead to the formation of sub-DAOs and encourage the evolutionary growth of the ecosystem. As non-cryptocurrency folks know, forks cause reproduction.

From this perspective, governance mechanisms may become less defensive - less focused on protecting from hacks that threaten the DAO as a whole - and more offensive and fun - more focused on governance as entertainment, social means of discovery and dissemination.

To be clear, there is no one-size-fits-all model for DAO governance, and we are not suggesting that every DAO turn to encouraging forks, which should usually be a last resort. We are proposing something else. Having different types of governance is an advantage, allowing different teams with different metrics to optimize what is important to them based on their own systems. In nature, biodiversity protects entire ecosystems.

There are challenges with this model, most notably that decentralization can reduce mobility, reduce talent density, and increase complexity. We will discuss these, and the ways in which DAOs might solve these problems.

But if we are trying and making mistakes anyway, we should be making productive mistakes. We should try in a different direction, taking advantage of new tools and reduced constraints to create new internet-native opportunities. Perhaps one day, these new models will make a comeback and affect the way humans coordinate offline. Perhaps the lines between online and offline will blur to the point where governments and companies adopt new models arising from this evolution.

Today, we'll explore the history, present, and proposed future of governance:

A Brief History of Governance

• DAO Governance History and Challenges
• Fork Governance
• how governance works
• Governance as a Social Network
• The Evolution of Internet Native Governance

Let's start our journey.

A Brief History of Governance

First, what is governance?

Governance is the process of overseeing the control and direction of something such as a government, business or organization. It's how a group of people decide what their team should do and make sure those decisions are implemented.

Humanity has been trying to figure out governance since the beginning of time. In Pieces of Action, Vannevar Bush writes:

When Eve joined Adam, the first organization in history was formed. It is simple, but its essential relationships and the rules governing it have not been fully worked out until today. Since the Garden of Eden, man has been building increasingly complex organizations to conduct his affairs.

"Building increasingly complex organizations to do our business" is a good summary of the history of governance models, but we'll go a little further. Most of us learned these things in school, but in this case, it's worth a quick recap to ground ourselves before we get weird.

For most of human history, people lived under despotism, a system in which the power of a country was concentrated in the hands of a single person: a king, queen, empress, emperor, or dictator. Whatever decrees the dictator promulgates, the people must obey. Oligarchies are also historically popular and feel similar to the ruled, but with a slight difference in that power is concentrated in the hands of a small group of people rather than one. Dictatorship was popular early on because it was the simplest form of governance—one man decides, that's it—but history shows it has some flaws.

In the 5th century BC, the ancient Greeks implemented a new form of governance (an earlier one adopted by tribal societies): democracy. In ancient Athens, one of the earliest homes of democracy, all citizens—defined as native free men—were required to take an active part in government. Those who didn't were fined and occasionally humiliated by splashes of red paint. Athenian democracy operates a bit like long-term jury duty, with each year:

Every year 500 names are chosen from among all the citizens of ancient Athens. The 500 citizens must have actively served in the government for one year. During that year, they were responsible for making new laws and controlling all parts of the political process. When a new law was proposed, all citizens of Athens had the opportunity to vote on it. To vote, citizens must be present in Parliament on the day of voting.

This form of governance where every citizen can vote on every decision is called direct democracy. Every citizen has his say, and then all must follow the decision of the majority. Direct democracy worked in ancient Athens because it was small and endemic, and even then Athenians weeded out 70% of eligible voters (women, slaves, and immigrants) to maintain a small group.

Although the ancient Greeks introduced democracy 2,500 years ago and Rome was still ruled by a republican government between 500 and 27 B.C., dictatorships remained, with a few exceptions, the dominant rule worldwide until the U.S. Constitution took effect in 1789. form of governance.

But while direct democracy worked well when governing a single city, the American experiment required a governance model that could handle 13 colonies (and eventually 50 states) spread out over a large area.

As James Madison wrote in Federalist No. 14, "In a democracy, the people meet and exercise the power of government in person; In a small place. A republic can extend to a large area."

The new environment requires new forms of governance. The founding fathers of the United States established a republic, which is a representative democracy. The people elect their representatives, who propose and pass legislation.

Since then, the world has embarked on a bumpy but inexorable path toward representative democracy.

