Ethereum co-founder Vitalik Buterin has come to the defense of Decentralized Autonomous Organizations (DAO), saying that they can be more efficient and fairer in certain circumstances than a traditional corporate structure.
In theory, CSOs are owned and managed by members and have no central direction. All decisions on aspects such as the use of fund funds or protocol improvements are made by voting on proposals submitted to the public.
In a lengthy post on his website on September 20, Buterin pointed out that critics often claim that DAO governance is ineffective, and that DAO advocates are naive. It also states that traditional corporate governance structures with boards of directors and CEOs are the best means of making important decisions.
DAOs are not corporations: where decentralization matters in autonomous organizations https://t.co/PDh9tIRXcm
— vitalik.eth (@VitalikButerin) September 19, 2022
DAOs are not corporations: Where is the decentralization in autonomous organizations? https://t.co/PDh9tIRXcm — vitalik.eth (@VitalikButerin) September 19, 2022
However, the co-founder of Ethereum believes that “this position is often wrong”. He argues that on average, even naïve forms of compromise are likely to outperform centralized corporate structures in some cases. However, he believes it depends on the type of decision, which he says falls into two categories: convex and concave.
Examples of convoluted decisions include pandemic response, military strategy, and technology choices in cryptocurrency protocols. On the other hand, concave decisions include judicial issues, financing of public goods and tax rates.
“If it’s a hollow decision, we prefer a compromise. If it is convex, we prefer to draw. “, he declared.
According to Buterin, when decisions are convoluted, the decentralization of the decision-making process may lead to “confused and uneasy compromises. “. When they are hollow, however, “relying on the wisdom of crowds can provide better answers. »
“In these cases, structures like DAO can make a lot of sense with a large amount of diverse input in decision-making. »
CSOs typically adopt decentralization to protect against external attacks and censorship. Due to the nature, structure and organization of some projects, it may be more difficult to “conduct background checks and some informal tests in person.”
Buterin argues that this is precisely why OCTs are needed, arguing that the decentralized world must “distribute decision-making power to more decision-makers. This, so that each individual decision-maker has less power, and biases are more likely to be denied and exposed. »
He admits, however, that OCCs are not without their problems. In some cases, a more centralized structure is needed, especially when an organization works with central management and separate groups that work independently.
The top leadership is decentralized, but Buterin explains that it may be necessary for individual groups to follow a clear hierarchy, taking “a clear perspective on opinions that guide decisions.” »
Also read: Ethereum co-founder Vitalik Buterin shares his vision for Layer 3 protocols
“A system that was intended to operate stably and unalterably around a set of assumptions, when there is a very large and unexpected change in those circumstances, must require some kind of brave leader to coordinate response. »
Buterin explains further, saying that in some cases OCS may need to “use business-like forms” to “manage unexpected uncertainty. »
He concluded that “much simpler forms of governance, led by a leader and emphasizing agility, will often make sense for some organizations, even in the cryptocurrency world. »
“But that should not detract from the fact that the ecosystem would not be secure without some decentralized, non-corporate forms that maintain the stability of the whole.”