Dr. Florian Spychiger, Lukas Küng - Designing a Decentralized Autonomous Organization

Transcript

okay thank you for the presentation um of us two uh today we will be talking about um the project how to design a decentralized autonomous organization um we are a team of three researchers uh that conducted This research on how to design a decentralized autonomous organization um and we are all part of the Institute of organizational viability at uh the Zurich University of applied sciences this project came about um through a problem which was addressed uh within the practice so desage uh which

is our practical research partner uh was asked to design a do and uh this addressed a lot of questions which were uh present into space how to design a do which structural stones to think about which organizational aspects to actually consider when setting up a dow structure so um we were asked to uh you know go in the team and do research on this subject matter and um lastly we set up a proposal a grant proposal and handed that in the Swiss innovation agency and since 2022 we've been uh working on this

project on how to design a decentralized autonomous organization in the beginning we were trying to figure out which organizational stones on the analogy of Lego stones that actually work within an organiz organizational setting on blockchain technology we compartmentalized these Lego Stones um structured them so that we would be able to in the end actually form working decentralized autonomous organizations the goal of this project is to build a design framework that helps practitioners but also helps researchers to know which organizational

structures to consider and to think about when thinking about um of the foundation or the funding of a doll so how we built our design framework and how we came about this whole project uh initially like with every other uh research project um an extensive literature research was part of this whole research project but in this regard with this matter we did it from two different perspectives one from the doll perspective so the doll literature but also from the organizational Theory perspective so we try to understand traditional organizational structures which maybe

needed to be integrated within dolls as well this led to our first framework structure which was discussed in 10 interview settings with domain experts from the Practical side from the legal perspective and from the organizational Theory perspective as well the second version of our framework then thereafter um was conducted and we evaluated that within a focus group setting um comprising of eight daoists and potential users of these Frameworks and potential users of an actual uh framework that is able to initiate the

process of funding a DA so where we're at right now within the project we're actually technically implementing um our Dow design framework and we're setting up um a second I'd say discussion and paper um Within the 302nd European conference on Information Systems in puos this is our da design framework and it uh contains three constitu constitu constitu elements on the outside of the circle which is legislation purpose and

the business case of a DA so these aspects need to be considered and need to be carefully taught uh thought about before actually going into the five structural elements of a DA the five structural elements are the five uh dimensions in the middle which floron will be talking about afterwards extensively and I will be um highlighting the constitu elements on the outskirts so within the structural elements you have organizational bodies I will not go in detail because Flor will afterwards give you some examples on this and give you some uh more context in what to think about when

designing organizational bodies but it is important to remember okay organizational bodies definitely need to be thought of a decision-making process also needs to be thought of when designing a doll so to speak one needs to think of voting models one needs to think of a quorum and how to actually incentivize participation within the decision- making process what also is really important when designing a do is to think about the token and the token structure so to speak think about token models and the token quantity of the usage token but also of the governance token one also needs to think about

treasury um how to set up treasury which assets are contained within a treasury is it physical assets and digital assets on the Block blockchain technology um or is it just cryptos and then a crucial part in how to actually enhance decision-making is setting up communication channels and actually enabling access throughout the community so everyone within the community needs to know where the information is stored needs to have access to the in information and also needs a transparent Communication channel to actually you know be able to take part within the processes of The Da

so as I said at the beginning I will talk about the constituent elements of our do framework which is the purpose um which is really what is really important when funding a do and when initiating this process is to allly the the few funding members of a do to One mission to one purpose and to actually execute on this Vision um and what is also really important in funding AAL in the Pro process of initiation is to build a broad purpose that is able to reach a broad Community when this purpose in a do and this is different to traditional

organizational structures is reached a doll should either find a new purpose quickly or should close itself which we saw in the Constitution doll as well um the purpose was not reached so the members were refunded um what is probably also uh has been discussed extensively throughout the last few days is the um constituent element of legislation so what is really important in funding a doll is that um the legal entity or the question of legal entity actually gets solved so that um there is still freedom and capability of Designing the others

