On decentralized governance: The case for DAOs and structural revolution

Photo by EthereumClassic, marked with CC0 1.0

By Virginia Valenzuela, Arts Editor & Kyle Olney, Director of Product

Over the centuries, humanity has attempted a number of different models for large-scale governance. From monarchies to republics, democracies to dictatorships, from communism to socialism to utilitarianism, and so on. And while each may be predicated on some philosophy of who should be in charge and more importantly, how large groups should coordinate, the problem of governance being efficient and effective, and how to remain so over time, urges us to continue the search for that more perfect union.

In 2008, the economies of the world felt the crash of American exceptionalism at its worst. Banks were found to be bad actors, whose main purpose was not to help the population manage their money, but to offer them predatory loans to buy assets they could not afford. When the housing bubble burst, it was the American taxpayer who paid the bill for economic resurrection, and it’s the taxpayer who continues to bear its yoke. 

“Occupy Wall Street protest in Oct, 2011” by Zoriah is licensed under CC BY-NC 2.0

It was no coincidence then, that in 2009, Satoshi Nakamoto mined the first block on the Bitcoin blockchain. Embedded within that block was the contemporaneous headline: “The Times Jan/03/2009 Chancellor on brink of second bailout for banks.” This statement, a rallying cry etched in the annals of history for all time, embodies the political motivation behind blockchains as a technological innovation for coordination of the common good.

If we zoom out from the excitement of insiders and the confusion of outsiders that surrounds cryptocurrency, NFTs, DAOs, and other groundbreaking technologies a la blockchain, we can see that these experiments are merely the latest answer to the age-old question: how do we govern ourselves? And relatedly, how do we protect ourselves from bad decisions being made on our behalf or in our name?

Preamble

In a lot of ways, we can think of Bitcoin as the first DAO. A proto-DAO of sorts, Bitcoin was formed through a social consensus about the parameters of how to keep a public ledger, and a calcification of the values around why an unalterable, permissionless and distributed ledger could become the optimal means of exchanging value and certifying history. Miners would be rewarded for honest efforts toward maintaining the network and for contributing computing power, and anyone could opt in or out as they pleased. Users could trivially access every transaction ever made, tracking the provenance of any given unit of value stored on the network, thus providing the ultimate form of financial transparency combined with irrefutable security. The political philosophy behind Bitcoin makes changing the network incredibly difficult; but theoretically this is possible given the right social consensus around any proposed changes.

Then came Ethereum, which grew as a branch off of the Bitcoin trunk, allowing users even greater opportunity to apply and experiment around the values of open-source code, distributed ledgers, and voluntary consensus mechanisms. The implementation of a Turing-complete programming language—on top of the miracle innovation of Nakamoto consensus—set the stage for a Cambrian explosion of different methods for financial and social coordination. 

The DAO, which ran on the Ethereum blockchain, was the first social experiment built as a higher level of abstraction on top of the primitive of programmable digital value. It was an experiment around whether it was possible to set up a decentralized, anonymous venture fund, with shared financial interest as its mechanism of coordination. We evolved from operating as individual financial actors, loosely aligned through the basic rules that govern the Bitcoin network – to complex coordination among large groups of individuals on the Ethereum network, mediated through programmable smart contracts, which require higher levels of alignment to manage a constantly evolving social consensus.

Types of DAOs

After the original DAO blew up, causing wreckage across the Ethereum ecosystem and forcing a period of fraught reflection amongst its early adherents, a number of other experiments with DAOs began to emerge. Within a few months, the Ethereum community had reached the conclusion that, while the DAO had been a catastrophic event, the latent potential energy stored in the concept of DAO’s as a coordination mechanism was too great to ignore, and that by evolving their social parameters, this potential energy could be unleashed and channeled toward world-altering outcomes. 

The Moloch DAO, founded in February 2019, was one of the first to gain early traction following the crypto winter of 2018—likely as a result of the strong stance they took on the value of DAOs as a coordination mechanism, and the political drive to continue innovating. Instead of buying in like people did with the DAO, potential members were asked to sacrifice something meaningful to them “for the greater good.” Maybe that was 2 ETH; maybe it was a certain amount of time that functioned like sweat equity. 

But one of their most consequential inventions was the ragequit mechanism. Like in a videogame where a player is losing and thus rage quits right out of it, the ragequit mechanism in Moloch allowed members to cash out their shares instead of spending money on a project proposal that they disagreed with. It was important as a primitive, or algorithmic building block, in the evolution of DAOs because it allowed people a way out of a political turn that would lead them to investing in something they found unconscionable. The concept of exit is a fundamental function of decentralized blockchain networks and its application in the context of a DAO makes participation not only more attractive from the perspective of a capital allocator, but substantially more scalable from a social perspective. Like the decision to “vote with your feet” in the context of American federalism, the ability to ragequit your capital in a DAO lowers the friction around exiting while facilitating greater variation and experimentation among and between DAOs that (at least nominally) compete for limited capital, attention, and member engagement. 

