Written by: Eric, Foresight News
When the market environment is not good, it always magnifies and ultimately exposes existing problems that have been present in favorable situations. Recently, Aave and ENS have revealed some internal issues, and these problems all point to DAO.
After so many years, everyone finally realizes that although DAO has become decentralized, it has not left behind any of the management problems faced by centralized organizations.
What happened?
I believe many have seen various analyses of the recent internal conflicts between Aave and ENS. For those who are not yet familiar, I will briefly review the events.
Let's start with Aave; what is happening with Aave is actually the contradiction between Aave Labs and Aave DAO. Aave Labs previously replaced the front-end integrated ParaSwap with CoW Swap, and the fees generated have shifted from flowing to the DAO to flowing into addresses controlled by Aave Labs.
Aave DAO thus accused Aave Labs of privatizing the protocol's revenue. Aave Labs, on the other hand, believes that transaction fees belong to the front-end and product layer's revenue and are unrelated to the Aave protocol, and that operating the front end also incurs costs, so taking away revenue is justifiable.
In the Aave architecture, Aave DAO controls the protocol, including contract upgrades, treasury management, etc. Any development and upgrade proposals concerning the protocol layer must be voted on by the DAO before they can be implemented. Aave Labs serves as Aave's core development team and is also responsible for product, market, and other work that promotes project development.
In simple terms, Aave Labs developed the Aave protocol, and after issuing the tokens, handed over the ownership of the protocol to the DAO. If it needs funding for work such as development, operations, or marketing, it also needs to apply for funding from the DAO. If the DAO does not agree, Aave Labs cannot get the money.
From Aave Labs' perspective, it believes that the DAO has not 'found its place.' If not for the efforts and strategic foresight of some members of the Aave Labs team, there might not be today's Aave. The implication is that you can vote here today using AAVE because we created Aave; don't overestimate your importance.
From the Aave DAO's perspective, Aave Labs may have had a god's eye view in the early days, but later, including the launch of Lens and even the v4 version, a large amount of funds from the DAO treasury was spent without corresponding returns, and some pointed out that Aave Labs had attempted multiple times to use the DAO to achieve its own purposes but were uncovered.
Clearly, this is a dispute between founding heroes and the existing management system, which belongs to the external contradictions of the DAO, while the neighboring ENS represents the internal contradictions of the DAO.
Last month, ENS founder Nick Johnson wrote a profound statement in the forum, roughly meaning that the ENS DAO is now filled with political struggles, capable people are gradually leaving, and the leadership of the DAO has instead fallen into the hands of inexperienced individuals or those whose interests are inconsistent with the protocol.
The reason for writing these words may be that ENS DAO secretary Limes submitted a proposal suggesting the termination of the operations of the meta-governance, ecosystem, and public goods working groups at the end of the sixth term, that is, on December 31 of this year. The reasons are, firstly, that proposals have now turned into a game of 'you support me, I support you,' and no one cares about what should really be done; secondly, the lack of entry standards has led to the frequent occurrence of 'bad money driving out good.' Limes believes that improving the process cannot resolve this structural disease, and shutting down is the only way out.
Current DAOs represent a regression
So far, the most successful DAO we can see is the Bitcoin community, and Ethereum might barely count as one. Why is most DAO governance inefficient and fraught with problems? As someone who has always opposed purely democratic voting forms of DAO, I present some viewpoints for your reference.
First, I believe that the premise of establishing a DAO is actually a clear misjudgment.
The emergence of blockchain or cryptocurrencies was initially to resist centralization, as it believes that when power is held by a few, decision-making is certainly not fair. Whether it is because governance decentralization is believed to be a standard feature of Web3 projects or because centralization is thought to lead to opacity and corruption, it points to a single argument: 'centralization' is the root cause of all problems.
From the results, the problems that arise in these traditional organizational forms are also emerging in DAOs, with even greater destructive power. Therefore, if the reason for launching a DAO is because centralization is seen as 'backward,' it is completely failing to recognize the core of the problem.
As someone with a background in management studies, my biggest feeling is that management science does not even have the concepts of centralization and decentralization; its core only includes four words: 'planning, organizing, leading, controlling.' I do not deny the idea of decentralization, but the appearance of the term DAO seems to me to reflect ignorance of management science and a lack of respect for history.
Management science has developed to this day without ever believing that there is any good or bad between centralization and decentralization; it only studies how to be most effective. For a specific problem, if the centralized solution is better, then centralize; if the decentralized solution is better, then decentralize. The evolution of organizational forms is essentially a process of natural selection, and the currently common organizational form, which is considered a better form in the Web3 industry, may likely be an obsolete model. As for why this 'borrowing of corpses to resurrect souls' happens, it may simply be the wishful thinking of OGs.