A 2019 report by the Pew Research Center found that 57 percent of countries with a population of more than 500,000 are democracies. Modern democracy is representative democracy.

Corporations also often behave like representative democracies. Shareholders elect the board of directors, the board of directors hires and fires the management team, which in turn hires and fires employees, and runs the company on a day-to-day basis. Unlike national elections, votes in corporate elections are weighted according to the shares each party holds and the voting rights those shares hold.

Despite its problems, representative democracy appears to be less bad than previous forms of governance. As British Prime Minister Winston Churchill famously said: "Democracy is the worst form of government - besides all others that have been tried."

The whole history of governance is a series of attempts to find solutions that are less bad than those that came before, and to find the solutions that best fit the circumstances and capabilities of the time. For example, before the invention of the printing press, it was difficult to imagine the rise of national representative democracies. As Thomas Jefferson wrote, "An informed electorate is the prerequisite of democracy."

New tools, challenges, and sets of constraints open the door to new patterns. For a large country consisting of colonies linked by horse-drawn carriages and ships, the optimal system of governance that requires unity for economic and military reasons may not be the ultimate form of human governance, nor is it best suited to an internet-native world with vastly different goals, challenges, and capabilities organization's governance system.

Governance can and should evolve. While it is not easy for countries or even corporations to experiment with new forms of governance, DAOs have the opportunity to experiment quickly in a way that can only be found on the Internet.

DAO Governance History and Challenges

However, to date, DAO governance models have mostly been skeuomorphic versions of state and corporate governance models.

Most, if not all, governance mechanisms in cryptocurrencies today revolve around some form of implementation of the one-token-one-vote concept, akin to token-weighted direct or shareholder democracy.

When DAOs strayed from the one-token-one-vote rule, mechanism designers used novel on-chain features to reinforce old models rather than try something entirely new. The more popular enhancements include:

• One Wallet One Vote (OWOV): Similar to direct democracy, OWOV attempts to give each member equal voting rights. There are a few challenges here, including the fact that less informed voters or those who are less engaged have the same voice as those who are more knowledgeable or engaged, and that it is often effortless for one person to set up multiple wallets to vote.
• Quadratic Voting (QV): That is, reducing the voting power of large shareholders while giving them more say than minority shareholders, QV increases the cost of each vote. One vote may require one token, but two votes require 4 votes, three votes require 8 votes, and so on.
• Proof of Participation (PoP): Proposed by Vitalik Buterin et al., PoP will only give votes to those who are actively participating in the DAO or protocol, which will make it more difficult and expensive to launch governance attacks.

There are others, but most variants seem to focus primarily on deploying layers of protection to increase productivity and mitigate or delay the impact of governance hacks—so-called optimistic governance—but nothing more. All of these are important improvements, but they do not answer a key question: Can the underlying governance framework adopted be able to incentivize virtuous behavior while handling complex tasks?

Our guess is that for the vast majority, if not all, of DAO governance models, the answer is no.

Initially, most on-chain governance systems were designed to manage very simple decisions: such as whitelisting staked tokens, modifying parameters, activating or deactivating oracle sources. The task at hand of the DAO is clearly defined, and the role of the contributor is to keep it working or improve it slightly.

However, ambition is a human trait, and with great financial success, the protocol begins to expand its scope. What was initially simple becomes complicated, and direct democracy does not do well with complexity.

Take MakerDAO as an example. Initially intended to be a simple set of permissionless vaults to deposit crypto collateral and get funded in $DAI, it quickly attempted to transform itself into a real-world sustainable lender for all.

Stopping climate change through vast financial resources is quite possibly the most complex test of any human organization. Not surprisingly, Maker doesn't do well when it tries to do this. Unqualified institutions constantly advertise that everything they do is green while demanding huge sums of money, spamming all governance channels for months to legitimize their intentions in the eyes of token holders. In a flat democracy, it is impossible to separate the good guys from the bad without clear checks and balances and a division of labor.

Ultimately, Maker decided to use its liquidity to buy U.S. government bonds—not the rawest, greenest investment strategy.

Of course, the problem is not specific to Maker. Lido’s recent proposal to sell $10 million worth of LDO governance tokens to Dragonfly, a crypto venture capital fund, drew a similarly chaotic response from the community and, after being finalized, is now at v2.0.

