Dear valued readers,
We are ending the week in Izmir with rain. We hope that more prosperous days will come into our lives next week.
we've discussed business models, what a DAO is, and its potential benefits . You can also access our introductory podcast about DAOs below.
Listen or view the original embed ↗
As promised, this week I will be discussing the disadvantages of DAOs ; this newsletter will be a critique . I realize that initially I praised them and presented them as an ideal system, but every system has its problems . Just as there are no perfect people, there is no perfect form of governance. Perhaps this is because we humans are not perfect. Our task is to examine and present the structures we study from as many angles as possible.
Critique: Decentralized and Autonomous
We know, even have memorized, that the goal of many DAOs is to create autonomous and decentralized governance structures for people with similar levels of intelligence. While this makes sense for communities of 10-20 people with similar goals, they can also be preferable systems because these communities can provide much greater transparency compared to traditional governance structures . For example, these organizations can be ideal for fundraising, because everyone sees where the collected funds are going and what they are being used for. Since charities have become something whose sincerity is questioned by many people today, DAOs offer a solution to this as well.
So how do you know if a DAO is right for you?
DAOs (Decision-Making Authorities), which introduce their own interpretations of decision-making mechanisms, can create problems for large companies. If you have more than 100 employees, getting everyone to vote within a single decision framework can be exhausting and lead to many difficulties. Think of parliamentary systems; you appoint representatives to positions where they will make decisions on your behalf. They, in turn, vote for you on all matters. Now imagine a system where every member of the public votes in every matter. I imagine you can't even imagine that. Therefore, the full adoption of DAOs in very large organizations could create many problems.
Especially with the new systems in a Web3 application, where everything is approaching the speed of light, it doesn't seem very likely that everyone will be able to play the game.
Yes, while this form of governance seems like it will become much more popular in the future, it's important to remember that DAOs are still evolving. Besides the voting problem we just mentioned, we must also consider the potential for abuse of this freedom . We know that governance tokens increase your role in governance, and unfair distribution of these tokens or financial advantages could give individuals undue importance. This is another point to consider.
Critique: Decentralized and Autonomous
Another disadvantage is the security problem . As you know, DAOs operate with smart contracts , and vulnerabilities in these smart contracts mean vulnerabilities in the system .
How much trust can you place in a DAO that has technical shortcomings? How much can you entrust your efforts or investments to it?
One of the most important details we need to discuss is education . Yes, you heard right! Members need to understand the system and be educated so they can make rational decisions and vote in the most profitable directions. In many technical matters, an outside investor might not be able to think rationally, or worse, they might think they are. They might confidently support wrong decisions, which will lead the system into unpleasant situations.
Additionally, this system can leave us with a phenomenon known as the " Bikeshedding Effect ," which can be summarized as spending too much time on insignificant details.
Now, let's take a look at some of the week's developments.
With the crypto winter, which we've mentioned repeatedly, becoming even more bleak with the FTX incident, we may have started to look at the markets quite pessimistically. However, perhaps the situation isn't as bleak as we think, and we may even be moving away from the problems we discussed in our newsletter titled " The Curses of Centralization " and progressing towards decentralization. In this context, attention is immediately turning to DeFi , or decentralized finance .
Muhabbit has compiled a summary of recent developments in the DeFi space . To summarize that summary, we can start with the Onomy DeFi protocol receiving $10 million in investment. This protocol, based on the Cosmos blockchain, aims to bring together a foreign exchange market and decentralized finance. Among the investors is Ava Labs , a company whose name we've heard quite a bit.
also announced that Cardano has suspended its DeFi projects due to uncertainties regarding capital and project timing . The Ardana project, which received promising investments last year , was unfortunately among those affected by this downturn. Hopefully, this situation is not permanent.
FTX CEO Bankman -Fried will testify at a hearing on December 13th . Let's continue our week aware that this hearing could affect the markets. Let's see what happens. You can click here to read or listen to our bulletin on the FTX scandal .
That was this week's news, and we hope to bring you more joyful news next Sunday. We hope you have a peaceful and wonderful day and that it inspires you on your other days.
If you'd like to connect us with people who might be interested and enjoy reading our content, you can use our link: bit.ly/merkezsizbulten
Additionally, you can stay updated on developments throughout the week by following our Twitter profile.
See you next week,
Originally published on Medium on December 11, 2022. English translation of “Eleştiri: Merkeziyetsiz ve Otonom”.