The DAO Plutocracy Problem

Off-chain Reputation is the Key to Meritocracy

DAO Members Can Build Equity and Reputation (sort of)

DAOs rose to prominence as smart contracts established a model for self-executing business and financial transactions. Though early DAO models struggled with security, their flexible operations and recent governmental acceptance in Wyoming bodes promisingly for their role in the task-based project economy.

DAOs aren’t Decentralized or Autonomous, so Equity is Precarious

DAOs are meant to be a lightweight mechanism for coordination without the overhead of a formal business structure. Few, if any DAOs achieve this outcome efficiently outside of venture capital-esque investment DAOs that pool funds from members for collective investments. At the ethCC conference, NEAR Protocol Co-founder Illia Polosukhin described the so-called DAO landscape as “Facebook groups with bank accounts” — a far cry from the self-sovereign hiveminds implied by the name DAO. Even more sophisticated DAOs frequently amount to token-gated Discord channels populated by overlapping groups of web3 enthusiasts. DAO-bestowed Discord role labels serve as a siloed proxy for decentralized reputation, and on-chain transaction history provides a narrow view of individual capabilities.

On-Chain Reputation is Limiting and Dangerous

In 2017, ERC-735 surfaced a proposal for on-chain credential documentation, including data in the smart contract layers. ERC-735 would be inappropriate for personally identifiable information (PII), and therefore is limited to only identities of entities without sensitive data. Such a proposal was swiftly axed, as PII on-chain does not allow for consensual selective disclosure and self-sovereign identity. Similar proposals are resurfacing, such as the Ethereum Attestation Service, which leverages on-chain transactions that default to public and immutable. However, the Serto team has not been able to verify where the attestations are stored or what interfaces exist for users to manage the consent around their disclosure.

DIDs & VCs are the Future of Reputation

A Decentralized identifier (DID) is a string of numbers and letters controlled by a key pair that can be rotated. Verifiable credentials (VCs) are attestations made by one identifier about another, or about some other fact or object. These attestations are cryptographically signed by their attestor, revocable, off-chain, private, selectively disclosable and can be set to expire.

Portable Identity & Reputation between DAOs

Multi-Sig Verifiable Presentations

  • check the DAO smart contract to identify the canonical signers (e.g. 5 signers on the Gnosis Safe contract)
  • check whether the given verifiable presentation includes verifiable credentials signed by a sufficient subset (e.g. 3 of 5) of signers from that DAO’s contract
  • and if verifiably presented, then allow the individual to participate in the DAO

The Ceiling on DAO Decentralization

We aspire to DAOs that can solve complex coordination problems, like creating products and bringing them to market. Unlike capital allocation, shipping products requires a variety of different roles with different expertises that must be coordinated. Also unlike treasury DAOs, the people and roles required for shipping products are not as fungible.

DAOs of the Future

Imagine StyleDAO, a wearable design DAO that is optimized to create products and aspires to be as decentralized as possible.

Major Key Alert

Activities beyond pooling money and voting with your stake requires more data than on-chain transactions. Because DAOs are intended to coordinate the development of products, collaborative work or other non-purchasing activities, capital contributions do not provide sufficient qualifying data about members’ fitness to excel in these kinds of activities. When you rely on wealth as a proxy, individuals can buy their way into influence even when they know very little about the subject matter. If you want to have a DAO manage the actual development of complex business processes, you need a contextual system of reputation to determine who’s qualified to do what and hold people accountable for those commitments.

Get Started

To easily create a DID, define VC schemas, issue VCs and more:



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Serto makes decentralized identity technology easier for everyone to enjoy. Our work is powered by ConsenSys. Join us at Serto.ID.