Ideal DAO - A Simple Proposal

[cryptowanderer]

Blockchains, used intelligently, do two things:

1. Move money freely.
2. Create programs that enable more people to participate in the additional value that is created by virtue of money moving freely.

IdealDAO is based on two contracts: Proposals.sol and DEAL.sol that do exactly that, and only that.

Preamble

IdealDAO is based on one simple principle: money moves as decisions are made, not as a result of decisions being made.

Tallies, snapshots, votes of most kinds, delegates, and “houses” import dependencies on outdated systems and thinking. Early DAO research shows that it is always possible to write contracts which warp the incentives of your voting mechanism, regardless of how watertight the original mechanism is. The research proves that you cannot predict and guard against all the ways it is possible to manipulate political process when that process is on-chain.

You can’t solve this by making your voting scheme more complex or “complete”. The answer is not to have votes at all. What makes blockchains interesting is not that we can do more complex voting (which only taxes everyone’s attention more), it’s that we can make the expression of preference costly, and therefore much more meaningful.

Decisions, Decisions

Traditionally, making decisions at scale is hard because gathering and analyzing inputs from as many diverse people as possible has a number of challenges associated with it.

Blockchains present the potential to solve at least one of these challenges because we can merge speech with economic value. We can literally put our money where our mouths are.

The idea is simple: in order to exercise any political rights a token carries, you must transfer it. You must give the value your token holds to the people whom you support in order to demonstrate that support. It is the act of transferring that confers meaning upon both speech act and value.

(The alternative, using a representation of token holdings at a given time to enable people to vote without any cost, literally merges the worst of capitalism with tyranny.)

The Proposal

Proposals in Ideal DAO are simple. It’s easy to adapt this to include Allo fees, though it is worth considering whether Allo ought not aim to be sustainable by virtue of value accruing to the token they’re long of, rather than charging fees.

You MUST include:

1. How many ALLO tokens your proposal requires in order to begin work,
2. A valid address.

You SHOULD provide:

1. A name,
2. A description of the problem you seek to solve, or the feature you want to create,
3. Clear steps, milestones, or stages for the work you will do,
4. A description of the people who will do the work and the roles they will fulfill,
5. Any supporting documentation, prior work, or other information likely to get the proposal the funding it needs.

Proposals do not require quorum, or majority support. They only require the number of tokens they specify in order to begin work. And even this is not a hard-coded requirement. The proposal authors can choose to begin work even if they haven’t reached their funding goal, just using whatever they have been sent, working on a smaller-than-ideal budget.

The Promise

This is the promise of a decentralized organization: we don’t need a single person or group to decide what we work on. We work on whatever we can fund, and we craft the incentive structures such that those with the perspective and/or experience and/or skills to do the work tend to accrue the funds to direct ongoing work in a transparent fashion.

The cost to make a decision must be directed to those responsible for enacting the decision. This is the best way to align incentives in any organization over the long term.

Consider: whales must use their tokens if work is to happen. They must balance spending what they have in order for what remains to become more valuable. In general, tokens flow to those actually doing the work, distributing more economic power to them, such that the people doing the work get to decide what work to do next.

If governing the system requires spending tokens, then governance becomes the token sink required to ensure equitable wealth distribution in the long term. Requiring that tokens literally fund decisions creates a profound feedback loop: value accrues (or dissipates) as an effect of what we collectively choose to spend our tokens on.

Proposals are not about permission and so governance must be the literal means by which distribution of funds happens, rather than funds flowing after a decision has been taken.

The Problem

This leaves us with two big design problems to solve: “initial distribution” and “exchange rate”.

If the goal is decisions about what to work on, happening in such a manner that those actually doing the work get more economic power to decide what to work on next, then we’re looking for a token with relatively stable value, and “downside protection”. That is, you don’t want the value of the thing required to fund your work to oscillate wildly, and you want to have some degree of insurance about the lowest price it could get to in the worst case, such that you can allocate time and effort proportionally.

