Vitalik Buterin Argues That Highly Decentralized DAOs Will Outperform Corporations

Buterin believes that in order for DAOs to be more efficient, they must stay highly decentralized while embracing elements of political science and corporate governance.

Vitalik Buterin Defends DAOs Against Critics

Vitalik Buterin, the co-founder of Ethereum, has come out in support of Decentralized Autonomous Organizations (DAOs), arguing that they can be more efficient and equitable than traditional corporate structures in some instances.

According to ongoing discussions in the crypto community, highly decentralized DAOs have been inefficient. Many believe that protocols could become more effective by adopting conventional governance frameworks.

In a blog post dated September 20, Vitalik refuted the premise by highlighting circumstances in which greater decentralization is essential for the viability of DAOs.

Vitalik explained, on the basis of decision-making, that while corporations tend to make convex decisions, DAOs will utilize decentralization to reach better decisions in concave circumstances.

When a decision is concave, compromise is allowed (identifying the best option between A and B); however, when it is convex, the choice must be either A or B. He contended that DAO-like structures would be more effective if they relied on crowd wisdom to gather inputs that would drive the decision-making process.

DAOs typically embrace decentralization in order to shield themselves from external attacks or censorship. Vitalik noted that, while leveraging decentralization for censorship resistance, DAOs should aim to deliver services that encourage long-term investment and trust from the community.

According to Vitalik, DAOs have moved to assume the functions of nation-states by maintaining fundamental infrastructure. Decentralization is critical for making DAOs more efficient in regulating themselves while providing vital services.

For instance, Kleros, a decentralized arbitration protocol, was developed to rule on various kinds of arbitration cases. To restore efficiency and trust in the protocol, governance should be more decentralized, which will assist in reducing power concentration within a single organization.

DAOs Can Learn From Political Science

In an article cited by Vitalik, Curtis Yarvin argues that the most effective DAO models should be based on corporate governance rather than political science. On the contrary, Vitalik maintains that since DAOs are regarded as sovereign, they have a great deal to learn from political science.

Sovereign entities are considered to be inefficient in terms of decision-making, whereas corporations are more efficient because they can quickly adopt tools to make timely judgments.

However, when it concerns the issue of succession, corporations find themselves in a tough spot. On the other hand, sovereigns have long created systems to ensure a smooth succession of power in order to maintain operations.

DAOs, according to Vitalik, might be developed to optimize the best of both worlds.

“By far the greatest number of organizations, even in a crypto world, are going to be “contractual” second-order organizations that ultimately lean on these first-order giants for support, and for these organizations, much simpler and leader-driven forms of governance emphasizing agility are often going to make sense.”