Vitalik Buterin, co-founder of Ethereum, defends DAOs from critics

By: Dickson Arinze

September 21, 2022 9:01 AM

Buterin maintains that the risks of corruption and collusion are reduced when decision-making authority is distributed evenly across the group rather than concentrated in the hands of an individual or small faction.

Vitalik Buterin, co-creator of Ethereum, has come out strongly in support of DAOs, arguing that they can be more efficient and fair than a conventional corporate structure in certain situations.

Distributed autonomous organizations (DAOs) are decentralized networks in which members own and manage shared resources without the need for a formal hierarchy. Community members vote on submitted proposals for changes to things like treasury spending and protocol upgrades.

Buterin wrote an extensive piece on his website on September 20 detailing how skeptics of DAOs say governance is inefficient, that DAO idealists are naive, and that boards and CEOs are the best way for corporations to make important decisions.

Although "this position is often wrong," Ethereum's co-founder argues that even naive forms of compromise are more likely than centralized corporate structures to outperform in certain situations. But he acknowledges that the answer can vary depending on the type of decision being made, which he divides into two camps: convex and concave.

The handling of a pandemic, military strategy, and the selection of cryptographic technologies are all examples of convex decisions. Contrast this with the concave choices that pertain to the law, public-goods funding, and tax rates.

We prefer compromise if the decision is concave and a coin toss if it's convex, he wrote.

Buterin claims that "relying on the wisdom of the crowds can give better answers" in cases where decisions are concave but "confusion and low-quality compromises" otherwise result from decentralizing the decision making process.

"In these circumstances, DAO-like structures with significant amounts of diverse input to decision-making can be very sensible."

Decentralization is often used by DAOs as a defense mechanism against government surveillance and hacking. It may be harder to "do background checks and informal in-person'smell tests' for character" in this setting, especially if the project is remote and conducted primarily online.

According to Buterin, this is precisely why DAOs are needed, as the decentralized world must "share decision-making power between many deciders, so that every individual decider has very little power, and so collusions are much more likely to be whistleblowed on and exposed."

However, he does admit that DAOs have some problems. Certain situations call for a more centralized structure, such as when an organization has a centralized core leadership and multiple groups working independently of one another.

Although the central leadership is decentralized, Buterin notes that it may be necessary for smaller groups to adhere to strict protocols and use "clear opinionated perspectives guiding decisions."

When an extreme and unexpected change in circumstances is presented to a system that was designed to operate in a stable and unchanging way based on one set of assumptions, the system does need some kind of brave leader to coordinate a response.

Buterin elaborates further, saying in some cases, DAOs may need the "use of corporate-like forms" to "handle unexpected uncertainty."

He wraps up by saying that "much simpler and leader-driven forms of governance emphasizing agility are often likely to make sense," even in a cryptocurrency industry.

"In spite of this, we must not lose sight of the fact that the ecosystem could not endure if it were not for some non-corporate decentralized forms maintaining stability."