Some Thoughts on DAO Structures

TripsTrade is currently run by its founders with capital allocations going through a MultiSig before being approved. As a small team of two with a well defined mission (deliver a working MVP on time, on budget, and to the original specs) we have little to no challenges with organizational structure. However, TT’s goal has always been to transition to on-chain governance handled through a DAO as soon as possible. As such, I wanted to write an article detailing my thoughts on different potential “Chain of Command” structures for DAOs and their advantages and disadvantages for everyone to think about.

There are infinite possible combinations here, however for the purposes of this article I am going to detail three hypotheticals; A “Flat Org”, a “Dictatorship”, and a “Council”.

When considering the advantages and disadvantages of any given structure, there are myriad factors to weigh. Resistance to corruption, regulatory resistance, agility, ability to operate “lean”, egalitarianism, and efficiency to name a few. For now, I am going to focus on those last two factors. Egalitarianism and efficiency.

The reason for focusing on these two factors is that it enables a hypothetical where, when comparing these three models, the tradeoffs are clear and obvious. As you sacrifice in egalitarianism (where egalitarianism is defined as more stakeholders being involved via voting in more decisions) you gain in efficiency (where efficiency is defined as proposals being able to be approved or denied quickly, and if they are approved also executed quickly) and vice versa.

This chart has one assumption which I will stick to for the rest of this article which is: Each new party whose approval must be gotten to approve/implement a plan increases the difficulty of said approval/implementation exponentially not linearly. In other words if one person’s approval being needed to make a decision could be represented as a “2” of difficulty, two people’s approval being needed is not a “3” but rather a “4”, and three people’s approval is not a “4” but rather an “8”.

With that all laid out, let’s examine our first hypothetical structure. The “Flat Org”.

In this hypothetical Flat Org the process for approving and executing a proposal revolves around either unanimous or majority approval through a vote of all the different stakeholders in the organization. In other words, a proposal is put forward, literally everyone votes on it, and depending on the voting process (unanimous, majority, plurality approval, etc.) the proposal is either enacted or not enacted.

This is in its purest form maximum egalitarianism and minimum efficiency. Assuming unanimous approval is required, if we take our earlier math (and the assumption that starting with one person the “difficulty” level is represented as 2) the “difficulty” level of passing a proposal through this three person group is 8. At a group of seven people, the difficulty level is 128.

This structure seems feasible with small groups of three or less people, but becomes increasingly not feasible the larger the group of voters gets. For TripsTrade, which already has over 200 token holders, this structure (especially if it requires unanimous approval) is probably not feasible. As a DAO we want to provide stakeholders (token holders) the ability to have a meaningful say on proposals, but not at the cost of sacrificing efficiency to such a degree.

Let’s next examine a “Council” structure. Under this structure, anyone can put forward a proposal which is then voted on by elected Councilmen (unless one of the Councilmen put forward the proposal in which case they cannot vote). All stakeholders (token holders) can vote in the election of Councilmen, or call for a new election if they lose confidence in said Councilmen.

At a level of 3 members, this structure is functionally no different from a Flat Org. That is because a “Council” needs at least three members to be able to vote without infinite stalemates, so it would have to include all stakeholders by default. However if we scale the number of participants up to seven, the differences become clear.

A “Flat Org” which required unanimous consent trying to pass a measure through a group of seven participants would have a difficulty level of 128 (2 to the 7th power). Alternatively a Council of three representing seven stakeholders would only have a difficulty level of 8 (2 to the 3rd power).

A Council, kept to a reasonably small size and requiring majority votes to pass measures, is a healthy tradeoff between efficiency and egalitarianism. Proposals can be put forward by any stakeholder and voted on quickly, and if the stakeholders lose confidence in one or more elected Councilmen they can opt to call an election with a similarly low difficulty level.

By keeping the number of people on the Council low, it is possible to ensure a reasonable level of egalitarianism such that each stakeholder feels fairly represented, while also enabling a high level of efficiency. Even if a given stakeholder does not agree with a given Councilman on some highly important issues, because there are more than one Councilmen, they have the opportunity to elect someone to “balance” the Council out. This structure is similar to modern day democratic governance in many ways.

However, anyone who has ever tried to compete in the meta in an RPG with PvP can tell you that there are downsides to trying to build a “well balanced” character. If you find yourself up against sufficiently MinMaxed competition your well balanced build might just get one-shotted or otherwise ganked. To that end of discussing MinMaxed builds, let’s transition into discussing our final example of a Dictatorship structure.

Notably for the Dictatorship structure, elections are the only time when the “difficulty level” will ever rise above the one person participation level of 2. Conversely, the system is minimally egalitarian in that stakeholders (token holders) are essentially non-participants outside of calling elections and voting in them.

Under strong leadership this system can draft and enact proposals with peak efficiency, however in its purest form the Dictatorship comes with obvious drawbacks. A Dictator could vote to drain the treasury to pay themselves, or through mismanagement they could squander the treasury or other team resources. If there were a “PvP meta” of DAOs, the “Benevolent Dictatorship” structure is probably the only viable option at the highest levels of competition. However, that does not mean that it is the right decision for TripsTrade.

None of these structures should be taken as requirements or inflexible. A DAO can have a Flat Org that sets up teams with limited authority, increasing their efficiency within a given mandate. A DAO can have a Dictatorship with limits on that dictator’s power, preventing some of the more ridiculous cases of abuse or mismanagement. Or a DAO can have Councils with varying term lengths or broader authorities within limited mandates, increasing their efficiency or egalitarianism. This article was not designed to push people towards one option or the other, but rather to provide a broad framework under which the TripsTrade community can begin assessing which options to pursue when we do transition to on-chain governance.

Related posts:

Omgwtfpeoplestopandcountalready! You know how decades work, right? No. Obviously not.

A machine learning algorithm is method to understand your data and occasionally predict future events based on it. Phrases like deep learning, CNNs, recommendation systems, clustering can often be…

Flowmap.blue is an open-source tool that helps visualize the movements between 2 geographic locations. It first launched in 2019 by creator Ilya Boyandin, a Data Visualization Engineer at Teralytics…