During the recent six months of practicing DAOs (Decentralized Autonomous Organizations), the basic form of organizational governance, namely voting, has been frequently pondered upon.
Voting is a form of decision-making, a collective decision-making method in which multiple individual members make decisions on a particular issue.
From nations to companies, decisions are required everywhere. Unless it’s a dictatorship where one person makes all the decisions, there is a need for a collective decision-making mechanism, which is where voting comes in.
Sometimes, we may not have the explicit form of voting or there may be manipulated or false explicit forms, but we cannot eliminate the existence of implicit voting, also known as “voting with our feet.”
When you, as a manager, convene your leadership team for a decision-making meeting but fail to reach a consensus and impose your decision, the subsequent execution is likely to deviate, and this is when “voting with our feet” comes into play.
Countless companies have spent countless resources and invited numerous trainers in an attempt to train managers to adhere to a behavior guideline: express opinions during the meeting but retain them afterward. Regardless of the conclusions reached in the meeting, whether understood or not, one must firmly execute according to those conclusions.
However, once you have managed for a few days, you will realize that this is contrary to human nature. It is impossible to achieve because it is contrary to human nature, and because it is impossible to achieve, trainers continue to have business.
Raising a child. When you expect a child to “obey” and they don’t comply with your wishes, you understand that an adult is nothing more than a grown-up child. It is human nature to disobey decisions that contradict one’s own interests. Many times, the body can determine faster than the mind whether something is in one’s self-interest or contrary to it.
To reach a decision that everyone truly accepts and forms a genuine consensus from the bottom of their hearts, and spontaneously acts and executes according to that consensus, is extremely challenging.
Therefore, even if we use democratic methods to allow everyone to vote and make decisions collectively, it cannot solve this problem. Unfortunately, this is not possible, as Arrow’s impossibility theorem has proven that there is no absolute fair voting rule. In 1951, Arrow wrote “Social Choice and Individual Values” using a mathematical axiomatic approach to study voting, and his conclusion was that under a democratic system, it is impossible to achieve a result that satisfies everyone when there are multiple alternative options and diverse preferences among the social members.
Arrow’s impossibility theorem states that it is impossible, based on a simple majority voting principle, to select a common unanimous order from various individual preferences. Therefore, a reasonable determination of public goods can only come from a competent public authority. It is generally impossible to achieve coordinated and consistent collective choice results through the voting process.
For example, the voting paradox proposed by Condorcet as early as the 18th century: there are three options, a, b, c, and three voters, A, B, C. Each of them has a different ranking: A: a > b > c; B: b > c > a; C: c > a > b.
In a vote between a and b, A and C favor a, while B favors b, and a wins.
In a vote between b and c, A and B favor b, while C favors c, and b wins.
In a vote between a and c, B and C favor c, while A favors a, and c wins.
The ultimate social preference order cannot be determined in the end. Instead, the voting results are determined by how the voting procedure is arranged. At this point, whoever controls the agenda has the potential to influence the final outcome. Procedural justice does not necessarily lead to substantive justice.
At the national level, voting is often based on the principle of one person, one vote. However, in corporate shareholder voting, it is based on the proportion of shares or agreed-upon multiple voting rights, granting different “voice” to stakeholders. The former is more like “majority rule,” while the latter is “money talks” or “influence based on interests.” What is the rationale behind this?
The state is a tool of class rule, a machine for one class to rule and oppress another. Corporations, on the other hand, are tools for capital accumulation, mechanisms for investment and profit extraction.
The economic foundation of the state is taxation (in ancient times, it was tributes). The economic foundation of companies is profit (i.e., surplus value).
However, they both emerge based on the progress of productive forces and the generation of surplus. Once there is surplus production, capable of supporting some non-laboring individuals, they will evolve into ruling classes and then deprive the working class of resistance forces, including physical and ideological weapons, thus establishing lasting domination and giving rise to the state.
When capital accumulates surplus and requires effective investment and return, it gives rise to those who facilitate capital growth: financiers, entrepreneurs, and their representatives, such as managers. Through accounting and legal safeguards, they construct a fictional entity for economic activity and profit creation – the corporation.
The scope of democracy or voting eligibility is inevitably limited to a particular class or group. For the state, it is citizens (the ruling class). For corporations, it is shareholders.
You are a citizen of a country simply because you were born there. When you arrive, you have nothing but yourself. When you die, you cannot take anything with you. Therefore, voting rights are calculated on a per capita basis, one person, one vote, and everyone is equal.
Shareholders in corporations are different. Corporations embody capital. As a shareholder, the person is not important; what matters is the capital injected into the company. Hence, voting rights are calculated based on shareholdings. The more capital injected, the more shares held, the greater the voting and decision-making power.
