Trust in DAOs

Discussion

Tara Merk:

"We can now turn to understanding how trust and confidence have featured in the discourse on blockchain. As stated in the introduction, blockchains such as Bitcoin or Ethereum promise to remove the need for entering into trust relationships with banks or large internet platforms to transact value online and autonomously enforce application logic (Buterin, 2014a; Nakamoto, 2008). They aim to do so by establishing transparent, append-only ledgers, a copy of which is held across a large distributed network of independent nodes, called miners or validators, who update the ledger using decentralised consensus algorithms such as Proof of Work or Proof of Stake. Decentralised consensus algorithms are enshrined in a blockchains protocol (i.e. the computer code run by nodes which are involved in maintaining and updating the ledger) and define a set of rules for validating and adding new transactions to the blockchain. They are designed in a way that makes it prohibitively expensive to change the state of the shared ledger unilaterally. As such, they limit the agency of the trustee, i.e. the miners or validators, to the extent that the option of non-compliance becomes infeasible (Bodó, 2021). Furthermore, the transparency of the ledger itself, its reliance on open-source software as well as the way that blocks of transactions are linked via cryptographic proofs, enable participants to verify the overall state of the ledger independently instead of needing to rely on a trusted third party to do so (Bodó & Giannopoulou, 2019). The rationale behind relying on blockchains is to reduce the reliance on the discretion of potentially untrustworthy individuals, organisations, or institutions and substitute their role with a distributed network of nodes that fulfils the same functionality according to a predefined and auditable set of rules. Put differently, instead of relying on the decision of one potentially untrustworthy actor, participants can verify that a specific decision making process (for example PoW or PoS) was followed for all transactions on the ledger. The process of including transactions in the ledger constitutes the core reasoning behind the claim that blockchains overcome the need for trust. As stated in the Bitcoin whitepaper, blockchains aspire to be systems “based on cryptographic proof instead of trust” (Nakamoto, 2008, p. 1).

Practitioners have good reasons to maintain this aspiration. Firstly, the historical context of the global financial crisis and what some have termed the crisis of accountability in the digital platform economy (Scholz, 2017; Zuboff, 2015) are crucial. Given this macro-context, reducing our overall reliance on powerful intermediaries, especially in the digital economy, is a common sense aspiration. Secondly, blockchains such as Bitcoin and Ethereum ultimately aspire to be durable and resilient digital infrastructures and thus need to inspire strong confidence for others to rely and build on them. In the case of Bitcoin, this is primarily as an immutable infrastructure for digital cash or as a digital store of value (Dodd, 2018; Swartz, 2018). In the case of Ethereum, it is more about functioning as a decentralised platform or “world computer” (Brody & Couture, 2021; Dylan-Ennis et al., 2023) on which to host and execute various applications. As broad based digital infrastructures catering to potentially “everyone” and, in the case of Ethereum, to “anything” (Nabben, 2023b), providing a high level of confidence in the overall reliability of systems is a useful aspiration.

The question of whether or not blockchain technologies achieve their goal of being trustless digital infrastructure has been an ongoing topic of scholarly debate. While some have heralded blockchains as “trust machines” with the power to eliminate any trusted intermediaries, enabling trustless transactions, businesses, networks, and even states (Atzori, 2016; Casey & Vigna, 2018), others advocate for conceptualising the trustlessness of blockchains as a new form of trust (Werbach, 2016, 2018) that can augment existing laws and institutional structures to create more complete coordination mechanisms.