The Party DAO, which also launched in February of 2019, was organized around the collective bidding of NFTs. Unlike other collector DAOs like Pleasr DAO and Flamingo DAO, Party DAO allows users to initiate a Party Bid around a specific NFT. If the PartyBid wins, the group of people who pooled their capital to buy that NFT becomes a temporary DAO that can hold the NFT and split the profits when it sells. This allows groups to form around specific NFTs, rather than groups voting on which NFTs they’d like to bid on as in other collector DAOs.

More recently, there has been buzz surrounding the Constitution DAO, which raised $40 million between over 17,000 people, and aimed to purchase a folio of the United States Constitution. Though owning the document would not have changed the way politics function in the United States, the implications of such a venture would have been enormous. What would happen if people outside of elected office could vote on deletions, updates, and alterations to a document that governs our very way of life? How would voter participation and the general idea of citizenship be impacted?

SuperRare as a Curation DAO

Last August, SuperRare launched the $RARE token, thus beginning the next chapter in NFT marketplace curation. As a governance token, it constitutes membership for making curation decisions in the SuperRare network. Owning a single token allows you to vote on new Spaces, the admission of new artists, and green-lighting treasury expenditures that look to support artists, arts programs and cultural development. The larger construct is to look at curation, not just from an art perspective, but also a cultural one. 

“It totally warps your perception of collaboration and corroboration with other team members and employees,” says Lee Knight, SuperRare’s Technical Community Manager. “It’s a novel experience as compared to traditional work environments, relying heavily on community involvement and a sense of responsibility and accountability.”

In the not-too-distant future, having a certain amount of tokens could grant members access to an IRL event, putting them in the room with the social milieu that we are creating within the network, connecting us all to a cultural and aesthetic desire that we believe in and want to see expressed in the world. We can think about how we are adding and influencing cultural significance all around us, our involvement via collection and DAO membership becoming just as important to the digital art world as the artists themselves.

SuperRare aims to eventually become the biggest pool of non-financial capital in the world. And unlike other DAOs, we plan to invest in things that do not have a direct financial return on investment. By believing in art as having intrinsic value outside of auctions and sales, the SuperRare community will be able to add more cultural capital to the world and begin to rectify decades of neglect for the arts driven by the over financialization of society these many years.

Photo by Zoriah is licensed under CC BY-NC 2.0

Hopes for the future

Thanks to blockchain technology, we are now well on our way to realizing true and meaningful sovereignty, wherein centralization becomes less and less powerful, and the sovereign individual can decide where they want to live, how they want to make their money, and with whom they want to collaborate. Power structures flip from centralized state authority exerting its will on individuals through the use of force, to a digital-first, free-agent universe. Distributed ledgers, non-custodial wallets, decentralized apps, smart contracts, and DAOs are a way for us to come together naturally, functioning under terms that we freely agree to, and in many cases, have legitimate agency to change.

DAOs are slowly becoming the new city-states, functioning best when members are drawn together by a joint cause and shared values. Whether that be to fund new political projects, collect assets, or collaborate on major social problems like supply chain or resource allocation, DAOs allow us to have an active part in both how we make money and what we do with it. Token networks solve the bootstrapping problem by helping entrepreneurs to raise capital without going through predatory systems, and instead being funded by their own community, rather than centralized entities.

The SuperRare DAO is like a city-state focused on art and culture, the same way Athens was a city-state dedicated to the arts and learning. By harnessing the social, cultural, political, and monetary capital of the cryptoart movement, we can indeed change the world that we live in, giving everyone a say through collective governance. DAOs are by design egalitarian, cross-national, and cross-cultural, making it the perfect way to collaborate on what many have called the Digital Renaissance – the first ever global art movement.

In the future, we can have rules set inside the DAO where, for example, we will be able to rage quit on some things but not exit the DAO entirely. We can have sub-DAOs dedicated to specific needs, functioning much like committees, except with actualized results, executed by smart contracts in real time. At long last, the Chomskyan anarchist philosophy which calls for decentralized markets, politics, and society can be realized. What will you do with the responsibility?

Author profile
Kyle Olney

Kyle is a long-time technologist, investor and Web3 missonary. An early employee of Atlassian, Flexport and Consensys - he now serves as the Director of Product at SuperRare Labs.

Author profile

Vinny is a writer from New York City whose work has been published in Wired, The Independent, High Times, and the Best American Poetry Blog. She is SuperRare's Arts Editor.

Leave a Reply