Vitalik Buterin on DAO Governance and New Identity Model

Vitalik Buterin, co-founder of Ethereum and a titan in the blockchain space, recently voiced his skepticism on the possibilities for an “anonymous society” or even some kind of douchey-speak: “A financialized pseudonymous society.” First reported by Foresight news, the statement has created quite a stir in the blockchain circles. Buterin claims that all such societies are fundamentally unstable and cannot exist in the long term. He stressed the requirement for a multidimensional concept of identity, especially one with “soul-binding” aspects, in order to maintain systemic stability.

This article offers the community a new framework for reconsidering tried-and-tested models of DAO governance. It challenges us to consider how identity may—and perhaps should—be a core pillar of resilient systems.

What Are DAOs? 

Decentralized Autonomous Organizations (DAOs) are a new paradigm in organizational governance that allows businesses to interact without concern for the authenticity of their partners. These organizations run on blockchain and automate decision-making through the use of smart contracts to follow rules determined by their community. 

The core offer of the DAO is that it promises a level playing field: no single player has ultimate power, and all decisions are made collectively by participants.

Liquid democracy is one of the most important, as it allows low voter participation with little harm to governance outcomes. DAOs are fundamentally based on liquid democracy. Holders of the tokens used in governance can vote on proposals that will affect how the organization operates. That is potentially a more democratic, less centralized governance structure in theory.

Governance Mechanisms in DAOs

Although the goal of DAOs is to democratize power and give agency back to the community, their governance mechanisms are far from perfect. One of the more valuable bottlenecks is token concentration, where a few individuals hold many tokens and have undue influence over any decision-making process (commonly referred to as “whales”). 

In addition, DAOs are also pseudonymous by design, which makes the situation even more complicated. As expected, participants performing under pseudonyms is a double-edged sword for privacy and potential manipulation. In a financialized system of governance where decisions are driven by who benefits and pays out financially, anonymity leads to personal interests before the commonwealth.

Why Vitalik Buterin’s Statements Matter

“Without this concept, the most stable governance structure is only a de facto centralized governance structure,” revealed Vitalik Buterin. At the same time, anonymity can be a form of check and balance within governance, but according to Buterin, it cannot uphold an entire [DAO] system. Relying purely on anonymity, he argued, would be similar to trying to power a civilization through the force of endless rebellion; it was not feasible in perpetuity.

Vitalik Buterin’s discussion on the fragility of such anonymous and financialized pseudonymous societies also provides a glimpse into why current DAO structures may be flawed. It also calls for the emergence of new kinship and political identities within these organizations to articulate models of governance that incorporate privacy but without destroying various nodes or weak points.

Especially as DAOs are finding new ways to evolve, Buterin warns that DAOs are at risk of being centralized in practice, even when they maintain decentralization in principle without a comprehensive-oriented identity model. 

Overall DAOs are a revolutionary way to think about governance, but they have their hurdles. Vitalik Buterin’s remarks also underscore the point that decentralized governance will not be a matter of technological problems and solutions but rather hinge fundamentally on identity — at least as far as organic social coherence is concerned in such crypto-economic systems.