De Filippi et al. (2020) propose that blockchains are better conceptualised as “confidence machines” that provide a high level of certainty and predictability in the overall functioning of the network. However, they argue that a certain level of trust in the various human actors (such as miners and developers) involved in running and maintaining the technology remains. To prevent such actors from undermining the confidence provided by the protocol, De Filippi et al. (2020) call for exploring various off-chain governance mechanisms which can increase the confidence in the human actors (for example by creating more accountability) and thus strengthen confidence in the overall system. Relatedly, Bodó (2021) argues that blockchains should be understood as trust mediators which shift the source of trust, thus reducing it in some places while requiring new forms of regulation (i.e. measures of confidence) to enable trustworthiness in a given system. While this strand of literature disagrees with the idea of blockchains as trust machines and argues for a complex, concentric relationship between trust and confidence, the underlying goal of minimising trust in blockchains is not called into question. Furthermore, it shifts the discourse towards discussions of governance and regulation as tools to address the vulnerability introduced by trusted actors that necessarily remain to maintain the blockchain network.

Numerous use case related studies set out to explore how blockchains can be leveraged to reduce the need for trusted intermediaries in their various industries (Batwa & Norrman, 2021; Hawlitschek et al., 2018; Khurshid, 2020; Kumar & Sharma, 2022; Shahaab et al., 2020). Despite coming to differing conclusions regarding the practical ability of blockchains to reduce trust, these sector-specific studies set out with the implicit normative assumption that reducing trust could render significant improvements to their respective domains. In doing so, the conversation shifts towards less political topics such as the need for improved interfaces for blockchains to potentially fulfil their promise in the sharing economy (Hawlitschek et al., 2018), or that pairing blockchains with other new technologies such as AI will be able to solve the Internet of Things's security problems (Kumar & Sharma, 2022). In short, it shifts the conversation towards technical measures that maximise confidence and away from the more normative question of if trust is something a given context or community may want to have.

Overall, minimising trust in blockchains has been an explicit goal for practitioners designing and maintaining blockchains. The academic discourse on trust in blockchains does not question this aspiration. Instead, it has evolved to focus on debating how and where to implement various mechanisms of confidence which can further reduce participant’s need to trust others, such as regulation and governance (Bodó, 2021; De Filippi et al., 2020) or supplementary technologies (Hawlitschek et al., 2018; Kumar & Sharma, 2022). In the next section I show how this discourse is mirrored in the context of DAOs.

Still don’t trust, verify: The role of trust and confidence in DAOs

DAOs are online communities that leverage smart contracts to various degrees in order to coordinate and self-govern around a shared purpose or goal (Hassan & De Filippi, 2021). As such, smart contracts are usually used to augment various aspects of governance, e.g. defining who can make decisions, how these decisions are made, and enforcing decisions. Smart contracts are software deployed on a blockchain, whose logic is enforced when a set of predefined conditions are met and whose internal state is anchored on the blockchain and which can be verified in a similarly transparent manner. Smart contracts leverage many core blockchain features and transpose them into specific applications: they provide predictable logic that cannot be manipulated unilaterally, their open-source software can be publicly audited, and updates to the state of the contract itself can be transparently viewed and verified on the blockchain. Consequently, scholars argue that the use of smart contracts enables DAOs to inherit many of the trust minimising features of their underlying blockchains (Beck et al., 2018; Hassan & De Filippi, 2021). As smart contracts are predominantly used to support the collective decision making, i.e. the governance in DAOs, I subsequently turn to evaluate how the choice of governance mechanisms, as opposed to other aspects of the organisational design, has influenced the role of trust and confidence in DAOs.

Within DAOs, the extent to which smart contracts are leveraged to encode governance mechanisms on-chain and the extent to which they are complemented by other off-chain processes (Nabben, 2023a), tools, and practices is a choice that each DAO needs to make in accordance with its purpose. As argued in the introduction, DAOs are used for many different goals. As organisations deployed on top of a blockchain, DAOs significantly diverge from their underlying blockchains and are thus likely to need to re-engage with the normative question of designing for trust and confidence (De Filippi & Merk, 2024). However, I argue that DAOs currently neglect to do so, instead mirroring the discourse on trust and confidence in blockchains. Reviewing the history and utopia of, as well as current best practices in, DAOs substantiates this claim.

