Conceptual Models for DAO2DAO Relations

Shermin Voshmgir, Michael Zargham, Jeff Emmett: January 14, 2021

A Research Digest from PrimeDAO Workcycle 1 that was originally published by BlockScience in the PrimeDAO publication : https://medium.com/primedao/conceptual-models-for-dao2dao-relations-ac2b2d3cc84d

This piece is an output of a DAO2DAO research collaboration between Token Kitchen, BlockScience and Curve Labs, funded by PrimeDAO. While most DAO research focuses on intra-DAO capabilities, such as how agents interact with each other within a DAO, the aim of this research is to understand the complexities of inter-DAO relations. In this digest, we identify background concepts and areas of applied research which are relevant to the dynamics that will be prevalent in a nascent ecosystem where DAOs have to interact or collaborate with each other. The research presented thus far, along with the community report & related literature review produced by Curve Labs, is the result of the first cycle of this collaboration, and lays out the foundation to more rigorous analysis in subsequent PrimeDAO workcycles.

This article introduces our research by defining DAOs as a new form of non-state actor in a global system. The term “non-state actor” stems from the studies of International Relations, which is also the natural starting point of our research. We propose that DAOs, in their institutional structure, have more resemblances with nation states and global markets than with companies or firms. This resemblance has less to do with size or scale of DAOs than the fact that they can operate without being embedded in a higher-level institution that enforces particular interaction patterns, for example a shared legal jurisdiction to serve as a backstop for conflict resolution. Thus, it is relevant to understand the tools of International Relations (IR) and Foreign Policy.

From our point of view, Web3 and the institutions that emerge from it will not change politics in itself — politics is inherent in human organization. The question is rather how we can map concepts used in the field of International Relations to DAO treaties and alliances, in order to better map how DAOs and Web3 will change the dynamics of our global socioeconomic system. In this article we will cover several wide-ranging topics with a ‘work-in-progress’ approach to share the results of our ongoing research with the PrimeDAO community. This report will be broken into three main sections:

This research also builds on some of our prior publications: The book Token Economy by Shermin Voshmgir describes the concept of Purpose-driven tokens that steer collective action for the co-creation of a public good such as a blockchain network or other DAOs, as well as the aspects of Institutional Economics and Governance of DAOs, which were also published as a two part series on Medium (Part 1 and Part 2). In the paper Foundations of Cryptoeconomic Systems, Shermin and Michael Zargham outlined the systems perspective of DAOs and relevant questions of Contract Theory and Institutional Economics. Michael also published an article on Algorithms as Policy with Kelsie Nabben, as well as concepts around DAOs as a new form of Institution together with Jeff Emmett, Joshua Tan and Primavera de Filippi. We also recommend reading the Curve Labs community report from this DAO2DAO research collaboration. These resources can serve as additional reading for anyone who is seeking a larger context for the research contained in this digest.

The term ‘DAO’ stands for ‘Decentralized Autonomous Organization’, but the concepts of Autonomy and Decentralization of organizations predate Web3. A brief review of these concepts is prudent as the basis for discussion of DAOs in Web3.

Search trends for Autonomy & Decentralization, in various forms. Note that use of the term ‘autonomy’ precedes the use of the term ‘automated/automation’ by several decades — even in the pre-computing era. (source: google ngrams)

Let’s begin with a few definitions:

Autonomy should not be confused with automation, which is a technological concept associated with the engineering field of control engineering, which includes robotics but also the broader engineering of systems which operate with little or no human intervention.

While the concepts of decentralization and autonomy have histories in political philosophy extending over a century, our writing will pick up where the Web3 community took up these terms. It is helpful to note that the Web3 community often blends the concepts of autonomy and automation in the use of the term autonomous.From a technological perspective, DAOs contain automated components, or bots, which share similar design features with distributed systems in automatic control, such as feedback loops in sensor networks. From a political philosophy perspective however, the salient feature of a DAO is autonomy, in the sense of self-actualization at the organizational level.