Management science is essentially an insight into human nature. The DAO has not changed the biggest variable in management, which is people, and attempting to use a seemingly democratic decision-making method ultimately magnifies the evils of human nature infinitely.
In June this year, Yuga Labs CEO Greg Solano proposed to dissolve ApeCoin DAO and transfer all assets and responsibilities to the newly created entity ApeCo by Yuga Labs. The CEO stated that the purpose of this move is to focus resources on ApeChain, Bored Ape Yacht Club, and Otherside. The proposal has been voted through, and the reason the author finds this impressive is that ApeCoin DAO often has some very outrageous proposals.
Readers who are interested can go to Snapshot to take a look, as proposals such as developing new games, launching independent NFT markets, and developing Meme tools, which are obviously thankless tasks, have all been approved one by one. Closing the DAO and consolidating power to the core team is a move that may provoke controversy, but it is the best option in the current situation.
The disputes and dilemmas between Aave and ENS are also common in traditional companies, where the old guard and new systems clash, and where the primary task within companies is to avoid mistakes at the cost of losing innovation capability. Companies still have some filtering and elimination mechanisms, whereas a DAO, being an open organization, will inevitably encounter the problem of 'bad money driving out good,' and there are no correction mechanisms to balance these issues. For capable individuals, they can easily go to a company for a decent salary or start their own business; why would they engage in potentially fruitless and unprofitable endeavors for countless unknown investors?
Currently, the large projects that have survived for a long time and have high market recognition have not reached today because of DAO decisions. The vast majority still rely on the project core team or investors to decide the next direction, while the DAO merely goes through the motions of voting.
It must be acknowledged that this is the only correct choice before the project matures; the core team's abilities and perceptions are superior to most purely token holders, and they understand all aspects of the project better. There are countless examples of pure democracy leading to ridiculous outcomes; many people only began to Google what 'Brexit' was after it happened, and Ukraine elected a comedian as president, etc.
'A company can only have one person who can make the final decision' has become a consensus. It is not that a one-person rule will not lead to misjudgments, but this system can turn quickly in the event of mistakes. If every decision needs to be fully discussed and respect everyone's will, the possible result is endless disputes and decisions that can never be executed. DeFi king AC once mentioned in an article that someone questioned some of his decisions and decided to execute them in other ways, only to realize in the end why AC made seemingly unreasonable decisions at the beginning.
The second issue is that the positioning of the DAO in the ecosystem is very vague.
In my view, DAO is a very distorted existence, as its power seems to be limited to voting, but the ownership of protocol code, the brand, and the technology do not belong to DAO. In general, as token holders, you and I can only participate in the protocol to a certain extent, but do not own the protocol.
The logic that tokens issued by public chains are ecological currencies is not problematic, but what about the tokens of DApps? Existing global regulations only state that tokens are a new form of asset or are not classified as securities, but there has never been a clear definition of what kind of nature these assets should have.
This form of asset that has governance rights but does not hold ownership becomes very subtle when problems arise. For example, if a DAO-approved expenditure ultimately encounters issues such as corruption or unclear fund allocation, who should be held accountable? For token holders, should they hold the token holders who voted in favor accountable, the executors accountable, or the developers of the protocol accountable? It seems that everyone on this line has some responsibility, but specific accountability also seems to lack basis.
The current corporate system, which includes legal persons, shareholders, and executives, is designed to some extent to ensure that when disputes arise, there are clear subjects to bear responsibility. The accountability mechanisms in DAO governance are very vague; in the aforementioned ENS incident, when there are proposals in the DAO that satisfy private interests or are merely mutual support, you cannot find any accountability subject, as every process conforms to governance procedures, and every voter may be considered an 'accomplice.'
I do not deny DAO itself, but I believe that we have rich knowledge in management science and countless past cases that can make decentralized governance more efficient and reasonable, yet the vast majority of projects seem to adopt a purely 'absolute democracy' voting system to manage an organization worth billions, which disregards science and feels more like a regression than progress.
After all this, if we want to discuss specific improvement plans, it may still need to be 'DAO-specific.' In the case of Aave, it is about finding a way to balance the relationship between Aave Labs and the DAO, while in the case of ENS, it is more important to figure out how to make the DAO more streamlined, how to retain talented people, and how to incorporate punitive policies and incentives to keep the 'right people.'
Interestingly, the author does not believe that these clever founders are unaware of the DAO's issues; perhaps they just refuse to accept it, thinking they can do better than their predecessors. But in the end, they still have to admit that history chose the corporation for a reason. However, this is not a bad thing; for the Web3 industry, only by experiencing these mistakes can we know what is the right way to do things.