Luckily, exactly such a token already exists. The spec is simple:

1. Enable anyone to mint ALLO for DAI (which is hence the underlying collateral).
2. The more DAI is held in the contract, the fewer ALLO are minted per new DAI added.
3. You can trade both ways, burning ALLO and claiming back the underlying DAI.

(* If used, we could easily adapt this structure to allow for DAI, USDC, USDT and whatever other “stablecoins” Allo decides are good enough collateral. We could also make it multichain.)

The trick is to make sure that, when the DAO deploys this curve, they buy the first ~50,000 DAI worth of ALLO and lock them forever (by sending to the 0x0 address). This creates a price floor. That is, the value of ALLO can move up and down as people mint or burn ALLO, but it cannot move below (depending on the initial parameters, and assuming DAI holds its peg) $5.

This gives us exactly what we need to solve both problems above.

Firstly, there is no initial distribution: only a permanent investment by those instigating the DAO, which is required to set the price floor for the token, in perpetuity. Anyone can then use the token contract itself to trade back and forth between DAI and ALLO.

It also provides the actual role for DAO members, which is not voting on proposals, or acting on security councils or the like. It is thinking carefully about the price of DEAL and potentially offering projects exchange rates that diverge from those being traded on-chain.

That is, if the DAO would like to subsidize a proposal, they might offer to buy the DEAL sent to fund it at a higher rate than the contract is currently offering. This essentially counts as a long-term investment. If that particular work stream is successful, it could add enough value to the DAO that the ALLO initially bought at a higher rate end up being cheaper than the on-chain rate at some point in the future.

That is, DAO subsidization decisions leave the DAO long of ALLO, which is incentive compatible, especially if the goal is to find/fund the most valuable work in an ongoing fashion.

[cryptowanderer]