History and utopia of DAOs: The dream of trustless organisation

Early discussions about blockchain enabled DAOs began in 2013 and is succinctly captured in a blog article written by Vitalik Buterin who would go on to co-found Ethereum (Buterin, 2014b). For Buterin, organisations diverge along the axes of decentralisation and autonomy. A decentralised organisation encompasses a group of humans that coordinate towards a shared goal or purpose around a set protocol of rules that are enforced on a blockchain. In contrast, a decentralised autonomous organisation is one where human involvement and decision making is pushed to the edges, in that they would only contribute relatively small and well defined tasks to the overall functioning of the organisation and the bulk of the organisation’s activities would be handled by autonomous agents (either AI or automated smart contracts). Reducing the role of human agents in an organisation’s governance and overall functioning is a conception of DAOs that aims to maximise confidence by using smart contracts and other technologies to increase predictability. While the conception of a fully autonomous DAO remains speculative, the vision has not lost its appeal and permeates many current proposals (e.g. Delphi Labs, 2023). However, practically, two short years after discussions about the utopia of DAOs began, the first DAO, called “The DAO”, failed spectacularly and surfaced the sustained need for human intervention and coordination (DuPont, 2017).

Current best practices in DAOs: Maximising confidence where possible

A popular concept to balance the desire for autonomy with the need for human intervention in DAOs is the “governance minimization” approach which aims to minimise governance itself, i.e. limit the number of factors that can be changed through collective decision making in a DAO versus those whose functioning is hard coded in technology upfront (Ehrsam & Robinson, 2020). Nabben et al. (2022) summarise the concept’s attraction as: “the idea is that people are more likely to use and trust a system that can’t change against their interests versus one where the current owners or operators say that they won’t” (Nabben et al., 2022). Governance minimisation in DAOs mirrors the goal of maximising confidence in blockchain protocols: the more predictable and deterministic the organisation functions, the less need there is to trust that things won’t change, the better.

Where collective decision making is nonetheless involved, DAOs have focused on trialling various styles of voting using tokens that are counted by a smart contract and can trigger certain functions based on the outcome of a vote (called on-chain enforcement), such as spending funds (Bellavitis et al., 2023). Both mechanisms act as measures of confidence around human engagement in DAOs: although the technology may not determine the outcome of a decision upfront, token voting and on-chain enforcement provide predictability around who can make decisions (token holders), how decisions are made, and certainty regarding the conditions of enforcement. The focus on voting is further perpetuated via different “DAO platforms” which abstract away the complexity of developing and deploying custom smart contracts and instead enable people to easily set up DAOs, akin to the way tools such as WordPress facilitate setting up websites. In a comparison of leading DAO platforms Faqir-Rhazoui et al. (2021) find the main difference to be between types of voting (how is a quorum defined?) and enforcement mechanisms. Again, this approach focuses entirely on leveraging the confidence building features inherent in blockchain technologies to limit the potential harm of human involvement in DAOs.

However, practically, the current focus on leveraging confidence maximising mechanisms from the underlying blockchains in DAO design has resulted in a number of problems. Many DAOs struggle with highly concentrated plutocratic voting power, low rates of participation, and voter apathy as well as high costs for on-chain decision making and enforcement (Barbereau et al., 2023; Feichtinger et al., 2023). Furthermore, DAOs have also suffered from issues related to internal security (so called governance hacks, for example in NounsDAO (Fernau, 2023)) and a lack of internal accountability (Cossar et al., 2024).

In the next section I argue that perhaps allowing for more trust in DAOs and designing governance mechanisms in a way that allow for this trust to emerge (rather than squashing it through predictability and limiting the complexity of action) can help to overcome some of these challenges.

