Updated on January 9, 2023 12:50 PM
What do you think is the biggest reason behind corruption? Vitalik Buterin says when a small group or an individual has the deciding power leads to the most corruption. But to minimize central control, we must distribute the power to an entire group rather than having it with an individual.
Vitalik Buterin, the co-founder of Ethereum, has raised support for decentralized autonomous organizations(DAOs). He argues how DAOs can be more efficient and fair than a traditional corporate structure.
DAOs are owned and managed by community members. Unlike the real world, there is no central authority. The power to withhold decisions like the usage of treasury and protocol improvements lies with the community members. Each proposal can pass only when a majority of community members vote in favor. This creates a uniform flow of power, where no central authority can impose any restrictions.
In a tweet, Vitalik highlighted how critics often argue that DAO governance is inefficient and leads to bad decisions. They believe the existing governance structure of CEOs and board members is optimal for crucial decisions.
However, Vitalik believes these arguments are false. In general, DAOs in can outperform any form of corporate governance in most situations. Although, it mostly depends on the decision type, which he explains are of two categories - concave and convex.
Concave decisions include judicial matters, tax rates, and public goods funding. Convex decisions include pandemic response, technological choices, and military strategy. Vitalik said, “If a decision is concave, we must prefer a compromise, and if it’s convex, we would prefer a coin flip.”
As per Buterin, decentralizing the decision-making power for convex decisions can lead to confusion and low-quality compromises. But the wisdom of crowds can give the best answers on concave decisions. A DAO governance structure with diverse input can make sense in decision-making.
DAOs are prone to external attacks and censorship due to decentralization.
And that is why Vitalik believes the world needs DAO more than ever. DAOs distribute decision-making power among many individuals. And this gives limited power to an individual, and corruption is unlikely to happen.
Vitalik concludes that DAOs have their problems too. There are problems with every organization. But for the better, DAOs can incorporate better leadership and governance for the faith of humankind. Elaborating on his arguments, Vitalik believes in certain circumstances, DAOs might need to use a corporate form of governance - to handle unexpected uncertainty.