DAO Decentralization: Voting-Bloc Entropy, Bribery, and Dark DAOs (2311.03530v1)

Abstract: Decentralized Autonomous Organizations (DAOs) use smart contracts to foster communities working toward common goals. Existing definitions of decentralization, however-the 'D' in DAO-fall short of capturing key properties characteristic of diverse and equitable participation. We propose a new metric called Voting-Bloc Entropy (VBE, pronounced ''vibe'') that formalizes a broad notion of decentralization in voting on DAO proposals. VBE measures the similarity of participants' utility functions across a set of proposals. We use VBE to prove a number of results about the decentralizing effects of vote delegation, proposal bundling, bribery, and quadratic voting. Our results lead to practical suggestions for enhancing DAO decentralization. One of our results highlights the risk of systemic bribery with increasing DAO decentralization. To show that this threat is realistic, we present the first practical realization of a Dark DAO, a proposed mechanism for privacy-preserving corruption of identity systems, including those used in DAO voting. Our Dark-DAO prototype uses trusted execution environments (TEEs) in the Oasis Sapphire blockchain for attacks on Ethereum DAOs. It demonstrates that Dark DAOs constitute a realistic future concern for DAO governance.

• The paper introduces Voting-Bloc Entropy (VBE) to capture nuanced voting dynamics and measure decentralization beyond mere token distribution.
• It demonstrates that vote delegation can enhance decentralization and increase bribery costs, leading to fairer governance structures.
• The study warns of Dark DAOs, which exploit opaque vote-buying, urging the need for strong privacy measures and policy safeguards.

Insightful Overview of "DAO Decentralization: Voting-Bloc Entropy, Bribery, and Dark DAOs"

The paper in question proposes a refined framework for evaluating decentralization in Decentralized Autonomous Organizations (DAOs). This is encapsulated in the introduction of a novel metric termed Voting-Bloc Entropy (VBE). VBE represents a conceptual leap in capturing the nuanced affiliations and voting dynamics within DAOs, moving beyond simplistic measures centered around token distribution. The authors address critical gaps in existing definitions of decentralization, encapsulating diverse participation more aptly.

Core Contributions

1. Voting-Bloc Entropy (VBE): The core innovation of the paper, VBE accounts for the similarity of utility functions among voting participants. This metric allows a more comprehensive understanding of decentralization by examining voting behaviors across different elections rather than just token distribution. By conceptualizing voters with similar interests as part of cohesive blocs, VBE delineates a framework that can be adapted using different clustering methods and entropy measures.
2. Implications of VBE: Through theoretical exploration, the authors derive several critical insights:
   • Delegation and Decentralization: Contrary to intuitive assumptions, vote delegation tends to enhance decentralization when the inactivity whale—passive token holders—is proportionally large. This highlights a counterintuitive outcome where engaging inactive participants through delegation disperses centralizing powers.
   • Bribery Dynamics: The research elucidates the complex interplay between bribery and decentralization. Higher decentralization elevates the cost and scale of bribery necessary to influence outcomes, thus indirectly incentivizing fairer mechanisms within a DAO.
   • Role of Quadratic Voting: The susceptibility of quadratic voting mechanisms to Sybil attacks is noted, where incentives align towards redistributing influence unfairly unless robust identity verification is ensured.
3. Dark DAOs: The potential emergence of Dark DAOs, entities aimed at subverting DAO governance through opaque vote-buying, is a highlighted risk. This threat is particularly pertinent as DAOs scale in decentralization, necessitating systemic corruptions for meaningful influence. The paper provides a prototypical implementation of a Dark DAO using trusted execution environments for privacy-preserving operations.

Practical and Theoretical Implications

The implications of this research are multifaceted, impacting both practical DAO governance and theoretical underpinnings of decentralization. Practically, the refined understanding of decentralization through VBE allows DAOs to tailor governance structures better, mitigate risks like bribery, and leverage delegation effectively to heighten engagement. The paper also highlights the pressing need for robust privacy solutions to counteract herding effects and the insidious threats posed by Dark DAOs.

Theoretically, this work enriches the discourse on decentralized governance by shifting the focus toward the utility-based alignment of participants—an aspect previously underexplored. This shift enables a more holistic appreciation of decentralization that parallels considerations in democratic theory beyond purely blockchain-based contexts.

Future Directions

The insights garnered from VBE and the threats posed by Dark DAOs open several avenues for further research:

• Privacy Enhancements: Developing privacy-centric voting mechanisms remains crucial. These mechanisms could diminish the impact of coercive alignment and foster genuinely diverse participatory outcomes.
• Policy Frameworks Against Dark DAOs: As Dark DAOs represent a latent risk, crafting policy and community-driven deterrents becomes imperative to maintain integrity in DAO ecosystems.
• Quantitative Impact of VBE: Investigating the empirical correlation between high VBE scores and DAO success metrics, such as engagement, financial outcomes, and governance longevity, is a natural progression that could substantiate VBE's relevance.

In summary, this paper provides a pivotal advancement in understanding DAO decentralization, offering both a theoretical apparatus and practical guidance to navigate the emergent complexities in decentralized governance structures. As the landscape of DAO governance continues to evolve, the insights from this paper stand poised to significantly influence best practices and future innovations.