[Institutional Analysis and Development framework (IAD) - Ostrom](Decision%20Making%20Process%20e5d01c41c7bb41d7adde5bef02be09f0/Institutional%20Analysis%20and%20Development%20framework%20(%2030a943846183445c81765faa72c05ac7.md)
Many decision making frameworks are based on work of Elinor Ostrom, awarded the Nobel Prize in Economic Sciences - Institutional Analysis and Development framework (IAD).
Basically it states 8 Principles that allows establish sustainable decision making process in network communities with ownership over shared goods:
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Clearly Defined Boundaries
Without defining community boundaries, the use of a shared resource becomes a free-for-all, leading to overuse and collapse due to the free-rider problem.
In context of DAO, this means clear definition who is a part of DAO who is not. It may define by holding DAO tokens or contributors. This principle should be also applied to sub organizations within DAO, their scopes and levels of autonomy.
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Appropriate Rules
Rules are appropriately related to local conditions (including both regarding the appropriation of common resources — restricting time, place, technology, quantity, etc; and rules related to provision of resources — requiring labor, materials, money, ets.)
In context of DAO, it means defined governance template, voting and funding mechanism, built on a trusted platform
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Rule-making processes
People are more likely to follow the rules if they have a hand in writing and modifying them, and that including stakeholders in the decision-making process is the best way to ensure broad community buy-in.
In context of DAO, it may imply incentivization mechanics for participation in voting / governance, ability to hear voice of minority stakeholders
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Monitoring
Effective monitoring by monitors who are part of or accountable to the appropriators. Once rules have been established, communities need a way of checking that people are following them, in a manner that is still accountable to those in the community. Contributors need good information to ensure they are making the best decisions for the future of the organization.
In context of DAO, it can applied as an approach of Radical Transparency, where all participants can view the whole DAO processes.
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Sanctions
There is a scale of graduated sanctions for resource appropriators who violate community rules. Graduated systems of warnings, fines, and reputational consequences are less disruptive to an organization, and keep the punishments for wrongdoings proportional to the level of the offense.
In context of DAO, a community may implement a reputation system that penalizes wrongdoing with a loss in social credibility, while others may go for metrics based on experience
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Conflict resolution
Mechanisms of conflict resolution are cheap and of easy access.
In context of DAO, a low-level dispute could be resolved with a random court of 5 ‘jurors’ chosen from among the community who are incentivized to provide a judicious ruling e.g. Metagov. Another approach is Boosted proposals in Holographic Voting, courts (Aragon, Kleros)
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Self-governance
The rights of a community to devise and govern its own institutions is recognized by external authorities. Without legal recognition, a Commons risks falling apart either through the exploitation of its resources by outside groups, or due to an inability to escalate problems to higher-level authorities when internal sanctions are insufficient to settle a particular conflict.
In context of DAO, recognition by other DAO or traditional legal entities and individuals, and ability to interact with them e.g. Opolis, Open*** Collective. Another case is using trusted 3rd party as a court to resolve problems.***
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Nestedness/Subsidiarity/Polycentricity
Appropriation, provision, monitoring, enforcement, conflict resolution, and governance activities are organized in multiple layers of nested enterprises. Decision-making power should flow to the people most connected to that which is being governed.
In context of DAO, multiple layers of government, working groups, sub-DAOs, working domains, different levels/tiers of participation.
Principles of Governing the Open Source Commons + Questions to Ask Frequently
Types of DAO participants from the perspective of DAO boundaries can be separated into 2 categories which may ovelap:
- Governance right owners - persons who may be involved into governance and decision making process. They may participate in DAO operations or may not (free-riders).
- Contributors - participants who actively(?) involved into DAO operations. They may have governance rights or may not.
We may assume that the target audience that lead a DAO towards development is Active DAO members who both have voting and decision making rights and actively participate in DAO operations. The growth of DAO is directly depends on quality of active DAO members.
Since contractors don’t affect DAO directly, we can put them outside the DAO boundaries.
Possible solutions includes 2 types of approaches: reward for participation or punishment for non-participation. There are some examples:
- Inflation of reputation economics. The case when to maintain the same voting power users should participate in DAO activities. Otherwise, their share will be inflated. (This is example of punishment for non-participation)
- Incentivization mechanics that stimulate token holders to participate in governance and decision making.
- Holographic voting - approach that allows to boost proposals, replacing absolute majority to relative one.
Common governance templates are described here and here
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Benevolent Dictator - strong core team
The Benevolent Dictator holds ultimate decision-making power, until the group is ready for a more inclusive structure.
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Circles - multi sub DAOs with large autonomy
Units called Circles have the ability to decide and act on matters in their domains, which their members agree on through a Council.
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Consensus - applicable for small communities
Decisions that affect the group collectively should involve participation of all participants.
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Do-ocracy - applicable in cases when initiators should develop changes by themselves
Those who take initiative to do something in the group can decide how they do it.
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Elected Board - more decentralized core team
An elected board determines policies and organizes their implementation.
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Jury - PolicyKit / Metagov
Proposals are shaped and decided on by randomly selected juries.
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Petition - basic most common approach
All participants can propose and vote on proposals for the group.
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Self-Appointed Board - more decentralized core team
A board that selects its own members determines policies and organizes their implementation.
