Ethereum co-founder Vitalik Buterin is calling for an overhaul of the decentralized autonomous organizations (DAOs) that are at the heart of blockchain-based financial democratization, arguing that most of them have strayed from their promise to shift financial power from banks to everyday token holders.
In a post published on social media, Buterin said the dominant approach of DAOs managed by token-based voting has become too easy to manipulate and fails to deliver on the promise of decentralized governance.
“The concept of a DAO has shifted to one that essentially refers to a treasury managed by the votes of token holders. This design has been so imitated because it ‘works,’ but it is a design that is inefficient, easy to capture, and completely fails in its goal of mitigating the weaknesses of human politics,” Buterin wrote.
A DAO is a blockchain-based governance system that has no central leadership and is operated by a community of smart contracts and token holders. These token holders propose and vote on decisions such as fund allocation using rules transparently encoded onto the blockchain for automated execution. This structure enables collective ownership and operation and fosters trust through open code and on-chain finance.
DAOs, in their current form, reproduce the same political and coordination problems that these systems were intended to solve, leading many to become “cynical” about these organizations, Buterin added.
He pointed to the need for more sophisticated DAOs to support critical functions of the cryptocurrency ecosystem, such as maintaining shared data, resolving disputes, and sustaining long-term projects.
These use cases, he argued, require governance systems that balance decisiveness and resilience and can resist capture by powerful actors.
Determination of convexity and concaveness
To explain why DAOs should focus on certain governance functions over others, Buterin referred to a framework he used previously regarding the distinction between convex and concave decision-making.
A convex decision is one where a clear choice between A and B is better than a compromise. These often involve strategy and leadership, such as deciding whether to launch or discontinue a product. In these cases, indecisive or intermediate solutions tend to fail. He has said in the past that DAOs struggle in these situations because confusion and “low-quality compromises” can result.
In contrast, a concave decision is a situation where the average or median of many inputs produces a better result than a single choice. Examples include determining a fair price for a token or evaluating whether a contract is secure.
DAOs are better suited to this type of decision-making and argue that “relying on the wisdom of the crowd… better We have answers,” Buterin insisted in 2022.
“Therefore, we need a system that maximizes robustness by averaging (or rather medianing) inputs from many sources and protects against capture and financial attacks,” Buterin added.
He also pointed to two important obstacles that need to be resolved. These include the lack of privacy in governance and the fatigue experienced by participants when decisions need to be made frequently.
Addressing these challenges will require the integration of new technologies such as zero-knowledge cryptography, artificial intelligence to support decision-making, and platforms for constructive coordination, he said.
In particular, artificial intelligence should not be in charge of DAOs, but should be used strategically to enhance human judgment.
Pushing for a better DAO, Buterin concluded, is how the community can ensure that “the decentralization and robustness of the Ethereum base layer also applies to the world built on top of it.”