FAQs

1. Won’t proposals get funded irregularly if it requires actually spending my tokens to “vote” on any of them?
   1. Yes, and that is conceived of as A Good Thing™ by this politician. We don’t need lots of proposals getting funded all the time to generate sustainable value. We need just a few–who have gone through diverse kinds of diligence initiated by different parties with divergent interests–and who are therefore more likely to do really powerful and productive work that advances the whole space.
   2. What this proposal does do is get funds directly to builders in the simplest possible way. If you have some mechanism where you require people to stake (but not spend) the tokens on specific builders, then you must figure out an inevitably convoluted mechanism for those builders to actually realize the value they need to fund their work. Like votes, my suspicion is that all such mechanisms will be gameable, if not directly, then certainly with other contracts deployed to play extra-protocol games. Here, they can go directly and swap ALLO for underlying stable collateral (with certainty that it will always be worth at least $5 (or whatever the floor is set to)), or they can get subsidized by the DAO at an even better price.
   3. If you’re concerned that sending money directly to builders without assurance that the proposal will get the funds it requires to do all the work set out, then consider that this is largely how VC works today: you spend money on uncertain and risky bets in the hope that the shares you receive in return will be worth more than the money you spent today before you close your fund. It is the same principle here, except the shares you receive actually represent value that accrues to the whole DAO, not just the specific proposal you’re funding.
2. What guarantee do I have that my funds will actually get used? Or, who in their rational mind would allocate funds first to any given proposal, with no assurance that it will be funded and no way to claim money back?
   1. This is where social coordination actually matters, and makes sense in context. The DAO actually has two key roles: (i) play with exchange rates (something anyone can actually do in this design, another powerful point especially at scale) and (ii) provide venues and means for investors to collaborate such that they can coordinate what to fund. Investors can execute side-agreements with projects that specify returning ALLO tokens if they don’t start work. Any such deal can happen independently and does not need to be coded into the core proposals contract: it just makes the inevitably extra-protocol games anyone can play harder to reason about.
   2. Assurance contracts are not the answer, because they again get in the way of speech act and transfer of value being simultaneous and therefore meaningful. If I can be assured that my funds will be returned to me if a proposal is not funded, I am not incentivized to do proper due diligence on what I invest in. This is a critical psychological insight inherent in this design. When you’re supporting proposals here, the calculus is very different from voting, because you know exactly how much it will actually cost you to support, which has the benefit of encouraging more considered decisions and much better and more diverse diligence processes from those who are in a position where they can invest.
   3. The problem of misaligned incentives is actually made worse by Direct Contract Incentives, which introduce a whole new game which actually tilts the equilibrium to trying to ensure that projects I send money to never start!! That is genuinely bad thinking.
   4. If you disagree, you can always deploy an assurance contract that interacts with the proposals one: it just should not be the default.
   5. All such contracts add complexity and attack surface to the DAO design.
3. How do you prevent proposal spam?
   1. You don’t. Economics is the best spam prevention mechanism we know of. Simply filter the UI where you display proposals by those with the highest current amount (seeing as this is now economically costly, rather than easily-swayed by social or reputational promises and/or manipulation). Add an additional filter by date, or other relevant metrics (which will appear if the DAO is successful) if necessary.
4. What’s the incentive to hold tokens if all I can do is spend them on proposals?
   1. The goal is to try and balance your holdings with what you spend funding meaningful work, such that what you are left with is more valuable than what you began with. Yes, you have to actually believe that doing valuable work together is a good thing worth pursuing, rather than thinking that just holding the right kind of money should work for you in the long run (something you can still do in many other places), but I think this is likely also a powerful political filter over time. It doesn’t bias left or right, it just filters out those who don’t value productive work.
5. What about all the great work on quadratic mechanisms, or Conditional Funding Markets, or the like?
   1. Those work streams are admittedly more interesting than snapshots and tallies. However, quadratic funding relies on having a pool of matching capital, which is not assumed in this design (instead, we require a smaller amount of upfront capital, which is permanently locked for the price floor). CFMs–and information finance more generally–are a fascinating design space, but do not pass the bar of simplicity I set myself in this particular submission.
6. What about filtering the UI based on impact or some other “prosocial” metric?
   1. All such metrics are gameable and introduce incentives that are either actively toxic, or just impossible to model. Most “impact” projects are complex to the point of being useless precisely because of this architectural issue, or else they centralize power with “Guardians” or the like, thus defeating the whole political point of using this kind of technology.
7. What about all the fancy AI tools and agents everyone is excited about? Where do they fit in?
   1. They fit at the edges, as tools we work with, not tools that do things for us. This distinction (tools we work with, rather than tools which work for us) is a critical one that comes from the work of Ivan Illich. If proposals are open to anyone at the contractual level (and simply filtered at the UI level according to the rules required of the jurisdiction in which Allo is domiciled), then that is likely the best way to gather sufficient data to make using AI and various automated agents worthwhile. These things definitely have a place if Allo is successful enough to require this sort of curatorial assistance.
   2. Agents can also assist funded projects identify others who have worked on similar problems and generally help weave the social fabric by identifying interesting points of connection and coordination that humans might otherwise miss.

[afo]

Nice proposal here are 2 thoughts, really love the approach of putting your money where your month is and enabling a direct allocation if you believe in a project, what concerns mean is how this can be inclusive enough for people who may not have a lot of funds but are active contributors in the DAO. Maybe introducing an element that ties in DAO contribution in a separate token that ties to allocation power of the DEAL token you described. I could also see this coming from another proposal and connecting to yours.

[cryptowanderer]

Thank you for engaging

The point of the proposal is precisely that those who do the work get funding, directly, and can use such economic power to decide what work to fund next. This covers genuinely active contributors to the DAO, without any other mechanisms that warp the game.

If you think that many active contributors do hidden work, care work, other undervalued labour, then the DAO can correct that with extra-protocol grants. It should not pretend that these are part of an efficient mechanism for capital allocation though, because then we’re just back to Governance LARPing.

In general, adding another token to represent that kind of work is fraught with difficulty. I don’t know how to do it in a manner that doesn’t introduce perverse incentives in at least one way (often more).

I think such funding should be conducted as specific and contextual decisions, enacted by known people in the DAO, who take responsibility and are accountable for said decisions. This is the only way I know how to achieve what you intend to without corrupting the core mechanism.

