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== Governance tax == The governance tax is a percentage of all newly minted REP that is used in the governance process to fulfill legislative and judicial proposals, or sent to the incinerator when there are no outstanding proposals. For the purposes of illustration, we assume the DAO enforces a <math display="inline">p=10%</math> global tax on all new REP value minted in the DAO. This number is not necessary for any particular DAO and the percentage is arbitrarily chosen for the purposes of illustration. By a <math display="inline">10%</math> tax, we mean that whenever new fees enter the system the amount of new REP minted is <math display="inline">1.10*fee</math>. In this case, <math display="inline">1.10</math> is the minting ratio and the extra <math display="inline">10%</math> is the ''governance tax''. We call it a tax, because if the newly minted tokens are not burned, then they can dilute the power of previous REP tokens. All members are affected in that case, since their REP salary is diminished, being shared amongst more tokens. By fiat, the DAO requires that every new [[Work smart contract]] (WSC) post which earns fees and REP must donate <math display="inline">10%</math> of the new REP to fulfill to promises. New work posts automatically reference approved proposals, because the UI automates the process of fulfilling promises, and other members' UIs automate the validation of these WSC posts, downvoting any that violate the governmental referencing protocols. From the DGF model, the parameter <math>p</math> is included in the minting ratio <math>m</math>. It can be chosen by the DAO to be any number <math>0\leq p< \infty</math>. The REP salary is unaffected by the <math display="inline">10%</math> REP tax whenever it is incinerated. Similarly if governance equally redistributes REP within the Forum β meaning the amount leached from posts is equal to the amount donated to posts β then any member whose posts are not affected will not have any change in their REP salary. The only time the REP salary is affected by the governance tax is when the reference donation and leaching is not equal. When donation is larger than leaching, then the REP salary of other members is decreased, since the total REP is increased, diluting the power of their REP. When leaching is larger than donation, then the REP salary of other members is increased, since the total REP is decreased, which concentrates the power of their REP. Therefore the effect on the salary is bound by the size of <math display="inline">p</math> and is typically much smaller. It is worth reiterating: ''governance tax REP sent to the incinerator is good for every member of the DAO.'' To repeat, a tax of <math display="inline">p=10%</math> does not affect the value of REP unless it is used to donate to new posts in excess of leaching, which should only be done to redress past mistakes (judicial proposals) or fund development (legislative proposals). ==== Fairness & availability ==== The governance tax is particularly equitable, since every worker pays precisely the same amount, relatively. Since every WSC donates the same <math display="inline">10%</math> to governance references, then the remaining REP every worker receives from a WSC has the same value by the [[wikipedia:Quantity_theory_of_money|quantity theory of money]] in economics. To illustrate this point, notice that if every members' REP holdings were arbitrarily doubled, then the salary each member receives would be unaffected. Regardless of the change in REP total, the tax affects every member proportionally equally, since the tax dilutes REP universally, which diminishes the REP salary the same for every existing REP token. Since every WSC post generates <math display="inline">p=10%</math> of its REP for governance, then that REP is available for revaluing the Forum WDAG in response to governance proposals that the DAO approves, as long as the DAO is actually earning revenue, which is the most important time for revaluing the REP distribution. ==== Governance agility vs stability ==== Finally, the <math display="inline">p=10%</math> parameter is arbitrary. Governance can decide to make <math display="inline">p=1%</math> if the DAO wishes governance to move slower, or <math display="inline">p=200%</math> if it desires faster governmental responses. A smaller number gives greater stability and less responsive regulation. A larger choice destabilizes the DAO and is a threat to security, but also makes the DAO more nimble and responsive to changes in the market and makes policing more effecting.
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