aspects and the legal entity has a lot of influence especially on the organizational body structures then um we also in Switzerland have many illegal entities which are interesting to choose from which is the Swiss Association and the foundation the last aspect of the constituent elements is the business and the use case and this also is a big part of current academic discussion so um currently what is going on is that the thinking of business models within decentralized technology is completely um being remodeled and being rethought of uh potentially including all doll

stakeholders two lastly um create open and fair transparent value creation models so now I would give the hand to floron um to be able to talk about the structural elements thank you very much Lucas and uh welcome from my side as well I appreciate that uh still even though it's quite early uh quite a few people found their way to our talk so um I going to speak about the uh five structureal elements and give you also some examples um even though I

have to say we develop this framework but what we didn't do yet we didn't use it to systematically analyze existing Dows to see how they are implemented along this uh different elements nevertheless for this talk we try to find some examples for of those how they implemented this structural elements just to make it a bit more tangible for you good now the first element are organizational bodies so this means the the organs of the Dow this can be different teams different groups in a DA that you can Define it's also a model a

mental model to think about your da so the community for example in our view is also an organizational body but there can be others such as a core team and so so on and also if you have a a legal structure that may Define some organizational bodies in your uh organization it's also the case as you probably know that uh it doesn't always make sense for everyone to be involved in every decision so somehow having distinct teams with distinct uh decision rights can be can make a lot of sense for efficiency reasons so some examples for this if we look for example at dydx they have so-called Burrows uh where you have

different groups uh where specialized skill sets are uh collected and they're working on different areas also in bastow you have guilds uh and also this guilds have different responsibilities um doing different tasks having own uh decision rights and so on uh so giving this structure within uh a d Community the next point is uh decision making it's a big Topic in those in general and also a highly debated topic because there could be different reasons and on how you want to uh or why you

want to set up a decision- making mechanism in a certain way so there is often the saying or you could think about what is a fair decision- making mechanism people might say yeah everyone should have one vote so one person one vote on the other hand you have token based voting where would say the ones with more tokens have more power what is fairer it's difficult to tell because I mean if a person invests many resources in a project you could also argue that the person has the right to have more decision power in an organization uh well a crucial thing when you design your do might be to think about having different decision

making mechanism for different uh areas and also important and this already shows you a bit how these different elements are connected in this uh framework that you match your decision mechanism with the purpose of a dow um just to tell you those few statements that we put here on the slides are mainly from our work and discussions also with practitioners and experts uh in our forthcoming publication there are even more of these important hints and points that you can read up them just as an example so classic maker Dow they have a token based Quorum voting more or less the one token one

vote principle um where whereas for example gitcoin uh have this implementation of quadratic voting or quadratic funding in their case where the voting power um is equal to the square root of the number of tokens so the more um the more power you want to have you need to have quadratically more tokens there are other voting mechanisms that you can think of and there is also a high experimentation in the space of uh Dow then we have the token tokens can be used for many things in those uh it can be used to Signal

membership it can be give as we talked already uh decision rights um they can be Financial assets of a DA here also the regulation kicks in again so the ones that attended our Workshop yesterday heard a lot about regulation for Dows and how you might not want to have an asset token in a dow because this can be quite challenging from a regulatory uh perspective so there are also many things you need to consider um because tokens can also be seen as some force that guides the activities within those there are different uh designs

here you can think about how to design your supply whether it should be tradable or not so Unis swap for example has a one token model um where they also added I think one month ago some incentives to be more active in the governance process whereas uh the sandbox for example has a multi token model where you have a native currency to uh to vote then you have tokens to create nfts uh that you need to be able or to be eligible for creating nfts and so on and then we also have the treasury element this is also an important

