Why DAOs? ── Arbitrum’s governance turmoil reignites doubts[Column]| coindesk JAPAN | Coindesk Japan

What do crypto assets want from DAOs (Decentralized Autonomous Organizations)? A few years ago, I remember a fellow former journalist at CoinDesk talking passionately about the potential of DAOs.

Possibilities of DAOs

Many people try to simply describe the DAO as “discord with a bank account,” but this technology-based organization is comparable to traditional LLCs (limited liability companies) and various governing bodies. has a solid prospect of growing in

In DAOs, the “third way” of power, possibility and politics, smart contracts become a means of automating human decision-making. The basic rules of the group are pre-determined and woven into the programme, and in the unlikely event that decisions are left to discretion, decisions on governance will be made by voting of token holders.

In this regard, DAOs empower human activity while minimizing human activity. Multisig wallets eliminate a single authority, blockchain makes democratic processes more transparent, and token distribution gives voice to everyone with a stake.

But the governance turmoil at Arbitrum, one of the popular Layer 2s of the Ethereum blockchain, has revealed that DAOs still have a long way to go.

For DAOs to scale to the point of replacing or complementing centralized corporate and state activities, the industry must determine what DAOs can actually help. But that doesn’t mean the DAO has to grow as expected.

In fact, like any “one-size-fits-all technology,” most of the DAO’s problems stem from a messy taxonomy of different, often disparate types of organizations.

But when you want to join a DAO, you need to know what kind of organization you’re joining.

Pretend decentralization

Arbitrum’s DAO was touted as a way to “decentralize” protocol development initiative from the Offchain Labs that launched Arbitrum, and involve users and the community.

Tokens have been airdropped with great promise as a reward for early adopters of Arbitrum. Unfortunately, according to the criticism on the project’s Discord, the project destroyed that trust in five minutes after about 18 months of building relationships and building a user base. Oops.

Arbitrum’s DAO appears to be a prime example of “decentralization under the guise” of a newly formed Arbitrum Foundation registered in the Cayman Islands, with the protocol development being led by It seems to be the same foundation. Approximately 750 million Arbitrum (ARB) worth approximately $1 billion (approximately 1320 trillion yen) will be allocated to pay off the Arbitrum Foundation’s expense-related debt, with most of the remaining tokens in whatever form the Foundation sees fit. distributed by

It’s not a problem per se. There are many crypto projects that give tokens and “community development” power/responsibility to foundations. The Arbitrum Foundation will receive 7% of the tokens in circulation, but 5% of the cryptocurrency Optimism (OP) will go to the Foundation in the case of competitors Layer 2 Optimism (Optimism) and cryptocurrency Solana (SOL) in the case of Solana. of which over 12% went to the Foundation.

With the planned reform of the Arbitrum Foundation, it makes no sense to rehash what has already happened. But the root of the problem is that those in power at the arbitrum made decisions before the vote. The DAO, dubbed a “leaderless cooperative,” has been downgraded to a group that gives token recognition.

What emerges from this is that there are humans behind autonomous smart contracts who can decide what form decentralization will actually take. There are legitimate questions here about whether tokens are needed for Layer 2 operations, and whether the technology should be developed through direct democracy (or its fakes, etc.).

To make the most of DAO

Here are some lessons cryptocurrencies have learned from the best-known DAO to date: ConstitutionDAO. The ConstitutionDAO was set up to purchase the original copies of the US Constitution, but failed to do so. This DAO had a lot of problems, such as who would bid in the auction and how to return the unused capital to the crowdfunding participants, but such problems are still issues of crypto asset governance. seems to be

Eliminating the technology that abstracts human decision-making will often reveal the existence of a small number of key decision makers.

There is a glimmer of hope in the Arbitrum community’s complete rejection of the original plan and demanding transparency. People checked the records and found that 50 million Arbitrum (ARB) was transferred to cryptocurrency exchange Binance, presumably for sale, while 40 million ARB was loaned to crypto market maker Wintermute.

The problem is not so much that ARB is, as many have claimed, a “useless governance token”, but that its governance was biased from the start. But perhaps it is unavoidable in a system that dictates how the system operates by giving power according to wealth and giving some users more power than others.

Crypto assets now need competent decision makers to oversee the development of new technologies. DAOs can be powerful tools for increasing participation.

There are also a number of well-functioning organizations that have declared from the outset to be little more than Discord with their own token, run collectively. But before “decentralizing”, project leaders need to consider whether they need a DAO in the first place and what their DAO should be.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
| Image: Parker Johnson/Unsplash
｜Original: Arbitrum Governance Fracas Reopens the Question: Why DAOs?