Crypto Governance

In recent years there have been increasing calls for the rise of stakeholder capitalism with the goal of spreading corporate governance rights from owners of capital to anyone with an interest in the actions of the corporation: employees, vendors, users, and government. Changing existing corporate governance to stakeholder capitalism might represent an erosion or taking of shareholders' rights. However new organizations can be established based on crypto governance protocols that fuse stakeholder and shareholder capitalism.

The rise of decentralized autonomous organizations (or DAOs) is an interesting development in the evolution of governance. Decentralized autonomous organizations are a new form of governance built upon crypto and the blockchain. This foundation lets them be truly autonomous in a way never before possible. Code is law and crypto lets you implement law in its most distilled and pure form.

Software is pluggable and composable and we're starting to see the experimentation and proliferation of new forms of governance based on crypto. Crypto will blur the boundaries between corporate and state governance as both come to be built on the same crypto primitives. Individual corporate and state governance structures will become specific instantiations on a governance continuum.

Let's consider some of the options when creating a new governance system and compare and contrast that to the systems we have today.

Token Rights

What right does token ownership bestow on the owner? This breaks down into two main components: the right to vote and the right to capital. Tokens can offer either or both of these rights. Voting rights let the holder vote on issues related to governance, or grant the ability to delegate their voting rights to others. Capital rights offer the holder a promise of future cash flows.

A token with both rights can be thought of as analogous to a share in a traditional corporation. You have the right to vote on shareholder issues and an implicit promise of future distributions. Tokens with only capital rights are similar to B class shares in a modern tech company in which the founder holders the majority of the votes. You might call a token with only voting rights a stakeholder token, or perhaps a citizenship token. A stakeholder token could be granted to members of a platform-based community and used to decide the rules of the platform, while not granting them access to platform earnings. Elections Token or coin holders are able to vote on changes to DAO governance, which takes the form of a software patch to the underlying organization. This is powerful but requiring a vote for every change limits its utility to software built purely on the blockchain. If an organization wants to interface with the outside world—the world of atoms—it needs quicker and more flexible decision making. This can be achieved by delegating organizational duties to a human body.

To operate in the real world crypto organizations will need to elect and appoint leaders. The leadership structure can come in a number of forms. An organization with no elections would be led by a king or dictator (benevolent or otherwise). More likely they would elect an executive such as a president. This person would be in charge of the day to day operations and running of the organization. An alternative is board elections. Token holders would vote for individual board members who would appoint the executive themselves. This gives a wider range of viewpoints and perhaps provides more checks and balances against executive abuse.

In larger organizations a single executive might not be enough. Organizations could introduce additional roles tailored to specialized needs. Think of these as department heads or secretaries of X. Each of these positions themselves could be selected using the prior mechanisms.

Election Style

There are many ways to tally votes. Traditionally we've seen one token, one vote. This is how first-past-the-post elections and shareholder initiatives are tallied. Organizations are free to select other choices based on their value system. Elections with multiple candidates could opt for ranked choice voting, to find the mostly widely accepted or least objectionable candidate. Organizations could experiment with newer methods such as quadratic voting, which protects minority rights and encourages voters to reveal the true strength of their convictions. Communities may also adopt this method as a sense of fairness to prevent large token holders or whales from dominating every vote.

Election Frequency

Once an organization has decided what positions to vote on and how to tally the votes, they are left with the decision of election frequency. Typically this has been a periodic vote. Corporate boards are elected every year at the shareholders meeting. Government officials often have a fixed two, four, or six year term. Elections can also happen on-demand, such as the case of recall elections. These can be combined into a periodic election with the option of recall. Terms could be indefinite and rely on the executive or a sufficient share of voters to trigger a new election. The blockchain also enables a new type of continuous election, where whoever has the most votes at any given time is the leader. However this may be unstable in practice and require dampening policies.

Delegation

Many token holders may not care or have time to vote on every little issue and instead wish to delegate their voting rights to a trusted third party. And that third party may in turn wish to delegate to someone they trust. This is an option now in some DAOs. In the corporate world we see a simplified version of this where shareholders are given the option to vote at the recommendation of the board.

This opens up new avenues for activist shareholders. Activists would no longer need to acquire as many shares or tokens, rather they would convince other owners of their vision and to delegate voting rights. Recursive delegation may also make continuous elections more stable if votes coalesce into the hands of a few well informed parties. In fact in an executive voting system, these few parties may represent a de facto board who have sway with and provide checks and balances on the leader.

Looking Forward

Soon all of these options—and more—will be available as pluggable modules on the blockchain. You'll be able to quickly and easily construct new DAOs with customized governance systems. This will lead to a proliferation of governance experiments and new forms of innovative governance.