Can the launch of Colony v2 relieve DeFi’s governance woes?

Colony, an early Ethereum project aimed at building decentralized governance tools, announced today that it is preparing for a relaunch that has been five years past, many pitfalls, and a few half-steps in the pipeline.

However, if the new implementation succeeds, it could be a boon for the dozens of decentralized financing (DeFi) protocols that are currently struggling with the clumsy mechanisms of DAO governance – a problem that is almost universally recognized and desperately needs a solution.

Nearly half a decade ago, the Colony Blog first laid out the organization’s vision of “the future of work”:

“By aligning workforce incentives around productivity, people anywhere in the world will be able to build organizations together online without the need for hierarchical management.”

That insight led to a 2017 white paper, and then the launch of an unsuccessful initial product – something the company even acknowledged as a failure, describing the early application as “an enjoyable user experience like root canal surgery, not beneficial.”

In a blog post today, the Colony Foundation revealed a new app with a host of features that address many of the challenges that both DAO participants and investors often complain about: cumbersome voting mechanisms, lack of flexibility, and maximization of power. Currently scheduled to restart on February 15th on Ethereum and xDAI chains.

According to Colony co-founder Jacques De Rose, the new launch better reflects the vision set out in the white paper – and even before that, some of the foundational philosophy that won Colony sites in the early stages of the conference and hackathon awards.

He said, “The colony got its name from ant colonies – complex adaptive systems where you have simple sets of rules that together lead to evolving and emerging behavior of a group as a whole.”

Simple rules and complex behavior – maybe exactly what DeFi needs right now.

Unruly rule

DAO fanatics might make you believe that decentralized governance is the inevitable future of how human organizations are formed and developed: unlicensed open innovation and worker-owner structures, they say, will inevitably outweigh the central entities in the end.

However, the current reality is that DAO structures are nothing close to adding value to an organization.

“The problem we see with DAOs as they are now is that they don’t reduce the transaction costs of the market mechanism for labor. They certainly don’t reduce coordination costs, they increase it because they need everything in order to have the silly decision-making mechanism around them,” De Rose said.

Voting on protocol upgrades has long been a goal of critics and a pain point for projects, requiring boring yes / no votes over simple protocol changes. As such, a key feature of Colony will be “lazy consensus” – an assumption at the protocol level that many major decisions are made at the social class in the DAO, and that votes are only necessary when a member objects.

Likewise, critics have raised questions about the degree to which the DAOs really live up to their “decentralized” rating: many of the largest and most successful ones maintain high concentrations in the founding team.

Not only is the sizing of power in the hands of a few (in many ways the opposite of what DAO governance strives to achieve), this centralization makes employment more difficult, as newcomers may feel as if they do not have a fair chance of achieving it, their voices are heard and they gain a stake in the success of the project. .

To this end, Colony deploys a variety of tools to prevent the “power aristocracy”.

“Reputation degrades over time, which means that the reputation of everyone in the organization will be printed over time to somewhat reflect the value of their recent efforts.” Du Rose says.

Newcomers can gradually gain ‘reputation’ in dedicated subgroups, such as ‘Marketing’ or ‘Product’, every time they get paid in the colony’s original code, which in turn gives the ability to participate and vote on proposals as well.

De Rose says this balances the ability to attract new talent and raise their voices, while also properly rewarding founders.

“They showed initiative to support something when it was promising in its very early stages, but that doesn’t mean they have to have all the influence, because it is very possible that the best people will come when the head of strength is built up. He said about the deterioration of reputation.” People are able to gain the say they deserve within the organization.

From DAO to DAO

While the DeFi protocols are best suited to the primary product market, du Rose envisions centralized entities that also deploy Colony.

“You can go from the DAO to the DAO – a dictatorial autocratic organization to a decentralized independent organization,” he jokes.

As he sees it, many organizations inevitably start out as a one-man dictatorship / startup, and eventually transform into more flat hierarchies of power out of necessity.

“All organizations can benefit from being more automated, and from pushing decision-making power to the parties to the organization so that the people who do the work really have the freedom to go ahead and do it without much administrative expense.”

But what really excites De Rose is the potential of science fiction inherent in the DAO institutions. Smile as he describes a possible future where NFT-based games mean that 15-year-olds are entrepreneurs, creating and distributing digital value to union members via the DAO.

“You might end up seeing completely virtual unicorn-sized guilds.”

Ultimately, the future of work is difficult to predict, because emerging systems lead to new and emerging behaviors.

“A really interesting interaction and configuration process that’s starting to emerge between the protocols, the governance protocols, and the people who govern them that will become closely related to each other, and lead to really interesting behavior for the complex system that is the Ethereum ecosystem.”