If the DAO is long of ALLO anyway, and is using that ALLO to top up funding for projects they want to back long-term, then this is already happening anyway. The DAO can just choose to extend whom they fund, for whichever reasons they wish. ALLO has no arbitrary limits and can be sent to whomever.

[afo]

Nice points, what are your thoughts on the proposal cadence/floor so builders don’t feel like they’re always having to propose for funding?

I made a post with a more abstract idea around governance architecture would love your thoughts and anything you see connects with yours. One thing in particular is how your simple approach can be applied to some of the ideas I have. My angle of approach for DAOs is around the working bodies/groups and finding ways to best coordinate them for effective autonomy while still being in harmony.

Fo-Fu-Fi (Form, Function, Finance)

This governance model operates like a living organism, where each part is interdependent but specialized. Smaller groups, akin to organs, define specific objectives and unite at a higher level to form a “person” that executes these objectives. An overarching collective of these persons then manages resource distribution, guided by the sentiments and decisions of Token Holders. Ultimately, Token Holders set the broader environment, create new structures, and decide how the system evolves and rene…

[bestape]

This is lovely. And I’d like to highlight that most of my DAO theory is based on the “zero knowledge” not-your-keys-not-your-wallet of signature economies: sign.kernel.community

I got a sizable hard circle for my venture fund on Sunday from an angel in part because he’s fed up with no transparency from GPs. How does Ideal DAO fit in this context? I’m seeing it as a GP generating function (Ah, you’re contemplating this a bit in your FAQs already). But, in your scenario, do I vote $5 to get $50 out and loose it if the proposal fails? If so, I could see foolish actors failing proposals on purpose to leech their enemies into starvation.

Regarding point 6, I want to double highlight this. The NGO community capturing ETH public goods funding has priced out most of us from being able to create the right bee dance metrics to still be considered viable. ‘Impact’ valuations have depowered the innovators far more than the working capital traction assurances they provide. Not to mention hiding dividend mechanisms and other silly tricks.

Halting cash flow is as bad as halting blood flow. We should expect to see social inflammation, which is what we see. Most DAOs are more boated than an immobile diabetic with swollen ankles (at least, that was my LexDAO experience). But how do we get oxygen flowing in our legs and ensure those legs walk us into prosperity?

For pint 7, as long as we’re the meta-navigator, that’s fine. In cars, we’re the meta-navigator, at this point only needing to focus on steering wheel, gas and break levers; with Waymo, our meta-navigation is only needed at the start and finish. More thoughts on AI DAOs at Squaring the Spiral | fresh Base Scale observations — bestape .

Oops, I mean at RicardiaOS of FMV ReFai Hats — bestape . Pay special attention to how I punch out with the $$ dao punchcard command.

[owocki]

@cryptowanderer

Luckily, exactly such a token already exists. The spec is simple:

1. Enable anyone to mint ALLO for DAI (which is hence the underlying collateral).
2. The more DAI is held in the contract, the fewer ALLO are minted per new DAI added.
3. You can trade both ways, burning ALLO and claiming back the underlying DAI.

this part feels similar to a bonding curve.

@cryptowanderer

The trick is to make sure that, when the DAO deploys this curve, they buy the first ~50,000 DAI worth of ALLO and lock them forever (by sending to the 0x0 address). This creates a price floor. That is, the value of ALLO can move up and down as people mint or burn ALLO, but it cannot move below (depending on the initial parameters, and assuming DAI holds its peg) $5.

i wonder if the capital raised from the patron sale ( https://dune.com/allo_capital/patron-nft ) would be a good candiate here?

@cryptowanderer

It is thinking carefully about the price of DEAL and potentially offering projects exchange rates that diverge from those being traded on-chain.

sorry what is DEAL? is that the same as ALLO?

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are there any living breathing examples of ideal-dao type systems? would love to know of a case study or two

@cryptowanderer

Won’t proposals get funded irregularly if it requires actually spending my tokens to “vote” on any of them?

the main things im looking to get funded are builds that have some amount of product market fit / line of sight into revenue… itd be interesting to think through what incentives there are to fund these builds and whether a critical mass of funders could be activated through this structure…