It is often not possible for the broader DAO membership to evaluate complex proposals involving significant financial issues in a professional and impartial manner. But in the encrypted governance system of one pass, one vote, everyone's voice is very important and should be fought for.

These systems are a (pseudo-anonymous) winner-take-all game where those who muster enough votes and are prepared to take the risk of policing the vote can tell where everyone is going at no extra cost to themselves. Additionally, transaction costs remain an issue for many small holders, and the sad reality of cryptocurrencies today is that most token holders are more interested in liquidity mining than voting. My guess is that getting 10-20% of the voting power is enough to decide the fate of most DAOs: the voice of the winner may not fully represent the majority of DAO participants.

Low participation is one of the most dangerous conditions in a modern democracy. All of these issues take a huge leap in intensity when DAOs are DeFi protocols that can transfer vast amounts of financial resources. Due to the complex, indifferent and simple governance framework, a small number of voters is enough to pass most proposals. Those who hold the most tokens have no incentive to invest additional financial resources to assemble a team—other than buying and voting tokens, they get all the private benefits of the proposals they support and share in any potential losses.

What does it mean? Consider Mr. Evil's proposal to get $1 billion from a deal to fund a dubious project. Mr. Evil can buy $50 million worth of governance tokens of the same protocol and vote for his own proposals. He can even defend moves he approves of as evidence of participation in the game. If $50 million worth of tokens is enough to tip the vote toward "yes," Mr. Evil can now run away with the entire $1 billion, leaving the remaining token holders to bear the cost. It doesn't matter if $50 million worth of tokens bought to skew votes are lost in the process -- $1 billion is far more than $50 million. In a simple-majority one-token-one-vote system, the incentive to be a bad guy is enormous. Voting turned into a lobbying fest.

But what if instead, assuming $1B is all the protocol has, Mr. Evil's 5% ($50M/$1B) vote only allows him to abscond with 5% of the funds for his evil project ? He would end up with the same $50 million, minus gas and time. It's not worth it.

In addition to large sums of money creating high-risk and high-risk DeFi, DAOs more broadly face three common problems, even without malicious actors like Mr. Evil. From DeFi to social DAOs, almost every DAO faces these challenges: centralization, prioritization, and fragility.

centralized. If your DAO runs like a cult before a high priest, is it really a DAO? A common complaint about DAO centralization is that the simple majority governance system of one token, one vote inevitably leads to founders and Whales' powers swell, and that's fair enough.

But centralization is also a product of process issues, as DAO governance simply mimics traditional shareholder governance, where the core team is approved by the board and free to do whatever they want, rather than trying to incentivize the community to find and raise its voice. In other words That being said, we haven't really seen true decentralized governance unlock what's most exciting about web3: enhancing interpersonal trust and giving anyone, anywhere the ability to creatively contribute to the system. Actual DAO-native governance should try to do the reverse, allowing the community to submit proposals for the core team to implement, not the other way around. If this sounds controversial, remember that even in web2, this is standard practice for user research via platforms like Canny.

prioritization. Say you run an investment DAO that decides whether to fund various proposals. In current DAO practice, you might vote yes or no on each proposal to see if it gets funded - for a project your friends love, or a project with founders you might need to socialize with , a public no-vote may introduce some social bias.

What if, instead of voting those proposals up or down, you put them into a contest or competition to see which proposals people liked the most?

Something happens. First, you get more granular metrics: you can measure not only whether the community likes a proposal, but also how much they like it relative to others. Second, you'll alleviate society's fear of voting against proposals, since there are only positive votes - allowing your community to vote more honestly. Third, you will increase the cost of getting your project approved. Ultimately, you can pool funds for many projects and pool them proportionally with the proposals that get the most support — to maximize your efforts as a DAO.

vulnerability. Fragile DAOs are easy to game. Fragility has nothing to do with achieved decentralization or productivity. When a system is easily compromised by a clever actor, it exposes the entire working structure and resources to attack. In the crypto space, we are used to financial hacking — smart developers aiming to steal financial resources from wallets and smart contracts; governance hacking works in the same way, but directly targets decisions rather than financial resources. An effective DAO should develop systems that are resistant to these types of attacks.

