Exploring the governance protocol design of DAO.

Authors: Tobin South, Leon Erichsen, Shrey Jain, Petar Maymounkov, Scott Moore, E. Glen Weyl

Translator: Tiao

Translator's Preface: This paper was published earlier this year and focuses on the protocol design for internal collaboration and self-governance using highly formalized language (mathematics). One interesting point for me is that the governance "token" in this protocol has no exchange value outside the protocol, but it is the sole "token" for the organization itself. This makes one think about comparing numerous governance tokens and further contemplating the protocol design of LXDAO.

This article is the content of the first two sections of the Plural Management, and the remaining three sections will be published in the next issue.

1. Abstract

We introduce Plural Management, a model that uses plural mechanisms to partially replace the hierarchical organization authority, allowing for the emergence of networked authority. Participants earn influence by predicting and completing the organization's priorities and use this influence to set priorities and validate contributions, thereby promoting a dynamic, merit-based power structure. We use open-source software development as an example to demonstrate this approach - it emphasizes valuable contributions and diligence without relying on hierarchical bottlenecks, thus enhancing participation and helping to achieve adaptive collective intelligence.

Overview of Plural Management Protocol:

Organization members can dynamically earn management points through work. Through the issue board, members can use points for quadratic funding to determine the priority order of issues. These points will be paid to members who contribute to solving the corresponding issues. Payment occurs only when other members use their management points for quadratic voting to exercise authority. Organization administrators can choose to allow members to earn management points by correctly predicting the voting results, thus rewarding those who diligently investigate contributions and can anticipate the preferences of the current managers. By scaling from small member collectives to large-scale organizations, this protocol achieves dynamic management control without the need for a simple hierarchical structure.

2. Introduction

The typical binary opposition between the rigidity of hierarchical organizations and the flexibility of flat organizations is a fundamental challenge in organizational design. The traditional hierarchy with clear command structures is still orthodox but is often seen as inhibiting the dynamic capabilities needed for organizations to thrive in today's complex environment. In contrast, flat structures, while inclusive and dynamic, often struggle to maintain coherent direction, momentum, and accountability, often falling into "the tragedy of the commons" (Ostrom and Hess, 2011). A classic alternative to this dichotomy is the use of market mechanisms (Hamel and Zanini, 2020; Coase, 1995). However, an important role of enterprises is to create internal public goods and leverage increasing returns, which markets often cannot efficiently provide (Samuelson, 1995). Therefore, Groves (1973) and Groves and Loeb (1979) advocate using public goods mechanisms to organize internal production in enterprises, replacing hierarchies and markets. However, these mechanisms are often considered cumbersome and impractical.

However, recently, variants of public goods mechanisms such as quadratic voting (Lalley et al., 2016) and quadratic funding (Buterin et al., 2019) have been increasingly and successfully applied [1]. This paper aims to leverage these advances, return to Groves' agenda, and outline a framework we call "Plural Management" to combine these mechanisms with other successful mechanisms to simulate many features of organizational authority and collaboration without resorting to the simplifying hierarchical approach.

The traditional hierarchical management system is the cornerstone of modern corporate and organizational structures, with power dynamics following a top-down approach (Drucker, 1974). In such a system, employees often demonstrate their value by working hard and aligning their actions with the culture articulated by authority figures to earn promotions, sometimes derogatorily referred to as "brown-nosing." Critics point out that this approach may stifle creativity, reduce employee engagement, create decision bottlenecks, and often leave talented individuals at lower levels in the organization with no outlet for their ambitions.

On the other hand, the lack of structured management also has its drawbacks, such as "the tragedy of the commons," where the lack of clear roles and responsibilities can lead to chaos, inefficiency, and the emergence of informal and often irresponsible power structures (Friedman, 2007). Striking a balance between overly rigid hierarchical systems and complete lack of structure has always been a complex task. Some innovative management approaches have been proposed and widely implemented, such as minimizing hierarchy in flat organizations (Laloux, 2014), holacracy, also known as "heterarchy," which allocates decision-making across overlapping teams (Robertson, 2015), and sociocracy, which emphasizes consensus governance and full participation (Buck and Endenburg, 2012). These models attempt to address the limitations of traditional hierarchical systems in a more egalitarian and adaptive manner (Rothschild and Whitt, 1986). However, they lack the clarity of mechanisms found in market or hierarchical systems, which weakens their ability to address the challenges emphasized by Friedman. We aim to fill this gap by leveraging the advances in plural mechanism design.