The concept of DAOs in the context of Web3 was introduced by Dan Larimer in 2013 who coined the term Decentralized Autonomous Corporation (DAC) but is often attributed to Vitalik Buterin who picked up on Larimer’s concept and generalized it, coining the term Decentralized Autonomous Organization (DAO). However, the concept of decentralized automatons is much older and — according to Vitalik Buterin — was in part inspired by Daniel Suarez’s novel Daemon.

In 2013 Dan Larimer compared Bitcoin to a firm whose shareholders are the Bitcoin token holders and whose “employees” would be the miners. “Bitcoin has 21 million shares, and these shares are owned by what can be considered Bitcoin’s shareholders. It has employees, and it has a protocol for paying them: 25 BTC to one random member of the workforce roughly every ten minutes. It even has its own marketing department, to a large extent made up of the shareholders themselves. However, it is also very limited. It knows almost nothing about the world except for the current time, it has no way of changing any aspect of its function aside from the difficulty, and it does not actually do anything per se; it simply exists, and leaves it up to the world to recognize it.” Larimer defined native blockchain tokens as “shares in a Decentralized Autonomous Corporation (DAC) where the source code defines the bylaws. The goal of the DAC is to earn a profit for the shareholders by performing valuable services for the free market.”(LetsTalkBitcoin 2013) While he described a new form of companies/corporations he also used many market metaphors. He merged the concept of markets (external coordination and production) with the theory of the firm (internal coordination and production).

In a different article, Larimer described DACs as “a useful metaphor for designing decentralized systems that provide useful goods and services to society. If something as complex as a bank can be implemented as a DAC then it is clearly possible to implement many other things as DACs” (LetsTalkBitcoin, 2013) such as News Aggregation, AdWords, Domain Names, Patents, Copyright and next generation Intellectual Property, Insurance, Courts, Escrow, Arbitration, Authenticated Anonymous Voting, Prediction Markets, or Next Generation Search Engines.

His brother Stan Larimer defined Distributed Autonomous Corporations (DACs) that “run without any human involvement under the control of an incorruptible set of business rules (…) These rules are implemented as publicly auditable open source software distributed across the computers of their stakeholders.” He described Bitcoin as “a shareholder-owned, employee run, not-for-profit crypto-corporation!” (LetsTalkBitcoin 2013). Stan referred to Asimov’s Three Laws of Robotics.

He mapped these laws to DACs and stated that “Bitcoin has already demonstrated its ability to credibly implement a social contract based on a rudimentary set of inviolable Core Laws:

The concept of DACs was adopted by Vitalik Buterin who wrote a great deal on the topic in 2013 (abc) and 2014. He imagined a novel form of business automation and described how a company could operate without managers by replacing management with software capable of recruiting and paying people to perform the tasks that contribute to the mission of any type of organization. He defined a DAO as “an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do.” Vitalik described the concept of “autonomous agents” that do not require the same level of human involvement as traditional organizations. While he acknowledges that “some degree of human effort might be necessary to build the hardware that the agent runs on, there is no need for any humans to exist that are aware of the agent’s existence.” As an example he stated computer viruses that replicate from machine to machine without deliberate human action, and exist similar to biological organisms, or decentralized self-replicating cloud computing service that could start off running an automated business on one virtual private server, and would rent other servers and install its own software on them, adding them to its network. Vitalik described a number of autonomous agents with a different range of (a) intelligence and (b) versatility. He acknowledged that “autonomous agents are some of the hardest things to create, because in order to be successful they need to be able to navigate in an environment that is not just complicated and rapidly changing, but also hostile.”

Vitalik picked up on ideas that have existed in the broader theory of cybernetics for decades, as well as the manifestation of these ideas in sci-fi. He described decentralized organization (DOs) as organizations that “have automated existing processes with a set of smart contracts: Instead of a hierarchical structure managed by a set of humans interacting in person and controlling property via the legal system, a decentralized organization involves a set of humans interacting with each other according to a protocol specified in code, and enforced on the blockchain. A DO may or may not make use of the legal system for some protection of its physical property, but even there such usage is secondary.”He suggested that while in “a DO the humans are the ones making the decisions, and a DAO is something that, in some fashion, makes decisions for itself. “In a DAO collusion attacks are treated as a bug, whereas in a DO they are a feature.”