The easiest way to solve these three problems is to submit and vote. Centralization is largely a matter of how we submit proposals. Prioritization is largely a question of how we vote on them with a yes-no vote rather than a ranked choice option. Vulnerability is a function of commits and votes.

Get your community to submit proposals, then have them vote on your favorites, and you've got a good deal of both.

Sounds so simple, why haven't we seen this system before?

Readers familiar with the history of corporate governance, then, might raise a finger here and raise fatal objections to the so-called "problems" above. ’ our hypothetical reader scoffed, ‘Having random community members competing against each other in deciding the direction of the community – would this encourage division and dissent while forcing experts to obey the common ignorant? "There is a reason why specialists or statesmen lead teams. Part of the reason, of course, is that they are visionary men who know what is best. But ruling a kingdom is also more efficient than a commune; there is no more efficient way of raising the bar than tyranny." way of productivity.

But there is a simple answer: yes, internet-native governance encourages division and dissent. Because internet-native governance should incentivize division and dissent.

This is where forks come in.

Fork Governance

What makes DAOs unique is forking — the process of creating a new version of a system by duplicating it under new ownership, much like a mutation in a species only makes minor tweaks to the DNA to produce a whole new animal, but doesn’t eliminate its original species.

Forks are not a new concept in the crypto space.

Arguably the most famous fork is Ethereum itself, which was forked into a new blockchain in 2016 to retroactively restore users' funds after the DAO hack. This fork is what we now know as Ethereum, and although it was controversial at the time, it demonstrated a perfect use case for violating the immutability of the blockchain to create a better model based on social consensus. It turns out that subjectivity, not objectivity, is the foundation of an effective governance system. In hindsight, what appears to be a linearly increasing evolution is actually an almost randomly distributed fork, with only the best fit for the current environment surviving. Forks are nature's way of maximizing probability. The universe is no minimalist.

The easiest way to understand forking is an internet-native political feature we never had in traditional states or governments: having the option to start one's own online presence with its own politics and currency.

Imagine being able to opt in and out of different systems of government, and when you disagree with a government decision, you could choose to create your own version—with the attendant hassle of trying to build a social consensus around your vision, of course. Back in the real world, it's pretty impractical: creating your own government means managing land, fighting wars, and building a social consensus with your neighbors in the local pub and club.

But online, it's just a matter of copying the code and finding someone who agrees. We'll come back to this later, and good online governance can actually help you find other agreeable people, perhaps outside your immediate social circle.

The Internet does allow us to quickly govern in our own small ways. But it also allows us to reduce the inefficiencies of traditional democracies. Forgive our diatribe.

A common complaint about democracy, from Herodotus to Andrew Sullivan, is that people don't really know what's good for them—we politicians aren't exactly experts, and we tend to be on the whim of social media. quarrel. In fact, looking at what's happening in the US and Europe, it's easy to conclude that democracy is caught between two dire poles: a violent cultural rift as populace turns against each other; With a tedious consensus, only the most compromised bills get passed, while all opposing, visionary proposals to address pressing issues like the climate crisis and health care are sidelined.

Forks provide a third path. Contrarians may not win, but they can still get allocations from the community, or they can build their own communities, working on their goals - and if their vision is right, they will succeed.

Of course, in traditional companies, incentive divergence and fragmentation are tantamount to suicide. But in the cryptocurrency space, things may be different: the open source, permissionless environment allows small teams to execute quickly by building on the work of others in the space, so small teams can execute efficiently and, just as importantly, value Will be accumulated in tokens instead of projects.

Every day, Nouns auctions an NFT, and for 393 consecutive days, someone bought a Noun at a price of 80-100 ETH ($1.36-17 million). The winner will receive a Nouns NFT and become a member of NounsDAO, which controls its 26,350 ETH ($45.3 million) vault. NounsDAO members can propose and vote for grants from the Ministry of Gold, typically for creating permissionless offshoots of Nouns-based projects utilizing Nouns' cc0 license.

A notable example is the Nouns Vision, a luxury solid sunglass based on the iconic Nouns eyewear. In February, salvinoarmati offered to prototype the sunglasses, and the DAO gave him 5 ETH. In April, the prototype was completed, and DAO member nounders proposed to allocate 7.2% of the funds to bring 500 coins to the market and provide them to the first 500 Nouns holders. With 48 members voting in favor and 8 members voting against, the motion was passed.