In the model we propose, management points are a dynamic ledger of contributions and influence. Non-financial points are initially allocated based on roles or past contributions and are subsequently earned through direct contributions and triage. The expenditure of these points in determining priorities and approving contributions is constrained by a quadratic cost function to avoid excessive domination by those with greater authority and achieve optimal public goods outcomes. Prediction markets are used to encourage those with limited authority to act as "analysts," helping authority figures triage contributions, while the dynamic evolution of unresolved task priorities serves as a dynamic auction-like bounty system to ensure tasks are resolved in a timely and prioritized manner. Therefore, in addition to presenting specific designs to illustrate this structure, we also aim to propose a general structure for this synthesis by combining different mechanisms.

The following content of this article is arranged as follows:

Section 2 introduces the Plural Management Protocol, detailing the high-level system, roles in the ecosystem, and the process of earning and spending management points. It then discusses the practical application of the Plural Management system in open-source software development, explaining how it helps address long-standing management issues as open-source projects scale. Section 3 elaborates on this, describing a more detailed technical version of the protocol that is easy to implement. Section 4 provides a detailed analysis of protocol features, studying voting, prediction behavior, and optimal parameter selection in the system. Finally, Section 5 discusses some implications of the protocol, emphasizing open questions and future work.

3. Plural Management Protocol

There are three roles in this ecosystem: Workers, who make direct contributions to the organization; Managers, who determine what work is important and whether the quality of a task is satisfactory; and Administrators, who can decide on system properties to influence behavior. Importantly, a person can play multiple roles at any time and establish connections with multiple individuals based on these roles; there are no fixed roles, and organization members are encouraged to play different roles when dealing with different individuals.

Instead of assigning a set of hierarchical roles to each person, everyone in this organization has a set of management points. These points allow individuals to exercise authority in decision-making and receive recognition for their contributions. We will introduce the steps for earning and using these points one by one. These points are only valid for a specific organization, project, or community and have no value outside of it; in this sense, they are similar to "community" or "artificial" currencies (Blanc, 2018). We will discuss later that these points cannot be traded externally and are only used to control the flow of dynamic management potential.

Imagine an organization with an Issue board, listing all the major tasks or initiatives that need to be completed (similar to the open-source issue tracker mentioned in section 2.1). Individuals with management points can use these points to assign priority to an issue, thereby setting priorities for the organization. The priority of an issue is not only the sum of the points allocated to it but may also be matched through a matching pool (provided by individuals in the administrator role), consistent with the practical application of Quadratic Funding, which we will discuss further below.

Individuals can act as Workers, providing solutions to address issues in the form of Contributions. If the contribution is accepted, the worker will earn points in proportion to the total points allocated in the priority setting. Essentially, from the worker's perspective, the "bounty" attached to an issue may increase over time until it provides enough reward to compensate the worker for addressing the issue. This is akin to a reverse Dutch auction, although there is no guarantee that the reward will increase over time.

Once a contribution is made, it enters the Contribution vote. Individuals can spend management points to vote on whether the contribution should be approved. If the vote passes, the worker receives a reward; if it fails, the issue returns to the board (managers can increase the priority to provide a higher bounty). This voting uses a quadratic mechanism, ensuring a balanced influence among individuals with different point quantities.

In addition to voting, individuals can also choose to "stake" the number of points they use for voting to predict whether the contribution will be accepted or rejected. If the prediction is correct, this stake will receive double the voting points. Through Vote prediction, individuals can be rewarded for correctly predicting the community's preferences. We introduce a Prediction subsidy parameter, which administrators can set for each contribution vote to reduce voting costs and increase betting rewards. By default, voting and then staking on the vote are not profitable. However, in many cases, administrators may want to increase the subsidy to give individuals who can predict community needs a chance to gain authority. For example, providing a subsidy can incentivize individuals with fewer management points to participate in voting, as the cost of these votes would otherwise be too high for them. This means more people conduct due diligence on contributions. If there are many contributions in a large organization, staking on votes is similar to rewarding individuals for conducting triage on contributions, thus delegating important contentious votes to managers with more authority.