The “one person, one vote” approach has been discussed by Arrow. Majority rule can lead to the tyranny of the majority, depriving the minority of living space and weakening the overall flexibility and adaptability. When the external environment changes, national fortunes decline.
The issue of capital determining voice can easily lead to an oligarchic dictatorship, significantly increasing the strategic risks of the entire organization. Relying on individuals’ enlightenment, without systemic correction mechanisms, a single misstep can result in a total loss.
So, is DAO an investment tool?
Based on some early industry practices, DAO is indeed closer to an investment tool. For example, the well-known ConstitutionDAO aimed to crowdfund the original US Constitution. When people invested money, they formed a DAO in form.
But were these investors truly buying the original constitution, waiting for appreciation or future exhibition income, or simply “donating” to support an interesting endeavor? Or was the auction and the item being auctioned just a starting point, triggering speculation on DAO tokens?
In fact, the auction was not successful, and after a voluntary refund, those who did not request a refund held onto the DAO token, PEOPLE, which became highly traded on the market.
In a sense, PEOPLE had turned into a meme.
In that case, do all those who purchase and hold SHIB (another previously hot meme token) have any expectation of appreciation? Will they still have it after the price drops and the market cools down?
“Free is not really free. All gifts have a hidden price tag. Behind the fair launch, early schemers profit greatly from their early positioning. From the perspective of these schemers, harvesting the “leeks” (referring to inexperienced investors) is a form of “secondary market financing.” However, will this financing be used for value creation and production? Probably not. There are no mechanisms to constrain them from doing otherwise. In the end, they will only squander and consume the capital gained from harvesting, serving as the raw material for the next round of manipulation.
If DAO evolves towards becoming an investment tool, moving in the direction of companies, it is highly likely to transform into a meme. And meme coins, fundamentally, are tools for consuming value rather than creating value.
The phenomenon of memes proves that our human society may have entered an era of excessive capital. It requires rapid liquidation or zeroing out to eliminate the surplus capital held by all the “leeks.”
Excessive capital is concentrated. The advent of AI further enhances productivity and capital efficiency, reducing the need for human labor. It’s a double-edged sword. On one hand, capitalists have too much money in their hands; on the other hand, capitalists are unwilling to pay wages and employ human labor, leading to massive layoffs, job losses, and unemployment.
AI is driving us into an era of labor surplus. This surplus may not only be quantitative but also qualitative. Large technology companies lay off a significant number of highly educated employees who then have to seek reemployment in jobs such as truck driving or dishwashing. While the unemployment rate may not be high in statistical terms, labor is being wasted unintentionally.
DAO should become a new species in the era of labor surplus, a new mode of production. It should gather surplus labor, create new value increments, and distribute them fairly and reasonably.
DAO should be the “lost paradise” of free individuals in the post-AI era. DAO is the free association of free individuals.
The economic basis of DAO remains surplus value. However, the distribution of surplus value is determined collectively by all those who contribute to it. What participants bring into DAO is merely productivity. Therefore, voting rights, decision-making power, and the right to speak are based on the contributed productivity. Capital can also enter, but capital must first purchase productivity in the market and contribute it to DAO.
The decision-making form of DAO should not be based on the “one person, one vote” principle of national governance or the dominance of equity in corporate governance. It should consider both. For example, a dual-layer voting system can be adopted: in the first layer, the number of supporters among participants needs to exceed two-thirds; in the second layer, the sum of tokens held by supporters should exceed 40%.
In this way, it can prevent large holders from unilaterally proposing actions that harm the majority, as well as prevent a group of retail investors from banding together to propose actions that harm large holders.
Applying the voting paradox described above, although it does not solve the voting paradox and cannot derive deterministic results, it can avoid two situations: assuming token holdings follow a power-law distribution of 1:2:7, where A holds 10%, B holds 20%, and C holds 70%. A and B cannot unite to pass proposal B that is unfavorable to C, and C cannot independently pass proposal C that is most favorable to themselves.
If A can strive to set the agenda for voting on proposals A and B, they will get the best result they want. If C can use their influence to set the agenda for voting on proposals A and C, they will get the most favorable result for themselves.
Either A gets the best or worst outcome, B only gets a mediocre result, and C will always get an upper-moderate result.
If B chooses to ally with A, it will allow A to get the best result while getting the worst result for themselves. If B chooses to ally with C, they will get a moderate result while C gets an upper-moderate result.
If B and C ally, they will certainly set the agenda for voting on proposals A and C. As a result, they will inevitably obtain outcome C. This outcome is the worst for A, mediocre for B, and the best for C.
If the distribution of 1:2:7 represents the distribution of wealth, then the deduction above can be translated as: the rich unite to oppress the middle class and the poor.
If the distribution of 1:2:7 represents the contribution of labor, then it can be translated as: contributors ruling over non-contributors.
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