In addition to these 500 pairs, the creator of the sunglasses sold the physical pair on Nouns Vision for 0.44 ETH, without NounsDAO’s participation, nor did the money from the sale go back to NounsDAO’s coffers.

Why would a DAO fund a project that uses their IP but pays nothing?

In the age of TikTok and memes, companies often rely on free user-generated content for marketing, virality, and decentralized brand building. This user-generated content is an offshoot, if you will - another vision of a story based on the core IP, remixed by users. Nouns make it as easy as possible for people to create and monetize their intellectual property.

Nouns are making a very native 21st century bet: by incentivizing anyone to fork their IP for free, the core IP will gain more value. By giving up control and short-term revenue from projects like Nouns Vision, it thinks it can make the brand more valuable, and that value will come back to the DAO in the form of higher auction prices and more demand for whatever project the DAO builds itself . In the crypto world, a fork is often considered an alternate version of a blockchain with new coins. But Nouns demonstrate the power of another fork: a positive-sum fork that accrues value back to the original token and brand.

Nouns are not alone.

Look around a bit and you might even see Ethereum rollups like Optimism and Arbitrum that enhance Ethereum's core functionality, execution, to bring more value to its tokens, whether or not they also produce their own Token.

At the same time, EigenLayer enables ETH holders who have already staked ETH to re-stake — stake their tokens to receive rewards for validation services that go far beyond ETH transactions. Fundamentally, if a project splits into multiple projects using the same token, each project is creating value for that token, even if they hate each other and disagree.

Let's end this section with an important question.

Is the best governance system one that represents everyone's private views? Or does it rely on parties building social consensus openly and collectively as they negotiate for a common goal?

In the current system, broad consensus is virtually impossible, and the behind-the-scenes consensus of a small group of powerful people is at best a suboptimal choice that affects the population as a whole.

But when forking is an option, the option set can be extended online.

First, since internet-native governance gives us the option to participate or opt out of the system, we arguably hope to "incentivize" dissent by enabling dissenting parties to find each other and pursue "their" common goals.

Second, forking also means that the DAO can continually split into sub-DAOs that are smaller and easier to coordinate than the larger system - more like a direct democracy of 500 Greeks than a representative system of millions of Americans democracy.

Third, because forking enables an ongoing mitosis-like process of dividing larger groups into initially smaller groups—some of which are destined to grow independently—governance now means that individuals can Listening to identify common goals, all with minimal impact in large democracies.

In this case, governance looks less like an appearance at the polls every few years and more like an ongoing social event.

Governance as a Social Network

In other words, internet-native governance is no longer just a reflection of decisions, but a decision-making process itself that actively builds relationships, gets people excited about shared goals, and increases the likelihood of successfully accomplishing those goals. In this sense, a critical part of measuring governance is not voting, but forums—consensus-building discussions. This is what constitutes a DAO.

Think here of Twitter or any other major web2 social network. They are a governance platform.

Every like is a vote on content, saying you agree with it, want to see more content that likes it, and want others who share your interest to see it too. Crucially, these networks institutionalize two major components of internet-native governance: forks (quote-reposting, copy-paste, and TikTok remixes) and forums (incentivizing participants to dissent and build consensus in comments).

In that sense, we need to start thinking of successful governance as a great online game based on team building, competition, rewards, and most of all, fun.

Gamified governance means that the focus of governance is no longer on the outcomes we arrive at, but on the process of governance itself – just as the focus of playing a game is on playing the game itself. This will allow governance to be the foundation upon which DAOs and sub-DAOs form, rather than an annoying upper layer that no one wants to enforce.

But just as importantly, good DAO governance can learn from these social networks while unlocking unique web3 properties that empower verified contributors, enforce decisions on-chain, reward consensus and dissent, This could be the ultimate example of a fork, letting the community retroactively decide different winners based on the different metrics they use.

Because in the end, that's the prospect of forking: getting people to disagree, and then find subcommunities where they agree and can create their own version of the project. Good governance is actually a kind of web3 social network - the foundation of a social graph where people can find and pursue people who share their interests in a community.

How forks work

Still, all these forks sound complicated. How does it work?

