Ethereum co-founder Vitalik Buterin is calling for an overhaul of decentralized autonomous organizations, or DAOs, that are at the heart of the blockchain-based democratization of finance, arguing that most have strayed from their promise to shift financial power from banks to ordinary token holders.
In a post published on social media, Buterin said the dominant approach, DAOs governed by token-based voting, has become too easy to manipulate and is failing to deliver on the promise of decentralized governance.
“The concept of DAOs has evolved to refer to a treasury controlled by the votes of token holders — a design that ‘works,’ which is why it was so often copied, but a design that is inefficient, fragile to capture, and utterly fails in the goal of mitigating the weaknesses of human politics,” Buterin wrote.
A DAO is a blockchain-based governance system governed by smart contracts and a community of token holders, without central leadership. These token holders propose and vote on decisions such as fund allocation, with the rules transparently encoded on the blockchain for automatic execution. This structure enables collective ownership and management and promotes trust through open code and on-chain treasuries
DAOs in their current form replicate the same political and coordination problems these systems were intended to solve, leading many to become “cynical” about these organizations, Buterin added.
He pointed out the need for more advanced DAOs to support critical functions in the crypto ecosystem, including maintaining shared data, resolving disputes and supporting long-term projects.
These use cases, he argued, require governance systems that can balance decisiveness with resilience and resist capture by powerful actors.
Convex and concave decisions
To explain why DAOs should focus on certain governance functions over others, Buterin referred to a framework he has used previously on the distinction between convex and concave decision-making.
Convex decisions are decisions where a clear choice, between A or B, is better than a compromise. Often this involves strategy or leadership, such as the decision to launch or discontinue a product. In these cases, indecision or middle-ground solutions tend to fail. DAOs, he has said in the past, struggle in these circumstances because confusion and “low quality compromises” can often be the outcome.
Concave decisions, on the other hand, are situations in which the mean or median of many inputs produces a better outcome than any single choice. Examples include determining a fair price for a token or evaluating whether a contract is secure.
DAOs are better suited for these types of decisions, where decentralization can add value rather than create gridlock, because ‘trusting the wisdom of the crowd’ better answers,” Buterin argued in 2022.
“That’s why you want systems that maximize robustness by averaging (or rather medianting) input from many sources and protecting against seizure and financial attacks,” Buterin added.
He also pointed out two major obstacles that need to be resolved. These include the lack of privacy in governance and the fatigue participants experience when decision-making is often necessary.
Addressing these challenges, he says, will require the integration of new technology such as zero-knowledge cryptography, artificial intelligence intended to support decision-making, and platforms designed for constructive coordination.
Notably, artificial intelligence should not be put in charge of DAOs, but should instead be used strategically to enhance human judgment.
Buterin concluded that the push for better DAOs is how the community can ensure that “decentralization and robustness of the Ethereum base layer also applies to the world being built on top of it.”