DAOs and On-Chain governance have become a key theme in Web 3 over the past year. <\/p>\n\n\n\n
Propelled by events like the GameStop short squeeze and the general public’s disillusionment with top-down centralized institutions, millions of people have turned to DAOs as a more open and transparent alternative to achieving wide-scale governance that benefits the majority of people. <\/p>\n\n\n\n
A Decentralized Autonomous Organization (or DAO) is an organization made to operate based on rules that are encoded into a blockchain and executed in a manner that is transparent, permissionless, trustless, and censorship-resistant. Rules are established and can be altered by the majority voting consensus of individuals or entities who typically must stake a governance token in order to vote on any issue. <\/p>\n\n\n\n
DAOs can be set up for any type of initiative and are most commonly used to manage the treasury of a blockchain network, where rules for how funding should be allocated are managed by smart contracts. <\/p>\n\n\n\n
In the past year, we have witnessed a variety of experiments in on-chain governance. <\/p>\n\n\n\n
While many of these experiments ended with mixed results, they also gave people a glimpse into the potential of blockchain technology as a tool for coordinating unified action amongst millions of people to achieve a clear set of objectives. <\/p>\n\n\n\n
The most popular of these experiments was Constitution DAO, where just over 17,000 individuals pledged $40 million to purchase a copy of the US constitution in an auction. The median donation is about $200. Though the crowd ultimately lost the auction, it demonstrated the amazing ability of people to raise large amounts of funding to achieve a common goal. <\/p>\n\n\n\n
We also witnessed incidents that brought to light some of the growing pains of running a DAO, such as the controversial Uniswap treasury vote that saw $20 million being allocated to a Harvard Law Student group to create a \u201cDeFi Education Fund\u201d. The controversy came from the unreasonably large amount of money that was being requested and the subsequent lack of transparency around where those funds were spent. <\/p>\n\n\n\n
In this case, the problem came down to 2 key issues:<\/p>\n\n\n\n
These core issues prevent DAOs from realizing their full potential as a replacement for traditional forms of governance. They are also issues that we believe Accumulate can solve through its digital identifier (ADI) system. <\/p>\n\n\n\n
The problem with on-chain governance is that the effectiveness of what can be governed is mostly limited to only what exists within the network itself. In other words, decisions that are voted on-chain but must be conducted and verified off-chain are far more likely to lead to undesirable outcomes for on-chain voters, leading to greater distrust in the on-chain governance process. <\/p>\n\n\n\n
Yet at the same time, the most important decisions that utilize on-chain voting involve dealing with off-chain entities. For example, using funds from a DAO treasury to hire legal, technical, or marketing support or to fund off-chain businesses that could be strategic partners to the DAO. All of these examples require establishing a communication and audit layer between on-chain and off-chain entities in order to enable end-to-end tracking of all events that occur from the casting of the votes to the submission of deliverables. <\/p>\n\n\n\n
Accumulate Digital Identifiers (ADIs) are human-readable identities (like website URLs) that can represent individuals, entities, digital assets, or anything else of value to a group of stakeholders operating on a blockchain. <\/p>\n\n\n\n
ADIs enable greater flexibility and management of public and private key addresses which can be structured into hierarchies based on the value of the assets they hold and the level of access permissions granted to specific keys. <\/p>\n\n\n\n
This technology enables us the possibility to create a unified framework for governance between on-chain entities (within a single blockchain or across multiple chains) and off-chain entities whose members and assets are represented as ADIs on the Accumulate network. <\/p>\n\n\n\n
This has many implications for the way future DAOs could operate. For example, we can envision a structure in which all proposals to receive grant funding from a DAO\u2019s treasury to support off-chain projects will require every key stakeholder and asset involved in the off-chain project to be represented on-chain using ADIs. <\/p>\n\n\n\n
The distribution of funds to the proposal managers could then be tied directly to status updates of each unique ADI that represents a component of the project. <\/p>\n\n\n\n
Let\u2019s use the infamous DeFi education fund as an example of how an ADI-based system could resolve many of the transparency issues. <\/p>\n\n\n\n