A quick answer is that dissenters should be able to find and communicate with each other on-chain: in other words, on-chain governance can show the relevance of voters, arguably more important than the decisions themselves.

But then what? How did these naysayers fork?

We have already pointed out that the development of scaling solutions (so-called layer 2) is a kind of fork of the Ethereum ecosystem and the $ETH token. In order to increase throughput or reduce transaction costs (at the expense of other things), the extension protocol decides to build on top of the core protocol, doing so isolates most of the risk, rather than campaigning and lobbying for major changes to Ethereum core from the core , while continuing to add value to it. Successful Optimism means more valuable Ethereum, but catastrophic Optimism does not necessarily translate into systemic failure of Ethereum.

But this and the Ethereum Classic fork are very isolated examples. Conversely, how does the continuous fork mechanism work in a DAO?

Let's look at two types of forks: governance forks and proposal forks.

governance fork

Imagine a DAO, let's call it DAO X. DAO X performs a certain function (such as providing funds or facilitating the exchange of a token for another token) and accumulates value in its treasury in exchange for its services. The treasury is controlled by the DAO's governance token, which we call $DAO-X. By voting on tokens, holders can decide how to use the resources available in the treasury. Now that a proposal is presented to governance — such as developing a new exchange product — the two teams fight for “yes” and “no.”

In our one-token-one-vote simple majority system, the winning group decides what gets implemented and what doesn't. It doesn't matter whether the group won the vote 50.1 percent to 49.9 percent. The entire DAO must abide by the voting results.

But now imagine a world where consecutive forks are allowed. The group that lost 49.9% of voting power will now be entitled to 49.9% of the value of the DAO X treasury - decisions on what to do with or not to do with this 49.9% will be allocated to the newly minted sub-governance token $DAO-X -loser. The same will happen to those who retain the other 50.1% coordinated by the $DAO-X-WINNER token.

The fork will allow both groups to continue what they believe is the evolutionary journey of the protocol, allocating financial resources proportional to community approval. Forking will allow for experimentation and evolution while limiting existential risk to the protocol. Obviously, this forking process can be extended infinitely.

This type of forking system will face obvious challenges. Instead of fighting an unwinnable battle for the entire vault, hackers can launch smaller governance attacks that cannibalize smaller but still important parts of the vault. In other words, a bad actor controlling 10% of the DAO cannot launch a governance attack to take over the entire treasury in a one-token-one-vote system, but they can take 10% of the treasury without dispute in a fork model.

But one important thing to remember: People can only vote on tokens they control, and the choice may come down to giving up their tokens and leaving entirely, or using those tokens for the core DAO to do something with minimal risk but possible Good thing.

Take the Maker example above as an example. If 10% of the DAO enthusiastically supports climate positive lending, then a group of enthusiastic or expert or both could dedicate 10% of the funds to lending to active borrowers and focus all their efforts on building On the system, guarantees are provided for such projects. In addition to the 10% treasury they control and bring in, they may also attract outside capital that values Maker's infrastructure, but would rather focus the funds on active lending than all the other lending that Maker does. A token swap or fee system could be set up so that sub-DAOs are backed by Maker's strength and Makers benefit from potentially risky loans.

Even in the absence of malicious actors, a fork could overly fragment the liquidity of the protocol, which would have unintended negative consequences for all involved. Who wants to pick from 100 different Uniswap subtypes to swap their tokens to?

Solutions to these problems should be designed on a case-by-case basis. In some cases, a DAO may limit the maximum percentage of funds that can be used for a fork, such as a governance-based grants program. They might also introduce a fee that sub-DAOs must pay to the DAO so that forks can have product control without absconding with the fees. The cost of forking should be minimized, but not eliminated.

As always, the potential benefits should outweigh the potential harms. The cost of malicious behavior should be prohibitive and not easily forked. We know that is easier said than done.

From an investor or participant perspective, such a system would enhance the visibility of which forces in the DAO manage which resources and provide them with more specific options for investing. It will always be possible for such investors/participants to expose themselves to the value accumulated by all descendants, or indeed to isolate exposure and participation to specific groups, thereby increasing internal consistency.

But in most cases, governance forks should not be required. DAO members should have the opportunity not only to vote on proposals, but also to propose, tweak, submit, and recombine them before a binding vote.

