Governance
Governance is the process by which a DAO maintains its coherence in the present, guides the group into the future, and reviews its past actions. These three types of governance are respectively labeled executive, legislative, and judicial governance. Executive governance can be thought of as active policing of acceptable behavior. Legislative governance steers future behavior by planning future changes to executive governance protocols. Judicial governance reviews past behavior, potentially revaluating previous conclusions.
Each branch of DAO governance can be further broken down into hard and soft protocols. Hard protocols are automated by the backend distributed computing software everyone shares. Soft protocols include cultural norms that guide members' behavior and automated protocols in frontend software that users may or may not elect to use.
In DGF all governance is determined through REP-weighted democracy. REP denotes reputation tokens, which are gained by peer validation and are used to vote by staking on positive or negative assertions in the Validation Pool.
Executive governance consists of automated binding votes in Validation Pools. Legislative governance consists of a series of linked propositions in the Forum validated by votes in a series of Validation Pools which move from non-binding to binding. Judicial governance takes the form of arbitration smart contracts or Forum revaluation.
Following the requirement that REP be domain specific in order to give the tokens the authentic quality of reputation, governance through REP tokens will usually require a distinct type of REP token, called gREP, as opposed to the main type of REP token the DAO uses to measure the reputation of expert workers, called REP.
DAO governance can be analyzed objectively by studying the reputation tokenomics of any particular DAO's protocols.
Overview
Governance is the explicit process for how an organization is organized. Governance is the structure which guides and constrains individual and group behavior. Governance helps an organization become and remain coherent in pursuit of their goals.
The idea of governance is best understood through its etymological roots in the Greek word, kubernetes, which means guidance, steering, control. Governance is necessary for the integrity of any organization, but it is always an overhead cost. As such, ideal governance is minimized under the constraint that it remains effective in guiding the group toward its goals. Analogously, piloting a ship is most efficient using the smallest possible adjustments that effectively steer the ship toward its destination.
Governance as control can be separated into the static concept of ownership and the dynamic concept of power.
Ownership (i.e., property or financial equity) in a DAO is determined by tokens. Tokens are digital objects that are algorithmically minted and transferred. Pseudonymous control of tokens in a DAO is accomplished using public key cryptography. Digital signatures allow someone with the secret, private key to prove ownership of a digital token without revealing their identity. This asymmetric encryption tool allows individual privacy while maintaining maximal transaction transparency in a decentralized network with no leader.
Power in a DAO is achieved with smart contracts. A smart contract is a software-program that encodes business logic in a computer program. Such automated contracts self-execute at the speed of electricity. Therefore, much more complex business arrangements are now possible on scales previously unimagined both small and large. For example, every device in the Internet of Things can dynamically negotiate with every other micro-component on the globe, in unlimited multiparty arrangements that can scale up to the level of international corporate acquisitions.
Governance, from a higher perspective, means guidance of the group, not just individual tokens. Raising our attention from the business details of token ownership and smart contract operations (executive governance), the more abstract understanding of governance concerns the justification of those primitive business operations, the analysis of the foundations of group consensus (legislative governance). As both ownership and power dynamics will necessarily evolve in time, we also need to govern how the rules change, and moreover, how to change the rules for changing the rules. Token minting and ownership is 0th-order governance. The business achieved by smart-contract-enabled token transference is 1st-order governance. How we change smart contracts and backend logic for minting tokens is 2nd-order governance. How we change the way we change contracts is 3rd-order governance. 1st and 2nd-order governance is executive governance, while 2nd and 3rd-order governance is legislative governance.
There is one higher level order of governance that is necessary in any practical application of power. Every system is flawed. Flawed means that the intent of the system is not captured by the formal protocols that are specified. Every human attempt to fully understand anything has failed to some degree. Every actual instantiation of any practical system is even more flawed, in this sense. Mistakes will be made. Every system of governance in history has therefore found it necessary to build an institution for dealing with this reality. The process of stepping outside of the system must be built into the system. This is the judicial branch of government, which reviews the system itself. 4th-order governance is how we actively review executive actions (arbitration). 5th-order governance is how we retrospectively review executive and legislative actions (Forum revaluation).
This triad of executive, legislative, and judicial governance follows the information theory triad of information transmission, processing, and storage, respectively. The goal of DGF is to specify mechanisms for achieving all these types of governance in a decentralized context.
Executive governance
Main page: Executive governance
Executive governance consists of automated policing of peer actions. The mechanism for executive governance is the Validation Pool using binding (tightly-coupled) votes on the acceptability of actions that affect the DAO.
Executive governance in a DAO is the active, direct control of ownership in the organization. Executive governance consists of policing who is inside or outside the group and how much power insiders have. Executive governance is therefore the accounting of the lists of owners of the various types of tokens that have power through the DAO’s smart contracts. Inasmuch as a DAO is truly decentralized, this control must be ultimately democratic. Therefore, some sort of token-weighted voting is necessary. Inasmuch as executive governance is the process of executing the regulations the organization has already agreed to follow, executive governance should be automated as much as possible. In a DAO this means algorithmic enforcement using smart contracts run on a decentralized computing platform.
