The fatal flaws of direct democracy and liquid democracy in DAOs

The fatal flaws of direct democracy and liquid democracy in DAOs

Direct Democracy (DD) and Liquid Democracy (LD) systems have been widely used by decentralized autonomous organizations (DAOs) as a way to achieve fair and transparent decision-making processes. However, a recent article by Andrew Furmanczyk on Mirror explains that these systems continue to break DAOs due to their fatal flaws.

The article begins by highlighting the problems with DD. At first, DD's idea of "everyone voting on everything directly" sounds great. However, the author argues that DD DAOs suffer from voter apathy, leading to cartels, hacks, gridlock, and death. Apathy is a state of "lack of interest or concern." The author points out that apathetic voters are eligible to vote, yet they lack the interest or concern to vote. DD DAOs usually start well with a group of highly engaged voters but over time, people get voter fatigue. This is because DD systems are asking too much of voters.

Why would one spend hours of their time reading proposals where their vote only counts for 0.04% of total voting power? This leads to low voter turnout in a DD, which is not healthy because bad actors can more easily form cartels that have an outsized influence on proposals, which can lead to poor-quality proposals or cash grabs getting passed. DD systems also suffer from ignorance, where voters lack the knowledge to vote effectively.

LD DAOs, on the other hand, have their own set of issues. LD is a natural evolution of DD, where voters can proxy their vote to someone who is both smart and will spend the time and effort required to engage with all proposals. However, the author argues that LD DAOs suffer from the bandwidth problem, where too many voices for one person to accurately represent, leading to some voter signals being ignored.

Additionally, LD DAOs still have apathy and ignorance problems, and also suffer from corruption, as proxies/representatives have a misaligned incentive to choose actions that keep themselves in power, at the cost of the people they represent.

The article concludes by arguing that both DD and LD systems are fundamentally broken to their core and will always lead to suboptimal outcomes. The author suggests that we need to innovate and build better governance systems. The author is building a new governance primitive called Outcome Democracy (“OD”), which operates like a DD, in the sense that everyone gets to vote, however, it is nothing like traditional DD systems.

Counterintuitively, voters don't vote on what or how something should be done. Instead, they vote on the destination or "outcome" they'd like to reach. OD targets improvements for apathy, bandwidth, corruption, and ignorance problems. The author argues that better governance leads to better decisions being made more often, better usage of human talent, better capital allocation, better technology R&D, better living conditions, and better humanity.

Overall, the article highlights the need for better governance systems and the drawbacks of traditional DD and LD systems. The author's proposed system, OD, offers a new and innovative way to address the fundamental flaws of traditional systems.


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