Proposal fork

Just as importantly, we can imagine a process where a proposal forks. Suppose 2/3 of a group reject a proposal for different reasons: 1/3 against the budget and another 1/3 against the timetable. But what if different parties could submit alternate versions of each other’s proposals by changing the details, vote on their favorite, and vote for or against it on-chain? Two things would happen.

First, the community will have a clearer idea of the ideal implementation of the proposal. Although the Lido DAO is currently resubmitting various versions of the vault diversification proposal to determine which one will stick with a yes or no vote, they could actually find the best proposal if they enabled community submissions.

Second, the 67% who voted against could be reduced to 20% or 30% if there was a more popular version of the proposal to support. This process of "proposal forking" will lead to a stronger social consensus, not only because parties can actively negotiate with each other to reach a common goal, but because it will reveal commonalities rather than differences between communities. Not only will the proposal pass, but the community will likely be happier for it.

In a sense, this is what happens with applications built on some blockchains. We already live in a world of constant governance forks - we just have to fully accept this reality. The mechanism of continuous forking can maximize the specialization of work, increase the chances of financial survival, and maximize the sense of belonging by gradually increasing the distance of behavior between subgroups, while maintaining a common vision of the larger plan .

Governance forks and proposal forks are just two of the fork possibilities we can imagine. Celestia, a modular blockchain network, takes this concept a step further, proposing that a forked community should not only have its own sub-DAO, but also its own chain.

Regardless of the implementation, forks offer a new way to think about governance on, on, and on the Internet.

hyperevolution

This whole thing reminds us a little bit of Hamilton. A group of young bright minds fed up with the status quo put their youthful energies into...creating new models of governance.

Hamilton, Jefferson, Burr, Madison, and others had only one chance to do it, and had to fight a bloody war to get it. They must strive to form "a more perfect union" and codify their best attempts into a document that still prevails 233 years later. It turns out that the ten amendments to the Bill of Rights are as immutable as any rule written in code.

DAOs do not have this burden of responsibility or persistence. No DAO is responsible for a new nation. They don't need to be perfect. They should be optimized for evolution.

The recent debate about encryption use cases has exposed a hard truth: web3 is not as good at doing what web2 companies do as web2 companies. It doesn't matter. Of course, people aren't interested in DAO governance, and rightly point out that it's just a messier implementation of an idea that already exists; anyway, rebuilding the existing on-chain structure shouldn't be the goal.

Differentiation is important to any challenger, and DAOs should lean toward things that are unique to cryptocurrencies, even if they seem small, strange, confusing, and niche at first.

Companies cannot fork. DAOs can. Companies cannot easily exchange equity with each other. DAOs can. Corporations don't see their governance as a form of participatory entertainment and social network building (although perhaps some activists do). DAOs can.

Because they live on the Internet, without geographic or physical constraints, DAOs have the opportunity to be faster, more experimental, fork into countless competing and cooperating subgroups, and evolve faster than humans or our institutions. Rather than striving for perfection, DAOs could strive to increase the number of mutations, let market forces decide which mutations are most suitable, or even mix and match mutations in digital replication acts.

Making DAOs behave more like internet-native organizations, freeing themselves from constraints and pursuing skeuomorphic governance implementations, can speed up the simulation. This is true on two levels:

• System level: More experimentation with the governance model itself should help better models emerge faster.
• Sub-DAO level: More forks should lead to small but effective (and interesting) efforts to flourish, backed by the resources of the parent DAO and the focused efforts of consistent sub-DAO participants.

A DAO governance model that encourages dissent and forks may add value directly or indirectly. They may provide a counter-intuitive defense against bad actors who try to abuse existing models to get a full, juicy pie. They will create fertile ground for unpredictable adaptations that can only happen when you relinquish control and let the system run its course.

Perhaps the most important impact is not economic, but the increase in choices for everyone. In Politics, Aristotle said: "It is now evident that the form of government is the best for every man, whoever he may be, to perform his best and lead a happy life."

In the context of national or even corporate governance, no one can perform at their best all the time and live happily ever after. There are compromises and trade-offs. But on the Internet, with deep and rich niches of tightly coordinated and decentralized sub-communities, people should be able to play, work, connect, invest, and govern in communities that best serve their best behavior and well-being.