By combining quadratic agenda setting and mixed voting-prediction, we can create a dynamic management system. In this system, contributions are rewarded based on their demand as public goods when approved by a wider community, and individuals who have a deep understanding of community preferences or have modeled community preferences will be rewarded and empowered for supporting the management process.

Figure 1: Key components of the Plural Management workflow. Any member can be a contributor or manager, exercise authority by spending points, and earn points through contributions and correct vote predictions.

3.1 Open Source Application

While the Plural Management protocol can be widely applied to organizations and communities, it is particularly relevant to the open-source software world and other areas where peer production is prevalent (Benkler, 2017). Open-source software based on Git is far from a niche industry, supporting over 93% of modern software applications (Daigle, 2023), and operates through a community governance model. In this model, contributions in the form of code are evaluated for their quality and relevance before being merged into existing work. Despite these significant contributions, the governance and management challenges faced by open-source communities are well-known, as described by Eghbal (2020), including:

While contributions from open-source contributors are recorded, it is difficult to track and trace the recognition of contributions due to the unclear relationship between contributions and higher-level goals, leading to reduced motivation and sustainability.

Although contributions to open-source projects are typically open and participatory, their management (often referred to as "maintenance") is usually held by a "benevolent dictator for life," contradicting its underlying democratic values and leading to project forks, dispersing efforts.

Worse still, due to the inability to leverage distributed participation for management, project maintainers bear a heavy burden. Maintainers start with high enthusiasm for the project but have to continue maintaining its quality years later, forcing them to triage an increasing number of questionable contributions with insufficient community support.

Especially as projects grow and gain wider usage, the potential directions for improvement also grow exponentially, and the improvements most needed by users often lack clarity, resulting in feature bloat and insufficient usability.

By providing contributors with clearer direction and greater empowerment, Plural Management can help founders gradually transfer management authority to those who have proven their value in the community through contributing code, diligence, or support. This model is lightweight, iterative, and autonomous, making it well-suited for the agile environments and tools commonly used in open-source communities.

Taking the popular open-source hosting platform GitHub as an example, for any project, there is a code repository established by an administrator or maintainer, and any contributor can be listed as a member. This repository comes with an "Issues" section (similar to the issue board we described, but without explicitly prioritized numbering). Anyone on GitHub can create contributions in the form of "pull requests" (PRs) in this section to address one or more unresolved issues. After discussion in the comments section, the community can decide to accept or reject it, and then the maintainer can add the contribution or "merge" it into the code repository. By making minimal changes to the workflow to use Plural Management, any maintainer or administrator on GitHub can set priority labels and associate them with prices represented in points, thereby driving more contributions into their code repository as a first step towards ultimately increasing their low average bus factor (i.e., the number of key personnel in a project) (Metabase, 2022).

It is worth noting that, in general, while contributions are typically code, anything can be a PR. For example, if someone is to be appointed as the social media manager for a project, an issue will be raised stating the need for a social media manager. Once someone is appointed, the new social media manager can submit a simple PR to add their name to the community record. If the community votes to approve this new role, the social media manager will receive additional management points reflecting their new role.

3.2 A Brief Use Case

Beyond the typical open-source context, a specific application of Plural Management is the book "Plurality," a collective writing experiment based on Git. Initiated by E. Glen Weyl and Audrey Tang, 50 members from around the world contributed to the book "Plurality: The Future of Collaborative Technology and Democracy" without any expected rewards. The project uses the Plural Management protocol to gradually transfer ownership of future improvements to the book, including content updates, translations, and further linking to related materials. Over time, the most meaningful contributors will not only help guide the book but also the research field itself.

Imagine a political economy undergraduate student from an unknown university. She notices a typo and opens an issue, submitting a PR. This action does not earn many points during the voting process, but the small number of points allows her to start participating in priority setting. Encouraged, she continues to look for opportunities to contribute and finds that her thesis work can help address an unresolved issue added around a chapter's content. She submits a PR on the issue board, adding key references cited in the book, and receives a substantial point reward.

Given the inclusivity challenges in higher education environments today, such a student may never have had the opportunity to engage in such work without the structure provided by Plural Management, which does not require permission and is judged by the community (Gvozdanović and Maes, 2018).

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