Nourishing trust in DAOs: Why DAOs should nourish trust

To understand why it might be valuable to refocus our attention on trust rather than discussing ever more complex measures of confidence, it is useful to draw on Helen Nissenbaum’s work (Nissenbaum, 1999, 2001). Nissenbaum makes a passionate argument for building digital systems that “nourish” trust instead of focussing exclusively on improving technical mechanisms for confidence which limit individuals’ action space and thus the opportunity for trust to emerge. The term “nourishing” seems to be chosen by Nissenbaum to characterise trust as something that organically grows and “flourishes” (Nissenbaum, 2001, p.123) under certain conditions. She further argues that nourishing trust is desirable as a necessary precondition to realise progressive, pro-social visions of cyberspace:

People shy away from territories they distrust; even when they are prepared to engage voluntarily, they stay only as briefly as possible. Without people, without participants, many of the visions [for the internet] will be both literally and figuratively empty. Trust would invigorate the online world; suspicion and insecurity would sap its vibrancy and vitality. (Nissenbaum, 2001, p. 102)

In short: cyberspace would be a better place with more trust, not less. Trust may be the missing ingredient that results in people wanting to participate in a DAOs governance, to engage with ongoing issues, and advance strong norms or other non-technical systems to prevent governance hacks.

Nissenbaum is not categorically opposed to confidence building measures such as strong technical security or regulation. However, she argues, such mechanisms should be designed with a sensitivity towards the specific context and its overarching goal in mind. In some contexts (e.g. banking or e-commerce) high levels of confidence may be required. She terms these contexts “pockets of high security”. In many other more creative and collaborative contexts, maintaining minimal protections against catastrophic harms and preserving the freedom and agency that trust requires may be sufficient. In the context of DAOs, distinguishing between pockets of high security and context that could benefit from more agency and trust can be done by reflecting on the goals of the DAO as a whole (De Filippi & Merk, 2024) or by contrasting between different areas within the DAO.

How to nourish trust in DAOs

Once we have acknowledged that there are DAO use cases or areas within a DAO that could benefit from nourishing more trust, rather than maximising confidence, we must proceed to ask: how? Trust does not emerge in a vacuum. Yet, there is an important distinction between mechanisms that nourish trust and those that build confidence (Nissenbaum, 2001). The former aims to create an environment in which a trustor is willing to make themselves vulnerable and does not expect the trustee to harm them. The latter aims to eliminate the possibility of harm and thus the need for vulnerability. Various scholars have taken on Nissenbaum’s call to nourish trust online and begun to define what such mechanisms might look like. For example, van den Berg and Keymolen (2017) call for reducing governments’ reliance on techno-regulation in achieving cybersecurity and instead include trust, through user feedback and involvement in their security strategies. In doing so, they show that, depending on how it is designed, security regulation can act either as a mechanism of confidence, limiting the individual user’s action space, or as a mechanism that creates the type of “safety” required for trust to emerge. Similarly, Richards and Hartzog (2015) stipulate why and how privacy regulation should change to encourage trusted relationships to emerge, rather than focussing on accounting for the harms that privacy infringements can cause. In a similar vein, rethinking privacy online has also been core to Nissenbaum’s more recent work (Balsa et al., 2022) as well as her seminal work on privacy as contextual integrity (Nissenbaum, 2004). This line of work shows that, if designed adequately, policy and regulation can act as enablers, not deterrents of trust.

In the context of DAOs, I have argued that various approaches to and implementations of governance have thus far been predominantly deployed as measures of confidence and thus deterrents of trust. Consequently the question here is: how can DAO governance be designed differently, to enable trust? In the next section I present DADA as a case study that serves as a non-generalisable yet rich example of a community grappling with this question."

(https://policyreview.info/articles/analysis/dao-ethnography-building-trust)

Source

* Article: The unusual DAO: An ethnography of building trust in “trustless” spaces. By Tara Merk. Internet Policy Review, Volume 13, Issue 3. September 2024.

URL = https://policyreview.info/articles/analysis/dao-ethnography-building-trust

"Echoing Nissenbaum’s call to nourish trust online, an ethnographic case study of the blockchain art collective DADA exemplifies how DAOs may be designed differently to allow for trust to emerge. "