The Governance Trilemma

Thought leader David Phelps recently introduced The Governance Trilemma. It immediately peaked my interest.

In a trilemma, you’re faced with three decisions, as opposed to two in a dilemma. The idea is that you can’t have all three, or at least it would be very hard to have all three coinciding. In this blog, we will outline all three statements from the graphic above, provide pros and cons for each, and address which two we would reasonably prefer out of the three. We will also attempt to provide a situation where all three may be possible.

Making High-Stake Decisions with Experts

Making high-stake decisions with experts seems to be the most challenging of the three statements. The chart above specifically identifies these decisions as requiring high stakes. Presumably, high-stake decisions involve significant capital movements, smart contract changes, security considerations, and more, all of which could significantly impact the group.

What’s most intriguing in this aspect of the trilemma, in my humble opinion, is the “with experts” component. In the crypto world, governance typically falls into the hands of anyone holding the governance token, which means that experts aren’t always the ones making decisions. It could just be anyone who holds the token, and as we know, wealth doesn’t necessarily equate to expertise in making high-stake decisions. Thus, some mechanism to identify individuals capable of expertly addressing decisions becomes necessary. In theory, this could lead to more informed and effective decision-making.

In 0xJustice’s piece on efficient DAO design, they make several claims suggesting that governance should not be entrusted to the entire community but rather to a relevant group closest to the problem at any given time. Although high-stake decisions aren’t explicitly mentioned, the emphasis on relevant decision-makers being actively involved where needed should certainly apply to high-stake choices.

It’s crucial not to overlook the specific wording in David’s statement. He says “with experts,” implying that it’s not solely experts making the decisions but also everyday individuals collaborating with experts. This could be an instance of reading too deeply into it, but it’s an interesting point regardless.

Some pros of this approach include:

1. Qualified expert decision-makers producing optimal decisions in response to problems.
2. Since experts are often scarce, this process would likely be more efficient with fewer participants.
3. Focusing on high-level decisions still allows for widespread non-expert participation at lower levels where the impact is less significant.

However, there are cons to consider:

1. Relying solely on experts for decision-making might limit the input of the broader community, potentially leading to centralization issues.
2. Allowing experts to make all the crucial decisions might make other community members feel undervalued, which could deter participation.
3. Identifying and determining experts can be challenging; this scenario might only be viable in a very large group with highly involved and educated members.

Regarding these considerations, all the pros are compelling. Ultimately, if a governance system efficiently and effectively makes decisions on high-stake proposals, it’s thriving. Centralization risk is worth contemplating, but decentralization doesn’t necessarily entail massive groups with universal involvement. A network composed of numerous small subgroups is still sufficiently decentralized, as long as decisions are widespread among those subgroups. The second con is also is highly relevant. Low participation rates currently plague DAO governance and restricting high-stake decisions to select groups could exacerbate this issue. Lastly, finding and nurturing experts is a challenging, long-term endeavor, requiring a dedicated focus. It’ll need to be a point of emphasis for a while.

Unlocking Creative Contributions of the Entire Community

This point is intriguing. Creativity might not immediately come to mind as a necessity in governance, but creative decision-making is invaluable. We want innovative thinking. Empowering experts to be creative in their contributions can yield a diverse range of inventive and informed proposals for high-stake problems – a promising prospect. Conversely, allowing every average person to contribute creatively, rather than just experts, also has merit. Encouraging outside-the-box thinking should be a constant goal, and it doesn’t necessarily require expert input.

Another angle David could be addressing is the fact that non-creative governance can be uninspiring and boring. Besides consistently solid decisions, the ultimate goal in crafting a governance system is achieving high participation rates. People are less likely to engage in a mundane governance process.

Again, considering the pros:

1. Creative contributions to governance encourage innovative thinking and may uncover perspectives that would otherwise remain hidden.
2. This approach allows non-experts more opportunities to participate at all levels.
3. People have a natural inclination toward creativity, and enabling them to express themselves in governance can significantly boost participation.

However, there are cons to weigh:

1. Managing a large number of diverse and unique creative approaches, especially in governance and decision-making, can be challenging.
2. This approach might lead to slower and riskier decision-making processes.
3. Experts might feel overshadowed, as they possess a high level of knowledge and might believe their decisions are more appropriate than others’.

Reflecting on this, optimizing for inclusion, high participation rates, and diverse thought is crucial. Managing this situation and dealing with the slower pace of such a process are valid considerations. Nevertheless, it’s essential to recognize that this isn’t a black-and-white scenario. Not all decisions will benefit from wildly creative input, and if a group is optimally decentralized (as described by 0xJustice, with many small subgroups rather than one massive group), efficiency and management issues should be minimal. Furthermore, experts shouldn’t feel overshadowed because, in theory, the best solution to a proposal should rise to the top, provided it’s presented effectively and accurately.

Pump Token (but Barely)

The “lol” factor here arises because this third option seems relatively straightforward compared to the other two. I chuckle at this because at KEEZ, we believe a governance token shouldn’t be primarily valued for its financial aspects. However, DAOs require funding, and incentivizing participation through a value-accruing token benefits both individuals and the DAO itself. If executed well, with a high participation and usage rate of the token, its price should gradually rise which is beneficial for everyone, but this easier said than done.

Let’s dive into the pros:*

1. Generate income for the DAO
2. Provide contributors with financial incentives
3. Create more reasons for others to join and participate

*there are a lot more factors that impact these pros coming to fruition than the pros of the past two sections.

On the flip side, there are cons to consider:

1. Short-term speculation on price may lead to people accumulating the token for resale rather than using it for governance.
2. Sustaining the token’s price may require substantial efforts and resources.
3. This approach may make the DAO more susceptible to wealth concentration and uneven distribution, which can be detrimental to governance.

Clearly, I’m not enthusiastic about linking token pumps to governance. Nevertheless, I recognize that DAOs need mechanisms for funding, ownership, and rewarding contributors. These mechanisms can exist independently of governance’s direct involvement with tokens. All three pros are essential, but they are more speculative than the pros in the other two sections. If the token functions ideally, these concepts could materialize, but the volatility is too high to rely on. The token could quickly backfire on the DAO.

In Conclusion

If I had to choose two out of the three, the first two seem more critical than the third. However, this doesn’t diminish the need for a token pump; it simply suggests that the other two are more closely related to governance, while the third’s objectives can be achieved through alternative means.

Another overarching theme is that all three of these approaches can’t be the sole solution. For instance, in the first topic, not every decision, even high-level ones, can be resolved exclusively by experts. There aren’t enough experts to go around, and excluding a large portion of your community from crucial decisions is not ideal.

In the second topic, creativity is valuable, but it shouldn’t be the sole basis for every decision. Matters such as security and legal advice require expert input rather than creative thinking. The same principle applies to token pumping.

Governance shouldn’t rely solely on one token. An ideal system might involve tokens for pumping, creativity, and expertise, enabling all three trilemma concepts while mitigating drawbacks and optimizing benefits.

If you take away one thing from this i hope it’s my emphasis for hybrid governance models that are constantly evolving. Rigidity and lack of adaptability will only lead to issues. Different groups of people interact and make decisions differently, and having a system that accommodates these variations is ideal. Offering multiple ways for people to engage with governance, propose decisions, and derive financial benefits is KEEZ‘s objective. Although this complexity adds challenges to management, an optimally decentralized system with numerous subgroups, as described by 0xJustice, should be able to rise to the occasion.