Critics often argue that DAO governance is inefficient, calling its idealists naïve while considering traditional corporate governance structures better for making decisions. According to Buterin, DAOs may need to use business forms to manage some unexpected changes in a set of assumptions.

Vitalik Buterin, the co-founder of Ethereum, recently defended decentralized autonomous organizations (DAOs), saying they may be more efficient and fair than traditional corporate structures.

In theory, the members of DAOs own and manage them collectively with no central leadership. They decide aspects like the use of treasury funds or the improvement of the protocol through the vote for community proposals.

Buterin stated that critics often argue that the governance of DAOs is inefficient, calling their idealists naïve. The Russian-Canadian programmer added that they consider traditional corporate governance structures with boards of directors and CEOs better for making decisions.

However, Buterin believes this position is often wrong as even naïve forms of compromise may outperform centralized trading structures. Although he knows it depends on the decision, he also believes it falls into the convex and concave categories.

The response to a pandemic, a military strategy, and technology choices in cryptocurrency protocols are examples of convex decisions. Meanwhile, concave ones include aspects like judicial matters, the financing of public goods, and tax rates.

Buterin wrote that they would prefer a compromise amid a concave decision but would flip a coin if a decision were convex.

The creator of Ethereum considers that decentralization of decision-making can cause confusion and low-quality compromises amid convex decisions. However, he believes that relying on the crowd can provide better answers if they are concave.

Buterin Believes that Decentralization Requires More People Making Decisions

He explained that DAO-like structures with different inputs into the decision-making process could make much sense in those cases.

DAOs often defend themselves against external attacks and censorship by adopting decentralization. The nature of the space and the online nature of some projects complicates doing background checks and informal smell tests in person.

Buterin argues that the above leads to a need for DAOs, arguing that decentralization requires distributing decision-making power among more people. That way, reporting and revealing conspiracy is more likely as each has less power.

However, he warned that DAOs might cause problems in cases requiring a more centralized structure. For example, they are useless when an organization operates with a central core leadership or separate groups work independently.

Although central leadership is decentralized, Buterin considers that individual groups may need to follow a clear hierarchy. Therefore, he thinks they should adopt a clear opinion-based perspective to guide decisions.

The programmer said a system that must work in a stable and unchanging way needs a courageous leader. He explained that the latter would coordinate a response to an extreme and unexpected change in a set of assumptions.

Concerning some specific cases, Buterin thinks that DAOs may need to use business forms to manage unexpected uncertainty.

Vitalik Buterin concluded that simpler, leader-led governance forms that emphasize agility make sense to some organizations, even in the crypto industry. Therefore, he stressed that the ecosystem would not remain stable without some decentralized and non-corporate ways.

By Alexander Salazar


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