Legislative governance
Main page: Legislative governance
Debating and voting on updates to DAO operating parameters and smart contracts (hard protocols), and cultural norms (soft protocols). The mechanism for legislative governance is the Validation Pool using a series of votes on proposals to adjust existing protocols. The proposals are recorded as posts in the Forum. The series of votes on a single proposal gradually change from optional, non-binding (loosely-coupled) polls of the REP holders to binding (tightly-coupled) votes that determine new law. A tightly-coupled vote means when you vote against the majority with your REP tokens, you lose them and they are redistributed to the winners through the Validation Pool mechanism. Loosely-coupled votes merely register voters' opinions without redistribution of REP.
Legislative governance in a DAO is primarily concerned with updating the P2P software that automates executive governance. The primary legislative governance activity is adjusting the parameters of the algorithms in the smart contracts. Such governance will always be needed, to optimize any DAO’s interaction with the dynamic market in which it functions, because we are not capable of creating a perfect system that can anticipate the future. More rarely, but still inevitably, governance will take the form of more dramatic updates to the software, such as updating UIs, updating smart contracts, and most rarely, updating back-end logic that profoundly reorganizes the functioning of the DAO.
Secondarily, legislative governance sets the culture for how members can thrive in the group. Legislation determines the rules as well as the rules for changing the rules. This secondary function of legislation is meant to correct the failures of the DAO, which are inevitable.
Judicial governance
Main page: Judicial governance
Judicial governance of a DAO is the review and revaluation of past actions and decisions. Practical judicial governance consists of two mechanisms: 1. triggering arbitration in the course of a work smart contract, and 2. revaluing the Forum.
Arbitration
Main page: Arbitration DAO
Arbitration allows conscious intervention to adjust the standard automated outcome of a smart contract. In any DAO which employs a work smart contract (WSC), when one or more of the parties is dissatisfied with the execution of the contract, they may trigger an arbitration clause, which transfers the assets encumbered in the WSC to a judge. The judge then resolves the dispute according to the standards set by the DAO.
Arbitration is the more immediate type of judicial governance, usually only requiring an individual judge's decision.
Forum reference mechanisms
Main page: Forum reference mechanisms
The Forum reference mechanisms allows DAO members to re-weight the Forum. This means new posts can give or take REP from older posts through a weighted reference. This allows DAO members to review previous actions that had previously been given a particular quantity of REP tokens, and either slash or augment the posts' holdings depending on whether they are later deemed less or more beneficial to the DAO than had originally been decided.
Forum revaluation is more deliberate and takes more time than arbitration with a judge--it requires the weighted-democratic consensus of the larger DAO. Forum revaluation changes the REP token holdings of posts in the Forum through leaching and donating references from new validated posts.
With two basic reference functions, DAOs have complete control over the process of reweighting the Forum WDAG. The reference mechanisms are complete, in the sense that those are the only functions you need to be able to revaluate/reweight the WDAG in any possible manner.
Hard protocols
Main page: Hard protocols
Hard protocols include any hard-coded standards for DAO operations. Hard protocols are the mechanisms the DAO uses to function. These include the minting and distribution of REP tokens (executive governance through the Validation Pool), the mechanisms for submitting proposals for updates to DAO operating parameters and smart contracts (legislative governance), and the time-out periods for debating and voting on those changes.
Soft protocols
Main page: Soft protocols
Soft protocols are cultural norms that govern the standards for effective communication. Soft protocols affect how proposals are submitted and debated, and guide the ways the DAO typically votes on updates to DAO operating parameters and smart contracts. Soft protocols are not hard-coded, but nevertheless have an inertia which can be read and intuited from the history of the DAO recorded in the Forum.
REP tokenomics
Main page: Reputation tokenomics
REP tokenomics is the study of the economic consequences of DAO governance mechanisms of the REP minting mechanism and the Forum review mechanism. These mechanisms are the major factors in the executive and judicial branches of DAO governance, respectively. By mathematically determining the rate of REP minting, distribution and redistribution, REP tokenomic analysis helps guide governance decisions to choose operating parameters which optimize incentives for behaviors that serve a DAO's goals.
Transcendental values
Main page: Transcendental values
It is important to recognize that even though governance is the obvious force needed to keep an organization coherent and stable, it is not the most important force in this regard. The values and goals of an organization are ultimately more important than the explicit rules for keeping an organization solvent. This effect is particularly pronounced in decentralized organizations: when roles are less specialized and authoritative leadership is less important, members give greater importance to abstract values in maintaining harmony.
Therefore, it is important to design the system with this reality in mind. Power is determined by the incentive structure engendered by the governance process of the DAO. Whether a DAO merely states their values is less important than how the DAO acts. Thus a DAO must design its reward mechanism to be in harmony with their goals and values. Tokenomics answers how accurate this effort is, objectively.