element of each Dow uh that can consist of different um different tokens Can Be cryptos can be nfds or even real world assets and one major thing about Dows is that the group the community the Dow members can collectively manage a treasury here just also as an example arpit has quite a big treasury that the the token holders can vote on to decide on funding decisions for the development uh of the organization and its technology while an example of a DA that holds physical HS physical asset is City DA they own a plot of land uh in boming uh that they are collectively also uh

deciding what to do with it last but not least the communication element is so an element that is often underestimated and can also be tricky to design um because you can have many channels in Dows where you have discussions you also need to think whether you want to share all the information with everyone or whether this might be an information overload so there are also many elements that you could design and tweak and here just some general examples I think this general channels almost all dos have X Discord Telegram and so on uh but there are also some uh specific for us that they that these STS have where they try

to somehow guide these discussions in in certain ways good with this I only have two uh things to tell you if you're interested to dig deeper into those the first thing is more from an academic perspective we are organizing the European da Workshop an academic conference that also has some spaces for practitioner so if you're interested this will take place on July 4th and fifth uh in Winter tour visit our web page for more information on this and if you're more on the Practical side and interested in how to build Dow gets more into involved into this discussion

uh I can recommend you to check out Dow whs which is uh the industry Association for Dows in Switzerland to get more involved in that field with this I conclude the talk and thanks a lot for your attention thank you Lucas and floran do we have any questions uh for Lucas or Florian we have uh one right here and then we'll get to you next uh thank you for your uh

interesting presentation um I think the topic of TOS is very interesting um just from a a practical standpoint I mean uh most of the Dows that I see currently like in the defi landscape they're just one token one vote and there's a huge problem with that uh you see sometimes they have a treasury and um there's a vote on how this treasury is going to get managed and uh there's some uh there's some proposal coming in there then there's a flash loan someone gets 10 million tokens uh votes on the proposal and uh basically gets a share of of the treasury or doesn't even need

to be a flash loan I've seen examples where founding members of of the D5 project basically use the treasury's funds to vote on proposals to get basically get the tokens right so um just this is a huge problem I would like to know if if you would have some um what you would propose to basically minimize this problem or if if if if you encounter similar um stuff during your research and the other thing I mean in in like classical organizations if um a CEO for example gives himself a huge payout with I think is a similar scenario to to when I mean a D5

founder basically votes to gives himself I don't know some amount of tokens right I mean the CEO can do that basically say okay we've hit these Milestones we've we've hit some numbers and uh there's going to be a bonus right but I mean there's there's also a board board committee that that looks for looks out for the shareholders and they can basically um fire the CEO if if if if if if he does something that is not uh um aligned with the shareholders of the company I'm not really sure if I can if I see something similar in the defi landscape if if there's like a board comme that can fire some developer or some I don't know some huge whale um basic I would just like to know

your opinion on this topic thank you um okay there are many aspects that you touch on in this question um but so for the first question there were these attacks as a flash loan attacks uh in the governance space um so I think currently we're at the stage where more and more Dows are thinking about more elaborate uh structures organizational structures that also shows for example in new toolings I don't know whether you attended the Aragon talk yesterday they have now this approach of more modular governance multi-body governance which I think is very useful and very

interesting um and with this you might be able to have different decision- making mechanisms in different areas um also I think uh in those there might be some some uh bodies that are not totally an anonymous so if you think of a board as you mentioned it especially think if you think about legal structures then you're even required to have a board for example in a Swiss Association um then you have names there uh and such attacks with flash loans are become more difficult because maybe you have one one one vote in this uh specific uh body you could also think of some veto rights for

certain uh for certain decisions where the community or some delegates have a veto right uh to counteract such such attacks so there is a a high there is a lot of innovation going on but it's still quite open and unclear and what we try to do with our uh framework is to give some some hints where Dow designers should think about or look closely also profiting from Decades of research in uh traditional organizations so because that was don't need to reinvent the wheel for everything so we have uh we're going to move on we need to move on to the next

speaker um but uh if anybody has any more I know there's a couple more questions you can find um find you out outside and uh talk afterwards um so give it up one more time for Lucas and Florian thank you thank you