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Exploring DAO Governance and Centralization Issues: The Problem of Founder-Declared CEOs

The Impact of Self-Proclaimed DAO CEOs on the Industry and Decentralization as a Whole.

The DAO fundamentals.

DAOs or Decentralized Autonomous Organizations are blockchain-based systems that allow people to coordinate and self-govern themselves through a set of self-executing rules placed on a blockchain. It is an open-source blockchain protocol that is governed by a set of rules created by its members, completely and autonomously, functioning democratically while removing the need for a centralized governing authority. There is no need for any human intervention, thus creating a transparent and decentralized organization, where the decisions are taken by the community members and implemented through a smart contract.

The main difference between DAOs and other legal entities we know today is that there are no central authority: no executive or management levels. Instead, DAOs are composed of community members that hold the native token of the DAO and are given voting power through the token.

The token allows the DAO members to vote on decisions concerning the DAO, and when the vote is passed, the decision is implemented in the code or executed. The implementation of the community-voted decisions is carried out by DAO contributors, who are ideally voted by the community. The role of these representatives is to contribute to the project with their skills and knowledge to support the project's growth and ensure that the community's wishes are heard. The community votes the representatives, and they get rewarded for their efforts.

Having visited several Web3 conferences, I noticed a pattern where it seems that the DAO representatives see/call themselves CEOs, CTOs, CFOs, and other executive and management roles. This implies that many of the founders and builders of this industry do not understand the environment they are building in. And it’s a big problem.

Why DAOs can’t have CEOs and managers.

The very concept on which DAOs are based is described in its name, i.e., decentralization.  However, establishing and maintaining decentralization is a relatively new concept that we are still learning and discovering.

The whole concept of DAOs is still in its infancy, and it’s perfectly normal that there are different structures and interpretations of how they should operate. However, the basic idea of decentralization is unified all around the world.

Decentralization refers to transferring control and decision-making from a centralized entity (individual, organization, or group thereof) to a distributed network. In this case, the decision-making power and control transfer to the community members holding the token of the DAO. Thus, there cannot exist a central authority that holds power in a decentralized organization.

The phrase “DAO CEO” itself is an oxymoron. A decentralized organization cannot survive as a decentralized organization with a chief officer in charge of the organization as it implies that ONE person is holding all the power and control. Thus, people need to understand further the notion behind DAOs and how to implement a structure that supports them.

The issue remains that human beings have always had the problem of fighting greed and power. DAOs are here as a way to eliminate the effects of this human nature by having smart contracts in place to ‘govern’ the DAO.

Unlike centralized organizations that require their members to put their trust in a CEO, managers, or board responsible for the management and development of the organization, DAOs are trustless, meaning the need for trusting someone is eliminated, and human involvement is minimized.

In a centralized organization, the progress and development usually depend on one decision-maker or a few. In contrast, in a DAO, every member has an equal right to be heard, build and put proposals for vote (as long as they are for the benefit of the project). This allows space for more creativity, involvement, and the ability to recruit skilled people anywhere in the world.

It also removes a single point of failure in systems where there may be too much reliance on one or two specific actors.

In Pursuit of Decentralization.

Decentralization soothes the process of growth. A DAO can simply grow by having more people involved, whether as members or contributors. Moreover, when the contributors and community members have a stake in the DAO, they tend to work harder towards the development and growth of the organization.

DAOs do not have a central authority, and no management rules. The success of any decentralized project is highly dependent on its community and their active involvement.  Therefore, DAOs encourage communities to come together to solve complex problems – each contributing what they can to drive the project forward. Members that come forward and use their skills to support the DAO are referred to as contributors. They essentially contribute to the development and growth of the DAO, however, do not hold any arbitrary authority over the DAO or its community members. Contributors are accountable to the community members and cannot act in defiance of the wishes of the DAO community.

How DAO CEOs can ruin the future of the industry.

DeFi and the Web3 sector are unregulated and novel at the moment. People who are part of the industry, especially founders, influencers, thought leaders, and those that would be seen as in the leadership type of roles, have the responsibility to educate the newbies and not mislead or wrongfully guide the people involved or the newcomers in the industry.

The founders or people in leadership-type roles in the decentralized industry are bound to not just understand their responsibilities, but also their limitations and the accountability they hold towards the other members of the DAO and the wider decentralized community. Calling themselves a CEO, CMO, CTO, or even a manager, would cause the DAO to be perceived as a centralized organization by the regulators and ruin the basic nature of the DAO, not only letting down the members but also creating havoc for the industry as a whole.

It doesn’t matter whether you have an entity incorporated that represents the DAO, you might be CEO on the paper, but if you are bringing it onchain as well, the effect is the same.

In the current legal scenario, DAOs are rarely recognized as legal entities, owing to their nature and basic structure. Few states and countries, like Wyoming (USA), the Marshall Islands, Panama, Tennessee, etc, give some level of recognition to DAOs. The rest of the world is yet to figure out the laws and regulations that will govern DAOs.

The DAO future is on us.

We are at a very sensitive stage, where the regulations will hugely impact the future of DAOs and DeFi as a whole. Builders in the industry have the ultimate responsibility of helping preserve the fundamentals of the decentralized industry.

We must remember that the investors, newcomers, and new builders, are looking up to those who have been building in the space for some time. Even though the project is built to be trustless and not dependent on human intervention, it is still being built on trust. Members rely on others to learn and support each other. Misrepresenting yourself as a DAO CEO will not support the wider adoption of decentralization. It will do the exact opposite  - it will just bring centralization on chain and jeopardize the basic fundamentals.

Let’s not forget that the regulators are watching. C-level titles in decentralized organizations will not help its cause. It will just give more reason to distrust us and regulate as any other centralized environment. Suppose the founders end up holding too much control over the activities of the DAOs. In that case, we may witness the conversion of DAOs into centralized entities, which would ultimately affect how regulators view the DAOs, Web3 and DeFi, and change the course of the regulatory future of the industry.

It’s not a DAO just because you call it a DAO. If it walks like a duck and looks like a duck, it’s a duck. In our case, it is not a DAO. It is centralization.

What can we do to protect decentralization?

As the name suggests - DAOs are decentralized and autonomous. Both these characteristics play a key role in the formation and structure of the DAO and are the two things that a DAO cannot exist without.

The conception of Web3 and DAOs stem from the need to move away from the centralized structures and organizations that have existed for a long time and introduce a concept where the people who get involved in organizations are given the power to decide its operations, rules and future.

This wave of individuals referring to themselves as founders or CEO, CMOs, and CTOs of DAOs needs to stop.

The representatives of the industry centralizing power for fancy titles may play a significant role not only in destroying the inherent nature of the industry but also such acts present the DAOs in a bad light in front of the regulators, which may cause wrongful interpretation on their behalf and hamper the development of regulations that would improve and grow the industry.

Suppose the idea of decentralization is taken away from the DAO. In that case, it becomes just like any other centralized entity and can be seen as an LLC or, even worse, as a general partnership.

If the power is the driver, this industry might not be the place for you.

Embrace the Rise of DAOs with me and embark on a journey into the intricate realms of DAOs, Web3, and decentralization. To delve deeper into this remarkable space, I invite you to listen to my podcast, DAO Today, where we passionately explore its inner workings, challenges, and potential. Tune in to engage with insightful discussions that navigate various aspects, with a particular focus on the legal and regulatory challenges shaping this industry. Listen now!

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