“The internet allows us to create decentralized corporations, automatons that exist entirely as decentralized networks over the internet, carrying out the computations that keep them “alive” over thousands of servers.” They have “two capacities: the capacity to think, and the capacity to maintain capital, are in theory all that an economic agent needs to survive in the marketplace, provided that its thoughts and capital allow it to create sellable value fast enough to keep up with its own resource demands. In practice, however, one major challenge still remains: how to actually interact with the world around them.” Vitalik described the oracle problem of how DAOs get access to the data of the outside world. He also stated that “Computer software is increasingly becoming the single most important building block of our modern world, but up until now search into the area has been focused on two areas: artificial intelligence, software working purely on its own, and software tools working under human beings. The question is: is there something in the middle? If there is, the idea of software directing humans, the decentralized corporation, is exactly that.” (Bitcoin Magazine, 2013)

In order to understand and reason about DAOs, this area of research introduces several conceptual models to consider the layers of interaction patterns and criteria involved within and between various institutions. This section is broken down into two subsections: (a) an interscale model for institutions and (b) quantifying the qualitative phenomena of DAOs.

A diagram demonstrating Multi-Scale Feedback: In cryptoeconomic networks, the system level behavior emerges from the agent level behavior responding to rules and incentives implemented as part of cryptoeconomic policy design. The “system” in this context refers to DAOs, while the “agents’’ would be stakeholders of a DAO.

Interscale models are used widely in many diverse fields, and are critical to understanding the emergent potential of complex systems. DAOs are institutions which may be more or less formally institutionalized, but nonetheless may be represented as complex socio-economic systems. In a future global ecosystem of DAO proliferation, there are various layers of feedback both within (inter) and between (intra) DAOs that can be grouped according to the following interscale interaction patterns:

While in our research we focus on the relationship between institutions (I2I), the A2A dynamics and A2I dynamics also influence the dynamics of I2I relationships. Furthermore, the internet empowered globalized social community has given rise to the individual (a simple agent) becoming an influencer. These influencers are also a new form of institution as thought leaders. When they make statements on the internet, their statement is regarded as true (by their fans) and false (by their opponents) and can shape culture, technology, and economic policy making.

Depending on the purpose of a decentralized organization and their coordination structure, we propose the following perspective: DAOs can be more or less autonomous and have resemblances with nation states, companies or markets. These DAOs then also interact with each other or with other governmental and non-governmental organizations which creates certain (inter/intra) Firm and (inter/intra) State dynamics.

However, in the real world we don’t have an idealized state and an idealized market. On a local level markets are a subsystem of a nation state or region. The distinction between market participants (consumers and producers and all their intermediaries) and citizens (of nation states) is an artificial concept, since any market is subject to the implicit and explicit norms, rules and regulations or a geographical area and it’s jurisdiction and cultural norms.

Disclaimer: The concepts presented below are part of an ongoing research and the definitions and attributes/metrics presented are not final but approximated assumptions to be refined and reflected with further research and stakeholder feedback.

In this section we will explore some concepts using idealized versions of institutional forms as a tool to construct quantitative metrics. In order to make use of these metrics, we will need to examine real institutions using this lens to see how useful they are. At this stage we will be using the real system to measure the usefulness of the metrics, but as the metrics are refined, we plan to use them in order to assess real world institutions. In other words, we plan to use Wittgenstein’s Ruler to put these metrics to the test in their capability to measure reality.

Our research discussions have explored a range of salient attributes of DAOs and we have attempted to embed those attributes in a vector space. We consider a conceptual framework made up of five attributes of DAOs that can be characterized on spectrums: (i) transaction costs, (ii) information availability, (iii) sovereignty, (iv) trust level, (v) rigidity. Our working definitions are as follows:

Transaction costs (ranging from low to high): Describes the extent to which there are impediments to the activities of a stakeholder in a DAO. The concept of transaction costs is based on the notion of friction: it costs attention to make decisions and requires a pareto-optimal modeling of attention. Mental transaction costs and the requirement for mental shortcuts in human socio-economic behaviour have been subject of study in cognitive psychology and behavioral economics for example. But attention is only one of many costs in the context of participating in a DAO. Transaction costs can reflect the cost of automation, co-steering and financial fees, among other costs of coordination.Information availability (ranging from low to high): refers to the question of what information is available to which DAO participants (agents). On the extremes we would have low information availability (meaning that all information is private), or high information availability (everything is public). Current blockchain networks and the applications that build on top of it tend to have high information availability (at least when it comes to public transaction data) but low transparency of the identity of the actors. It is worth noting here that “privacy by design” is a serious issue in this context addressed by alternative blockchain networks using cryptographic tools that allow to obfuscate certain data. The question of information overflow is another factor to be considered when assessing the question of information availability, in that the mental transaction costs and expertise of participants needs to be taken into account when determining appropriate levels of information sharing.Sovereignty (ranging from prioritizing agents to prioritizing institutions): refers to whether rules of the institution favors individual priorities over group outcomes. It refers to the power balance between agent and organization (which could be a company, nation state, or market). At one end of this spectrum, we see system rules permitting maximal freedom to the individual, where any repercussions of actions taken are normative. At the other end of the spectrum we find system rules providing maximal control to the institution, where the organization can demand any action of an individual and enforce its fulfillment.* Note that sovereignty is not the same as democracy as it refers to the theoretical rights of an member/agent of an organization. The level of democracy (“democracyness”) refers to the strength of the feedback loop of how much an individual agent can actually shape the co-steering of the system (read more under “Rigidity”).Trust level (ranging from competitive to cooperative): The term reflects whether norms of the institution favour individual agents or group priorities. How does one agent interpret the actions of other agents in the system. How much do we trust the other members of a DAO to collaborate and help others, as opposed to competing and “only looking out for themselves”. Whether or not a member of a DAO collaborates or competes with others depends on their norms and world views. In a crypto-anarchist DAO (or a market), an agent will assume that everyone acts in their own self interest, which will ultimately benefit the whole system. In a more socialist DAO (or a nation state), agents will build their behaviour on collaboration and trust in other members of the DAO to also collaborate. Analogous to sovereignty, the relative alignment between the agent and the institution but the spectrum characterizes behavioral norms rather than the letter of the law.* Note that interesting misalignments between trust and sovereignty can occur — eg. in a socialist DAO system with low social trust, we may encounter an ecosystem where rules favor the whole but all the individuals are gaming those rules for their own benefit.Rigidity: (ranging from adaptive to immutable): refers to the level of flexibility of a DAO to react and adapt to occurrences within the system that might require a change to the system rules, such as a DAO protocol upgrade. It reflects the level of “active” democracy (“democracyness”) and represents the strength of the feedback loop of how much an individual agent can actually shape the co-steering of the system. In the parlance introduced above, systems that exhibit strong democracyness have a strong A2I feedback loop (as opposed to a strong I2A feedback loop, which is far more common in most organizations). One end of the spectrum presents institutions more difficult to change, and the other end of the spectrum are systems that are more adaptive to the stated needs of their participants.

Below we have begun to analyze these attributes in the case of ‘idealized institutions’ since they tend to take extreme values in these attributes. One nice thing about quantifying these concepts as spectra is that we can plot them on a radar chart in order to reason about the design space of institutions in terms of these attributes. For example:

Once we have further hardened our definitions and refined our interpretations of those metrics via the idealized institutions — that do not exist as such in the real world — we will build out a list of real world examples which will include some well known DAOs, but could also include states and corporations. As a teaser into this process, we will explore our conceptual framework in one further practical exercise, loosely examining some DAOs and corporations relevant to the audience. These numbers reflect a hypothesis based on approximation for further research, they are not the result of a finalized scientific research process:

This conceptual framework lacks a very important attribute relevant in the context of DAOs: Power Structures within and between DAOs. While the concept of power structures is of utmost importance, it does not fit in this particular framing as power structures are “relational” and not well modeled as a spectrum. Representing a concept as a spectrum (embedding it on a continuous interval) provides a very different perspective from evaluating the structure of relationships (representing as a directed graph). InterDAO power structure and intraDAO power structures can be captured with the directed graph formalism, however those graphs are asymmetric. Addressing power relations within and between DAOs is an important topic which will be the focus of future work within this DAO2DAO research program.