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A typical way of evolution DAO:
Benevolent Dictator / Self-Appointed Board
→ Petition / Consensus / Do-ocracy
→ Circles / Elected Board
Based on research, product-oriented DAOs (protocol, service, product) require more structured and defined management.
In IndexCoop there is decision-making process called RAPID. The goal of this process is to enable team to make decisions in a manner that ensures that all relevant information and perspectives are accounted for, maximizes buy-in for decisions and creates a record of the process that can be referred to in future. Process includes:
- Meeting discussion. If clear consensus is found, next step are document, otherwise prosper should schedule another meeting
- The person who made final decision is determind by question impact/reversibility - Working Group Leaders or most appropriate person
- Once determined, the final meeting is scheduled to made a decision.
Generally rule-making occurs through the governance (off-chain/on-chain).
Worth mentioning action-policy approach that is described in PolicyKit / Metagov
The two main abstractions within PolicyKit are actions and policies. An action is a one-time event that can occur within a community and is typically first proposed by a community member. In contrast, a policy is a declaration that must always be true and that governs some user capability. For instance, a policy for joining a community might be: “To join the community, a user must be approved by at least one existing member of the community.”
To avoid the problem of underrepresentation of minor stakeholders there are a several approaches that are applied by DAOs:
- Ability to delegate votes to other representative to combine voting power. Compound Governor allows to do it as BAU as so called Liquid Democracy.
- Limiting the voting power of whales and core teams to equalize voting power between them and minor stakeholders.
- Example of this can be shown on Gearbox DAO. It uses the approach “Reverse Voting Escrow Model”. Gearbox Protocol
- Another example is ElasticDAO. Elastic DAOs operate under a fair governance system which limits large wallets' influence. Members vote with their governance tokens up to the maximum voting power. Introducing ElasticDAO. The problem: A decentralized world that… | by Chrissu | ElasticDAO | Medium
- Pyramidic stacking mechanism in finance.vote. It utilizes a pyramidic stacking mechanism to normalize vote power across a voting population, ensuring that large token holders do not have an extremely out weighted voice in the system. Finance.vote
Once there is no single center of authority and every DAO member is involved in decision making process, it is important to maintain transparency in data flow and key DAO metrics. It is vital to maintain equal access to essential information. The one of proposed ways is to implement Radical Transparency. More specifically transparency should at least inside DAO, external transparency is not so important in this case.
DAO Health metrics is another way to monitor DAO activity.
The core of monitoring comes from corporate world. These are clear goals, KPIs and reporting along with responsible contributors. Typical activities, that should occur on periodic basis:
- Townhall meetings, where everyone can address questions
- Strategy sessions and annual goals meeting
- Goals & KPIs meeting
- Global OKRs Gitcoin DAO OKRs Example
- DAO & Working Groups OKRs
- Periodic results meetings
The outright banning of people who break the rules tends to create resentment rather than strengthen a community. Instead, graduated systems of warnings, fines, and reputational consequences are less disruptive to an organization, and keep the punishments for wrongdoings proportional to the level of the offense.
The most typical way of sanctions is Reputation based model.
It is important to provide easy and cheap way to resolve conflicts. In most DAO it is working in a common way via discussion or voting on proposals. It may be not the most efficient way.
Another approach may be used based on Metagov / PolicyKit. To resolve a conflict randomly selects a number of juries that make a decision on a particular question.
The same solutions are Aragon Court and Kleros protocols. They allow to resolve non-smart contract based disputes by randomly selected jurors, who staked tokens to participate. Although they are presented a while ago, adoption rate still relatively low (# of Kleros cases ~1100).
Courts and Conflict Resolution
Self-governance in case of DAO includes at least following directions:
- Ability to interact with other DAOs (partners, investment etc)
- Ability to interact with traditional organizations
- Ability to hire and provide appropriate level of services to its members (Opolis, Open Collective)
- Court or authority to resolve conflicts between DAOs / organizations / with contributors
Once getting more mature, DAOs facing the need to implement more rigid structure with nested layers of decision-making expanding jurisdiction to appropriate levels. Decision-making power should flow to the people most connected to that which is being governed.
From this perspective, creating Working Groups / Sub DAOs looks like an rational step towards DAO growth.
- Core team
- Usually responsible for DAO strategy and operations. It has essential role on DAO launch. Over time if DAO is aiming to more decentralization, role of Core team is blurred
- Working Groups. Usually logic / organizational group of people are involved in specific domain. Common features:
- Have a dedicated Leader, who is responsible for external communication. Leader can be rotated
- Funding is project based.
- External Group Goals is discussed and confirmed with the rest DAO
- Internal goals and OKR are WG responsibility
- Sub DAO (sometimes it called Working Group)
- More independent than Working Group
- May have its own tokenomics, where DAO has a share
- Usually represent a product line / domain
- Usually has its own operations
- Contributors / Token Holders
Rules applied to Sub DAO / Working group may be general and domain-specific.
- General overarching rules are intended to counteract tendencies towards monocentricity; they include rules that provide institutional mechanisms for separation of powers, monitoring, conflict resolution, appeal, system entry and exit.
- Domain-specific rules are tailored to the needs of particular domains, such as private production or public service provision, and often supply the mechanisms needed for a particular domain to effectively self-organize