Breakout Room 1: From Open Corporation to Digital Nation

Presentation

Led by Kenric Nelson of Photrek

Approaches to governance: - Corporate model (1-coin-1-vote) - Democratic model (1-person-1-vote) - Pluralism (vote = sqrt (coin). Older name for this = quadratic voting.)

Approaches to voting: - Ranked choice (an expression of preference over multiple) - Consent (a non-voting system based on round discussions in interlocking circles)

Shortcomings of corporate voting: - Power, not votes, is what matters. - See Banzhaf power index, which assesses the probability of someone’s vote being the decisive vote. Power grows by square of votes.

Consequences of corporate voting: 50% of shares = a controlling interest. 20% of shares = principal interest (and sometimes still a controlling interest - you can use your 20% to influence another 20%).

Even if 20% are in opposition, there will also be 20% that don’t participate, or randomly participate.

5% of shares = requirement for disclosure. Similar principles are being applied in crypto: if anyone owns ~5-20%, it’s not considered decentralised.

Consequences for Cardano: Non-linear dynamics in complex systems create heavy-tailed distributions. Many wallets hold 5-10k ADA; but the few that hold 10m+ ADA dominate voting. The top 10% of wallets could form a coalition, creating a dictatorship with control over the community: so there’s potential for abuse.

In Cardano, participation is decentralised, but there is centralisation in how it is run.

Economic systems such as blockchain do not permit use of resources to weight voting power: resources you own don’t necessarily result in decisions you’d like.

Gap between citizenship and economic resources creates opportunity for corruption - people use their wealth to their own benefit.

Democratic voting requires a definition of citizenship.

What is democratic pluralism? A middle ground. built on both corporate and democratic principles. (Democratic = grounded in citizenship rather than ownership - as in the phrase digital nation.)

Consent (no objections) and consensus (majority or supermajority) decisionmaking are both used when appropriate.

Voting weight is based on fair price for Influence rather than votes.

Uses the quadratic rule: a voters’ wealth is a budget; they can invest in decisions for which they hold stronger opinions. A modest opinion (one that you don’t care so much about) is much less expensive; voters may not care about every proposal, so they can vote in accordance with the strength of their opinion.

Uses plural voting: 1-token-1-vote; but you have to pay quadratically if trying to apply all your resources to one proposal (i.e. if you want two votes, you need four credits; if you want three votes, you need nine credits). Rather than weighting the wallet, it’s about how you weight the tokens in your wallet to a particular proposal.. This can spread out modest opinions through many proposals, leading to more nuanced aggregation of community opinions. It’s a way of balancing between minorities that have strong opinions and can apply resources, and majorities who are able to gather a lot of different credits across many different wallets.

Uses the idea of citizenship in a digital nation - self-sovereign digital identity defines citizenship, with secure, decentralised methods for validation, to protect against being co-opted by other groups or governments.

Records of participation contribute to weight in voting. (NB for example, Photrek is working with SNET to create algorithms to track participation within that community).

Groups are already doing this: Gitcoin; Ethereum funding; Colorado state legislature (uses it for how to decide on agenda); European Union parliament; Taiwan presidential hackathon; RadicalxChange - founder is economist Glen Weyl, see his book Radical Markets.

Takeaways

• Digital communities can create citizenship

• Citizenship requires secure SSI

• People need to be able to use their resources to express the strength of their opinions

• Influence needs to be priced fairly

• Wealthy people need to use their wealth in a fair market where influence is priced, not voting.

Discussion

What has become clearer is the weighting of some of the tokens sitting in larger wallets. How do we reconcile the fact that tokens have already been distributed? The incented alignment was around remuneration - now we are trying to come back to community and power distribution. How do we look at this from a community perspective, to align incentives so remuneration doesn’t fall away?

There should be diverse voting power in DAOs. We shouldn’t limit ourselves to one system - corporate, democratic, pluralistic - we have tools to do each one, which we don’t have in more traditional systems. We should build different systems for different needs, because there’s no perfect voting or decision system.

The first implicit contract of investing in a DAO is to approve treasury txs; for this maybe 1-c-1-v is fine. But there are a lot of other processes in decisionmaking and governance actions that don’t require this restriction.

If a decision requires more technical knowledge, we should consider a more meritocratic system. For more value-centric issues, we should use human-centric methods, i.e. 1-person-1-vote.

Question: In the presentation you mentioned voice votes and influence - how is this influence gained? Answer: By “influence”, I mean the power that you have within the community. People mistakenly think that their power is equal to how many votes they have. Catalyst is 1-coin-1-vote; people think this is equal to their power overall, but this is not the case. Instead, power follows a quadratic rule - as you increase the number of coins you own, you increase the amount of power/influence you have. I should credit RadicalxChange for the phrase “voice credits”, but it could be confusing - in the context of Cardano and SNET, it’s the number of coins you have.

Cardano’s Voltaire Governance will govern the network itself onchain. 3 branches: 1) SPOs (Photrek recommends this stays the same, but with improvements to protect against multi-pool operations) 2) dReps - due to 1c1v, this will be more like a centralised corporate board - it’s unfair to call it decentralised governance. This is a major concern. 3) Constitutional committee - this will use democratic principle of 1-person-1-vote (Photrek is advocating that since this is a judicial function, they should need to reach consensus to ensure they fulfil obligations of the constitution)

Even the Cardano Foundation’s and IOG’s holdings are under 5% - so already more decentralised than many other communities.

It’s a trade-off between citizenship, and using wealth to influence decisions: must be done at a fair price (which is why "quadratic" is important).

Question: I like the idea, but how to get the wider population to participate? How to spread the word? Answer: Photrek is raising it, Snapbrilla has developed it - the tech is currently available. For several rounds they’ve had broad community support - the missing step is to get sponsorship to start using it. I’m not aware of anyone in IOG, CF, or Emurgo who is actively working on this, let alone advocating and pushing it forward. If we can come to consensus on this as important, we can hold CF to the fire and ask why they aren’t making any changes. To improve adoption, start small - if smaller groups try these approaches in their own teams, it can grow from there.

CF appears to be waiting for devs and smaller groups to run with it.

I’m working on a HOA app; if we can incorporate this into the app it will help drive it forward.

sNET have been using quadratic voting for their Deepfunding program for over a year. They run on both Eth and ADA. They showed analysis that it saved them as a community - someone had acquired a disproportionate amount of AGIX which could dictate all decisions, so without quadratic voting it could have dictated the entire process. The use of quadratic voting dampened it enough to reflect a community decision. Also it’s not just about AGIX but also participation (in their forums, and reviewing proposals).

If you are running a DAO, contact Snapbrilla to help manage voting - they already have the tools for this.