The above mentioned theoretical frameworks build on the notion that DAOs are a new form of institution that interrelate not only with one another but also with other institutions on a global scale, and are thus subject to the studies of International Relations (IR). This section is broken down into two subsections: (a) an introduction to International Relations and (b) an analysis of relevant IR research questions in the DAO context.

International Relations Studies is concerned with the relationships between economic and political institutions such as nation states, NGOs, IGOs, INGOs, multinational corporations, and the global socioeconomic systems produced by their interaction. The emergence of new internet-based institutions that are more autonomous and more fluid in their interactions than current internet platforms which are centrally managed and privately owned, will , in our opinion, require a new perspective on the concept of international relations in a globalized economy and internet era.

The most common topics in International Relations in a pre-Internet era that study analogue institutions based on a nation state division of the world encompass question such as “Diplomatic relations,” “Sovereignty” of Nation States, “National Interest,” “Power, Power Blocks and Polarity,” “Globalization,” ”Interdependence,” “Nationalism,” “Economic Development,” “Sustainability,” “International security,” “Non-state actors,” and many more. Selected concepts and topics will be discussed in the next chapter in the context of DAOs. However, there is not one perspective or one unified theory that exists in the analysis of these topics. Depending on the school of thought we can distinguish between:

We can furthermore distinguish between:

Derived from these perspectives there is a wide array of IR theories or schools of thought that provide different conceptual frameworks and tools, the most important of which are: Realism, Neorealism, Liberalism (Neoliberalism, Complex interdependence, Post-liberalism), Regime theory, Constructivism, Marxist and Neo-Marxist theories, Feminism, Green Theory, Functionalism, Post-structuralism, Post-modernism, Postcolonialism, Evolutionary perspectives of IR, Neuroscience perspective on IR, and other alternative approaches.

To make these connections more tangible, we have mapped selected core concepts of international relations to the context of DAOs, which identify future areas of research that will deep dive into selected topics:

Measuring the power concentration in international relations, where:t = time at which the concentration of resources (i.e. power) is being calculatedi = state of which the proportion of control over the system’s power is being measuredNt = number of states in the great power system at time tS = proportion of power possessed.Sit = proportion of power possessed by state i at time t.source: https://en.wikipedia.org/wiki/Polarity_(international_relations)

Sovereignty in the context of international relations of nation state players manifests that sovereign power (nation state) has “absolute power over their geographical territories, and that such a power is only limited by the sovereign’s own obligations towards other sovereigns and individuals.” (source) The question of sovereignty in the digital world has been quite different and is — for now — limited to the sovereignty over assets and data (arguably also an asset) but is interdependent with the rules and regulations of specific nation state regulation that will — in most cases — be tied to the nationality or residency of an individual.

In this first digest, we are openly sharing our early research coordination on the relevant literature to better understand the implications of DAO2DAO interactions. We discussed the history and definitions of DAOs, their classification along a series of metrics, and examined the landscape of International Relations and Foreign Policy considerations to understand the wide-ranging implications of DAO2DAO interactions.

Along with the community report & literature review published by Curve Labs, this digest represents the living outputs of the first workcycle of the PrimeDAO x BlockScience collaboration, and paves the way for further research in subsequent workcycles, pending the approval of our next proposal.

We invite the PrimeDAO community to join in a Q&A office hour this Thursday, January 14 at 9 am PST / 12 pm EST / 6 pm CET to comment or ask questions about the research presented thus far. Details will be posted in the PrimeDAO Discord — we hope to see you there!

Cite As: Voshmgir, S., Zargham, M., Emmett, J., 2021. ‘Conceptual Models for DAO2DAO Relations.’

We would like to thank Cem F Dagdelen, Max hampshire, and Stephen Zargham for feedback and comments on this article.

Originally published by BlockScience in the PrimeDAO publication on January 14, 2021: https://medium.com/primedao/conceptual-models-for-dao2dao-relations-ac2b2d3cc84d