Long-term Alignment in Cryptonetworks & DAOs
Felix Machart on strategies to ensure cryptonetworks/DAOs reap the rewards of long term thinking
We’re excited to feature another long-form piece from the Boardroom Mirror page!
Last week, we published an essay by Felix Machart of Greenfield One that introduces and makes the case for different strategies cryptonetworks and DAOs can implement to encourage long-term thinking, which he argues is crucial to their success.
While you’re there, be sure to check out some other long form posts we’ve published:
Nick Naraghi’s deep dive on why people build DAOs
James Duncan’s framework to analyze decentralization and autonomy in DAOs.
Long-term Alignment in Cryptonetworks & DAOs by Felix Machart
Felix begins his essay by making the case for long-term thinking. Data shows that for-profit companies that orient to the long term are more successful financially (higher revenue and market capitalization over time) and socially (more job creation). Short term optimization, influenced by the emphasis on quarterly earning reports by equity investors, on the other hand, has proven detrimental.
Cryptonetworks introduce an entirely new paradigm for investors and stakeholders, who can “view and verify metrics like earnings, transactions, risk and solvency in real-time.”
Felix asks:
If quarterly reporting has led traditional firms (and their activist investors) to excessive short-term orientation … where will real-time accounting lead us?
Along with thoroughly examining the different stakeholders within a cryptonetwork and how DAOs structures differ from traditional organizations, Felix offers a variety of solutions for cryptonetworks to incentivize long term thinking via their governance.
Specifically, Felix focuses on time-commitment based distribution of governance power and rewards.
To accomplish this, cryptonetworks and DAOs can make a few design decisions highlighted by Felix, including:
Linear vs. progressive increase in governance power and rewards
Types of rewards that are boosted through lock-up (e.g. protocol fee distributions, LP rewards)
Minimum and maximum length of token lock-ups
Early exit fees
Whitelisted smart contracts to participate in governance (and policy on how to whitelist)
Social norms around slashing for actors that attempt workarounds
In its entirety, Felix’s post is a great deep dive on a topic that will increasingly come into focus as cryptonetworks and DAOs mature, that of long term orientation and ensuring organizational sustainability over time.
For those interested in an even deeper dive, linked within the Mirror post is a version of the essay with specific case studies within DeFi.
We encourage all Stateless readers to check it out:
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