Founding Documents for the Centrifuge DAO? Part 1 & 2

Centrifuge Governance Governance discussion
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Background

I’m Kate, a contributor to the Centrifuge DAO and Centrifuge Network Foundation. For the last 12 years I have worked in decentralized organizations including Enspiral, GoldenPandas, Greaterthan, Consensys, DAOstack and Genesis DAO, and various other proto-DAOs, and now Centrifuge. I have a Masters in Political Science specializing in Governance Theory and I have conducted general and academic research on different online communities and DAOs, two examples are available here and here.

This is a discussion post to share what I believe are some basic foundations for distributed governance via prosperous community ownership. These basic foundations could be utilized by contributors to the Centrifuge DAO, in particular the Governance & Coordination Group who are mandated to pass processes and structures for the DAO.

These are my own personal recommendations and I invite rigorous discussion and responses to this post!

The Challenge

The Centrifuge DAO is a collectively-owned distributed organization working towards unlocking economic opportunity by connecting people to borrow and lend money transparently and cost-effectively.

The Centrifuge DAO has a huge opportunity to turn around the image of DAOs failing to make progress.

Part of the existential problem of DAOs is that most use the catchphrase of ‘decentralization’ to signal a blurry general philosophy rather than a clearly defined objective. The technical definition of decentralization (i.e. workload is spread among several nodes without having a single central node to manage network activity) has been extrapolated to be the aspirational state for all modes of organizing that are ‘not centralized’.

“Decentralization”...one of the words that is used in the cryptoeconomics space the most frequently, and is often even viewed as a blockchain’s entire raison d’être, but it is also one of the words that is perhaps defined the most poorly’ (Buterin 2017)

Having a fuzzy and broad philosophical concept of key terms like decentralization implicitly puts a lot of unhelpful expectations on how we (and others) ‘should act’ in a DAO, for example common interpretations of what decentralization means are; ‘everyone must have a say on all proposed changes’, or ‘decentralization means that no leadership can be taken’.

This can be weaponized by groups and individuals to achieve their own objectives rather than that of the Shared Mission and growth of the protocol.

The Opportunity

I would offer that non technical decentralization means that governance is distributed among peers in a fluid way: this means that decisions are not taken solely by one person or controlling entity but by those with the most relevant experience or insight, and those who are most effected by the decision.

We should try and be clear and explicit about what we mean, what we want to achieve, why we want to achieve it, and how we organize to do these things.

. .
Owners extend access to more people to borrow and lend money transparently by expanding, governing and stewarding the Centrifuge protocol I strongly believe that a stance of ownership as stewardship is the one the Centrifuge DAO should aim for. This takes the concept of being an owner further than extraction or possession by a small group, it is a stance of responsibility to give access to many more people. It also goes against the grain of the dominant ‘game theory’ thinking in crypto that humans only respond to correctly designed monetary incentives. Stewardship ownership means owners benefit economically but are not acting in a solely transactional way.
To avoid the protocol getting controlled by an entity not aligned with the Centrifuge Shared Mission Ownership of tokens does not just indicate possession of the technology and the ability to benefit from it, stewardship ownership means guardianship and safekeeping of a collective good, in this case the Centrifuge protocol and the ground breaking potential it holds. This potential is inextricable from the mission of giving open access and preventing monopolization and take-over.
To have robust participation in governance from owners: this means those involved in making a decision have higher skin in the game in carrying out the decision. Ownership i.e. holding of the native token of the protocol is made real by the ability to participate in governance in a meaningful way: this means not all owners are expected to participate in every governance process, but rather a more generative way where people with different levels of engagement participate where they have expertise or are affected.
To align the Centrifuge protocol with regulatory guidance Decentralization via distributed community governance is helpful for any SEC regulatory assessment of the CFG token.

Working as a DAO is the way that core contributors and owners can best achieve the state described above. Who comprises the DAO and their (differing) levels of engagement are described in Part Four (forthcoming).

Where are we at

Although it’s still early days, the Centrifuge DAO has a high level of owner stewardship and relatively robust governance engagement. Centrifuge DAO members are active in the various parts of governance, including, proposal creation, ideation, discussion, voting and execution. One major area of governance is proposing value accrual mechanisms for the CFG token, and improvements for protocol, such as:

  • Protocol Development

  • Marketing

  • Integrations and partnerships

  • Staking and burn mechanisms

Governance process as a core pillar

Token holders have mandated a governance group to facilitate governance processes and moderate discussion and they in turn have proposed a Governance Process and Framework for robust governance which was passed by governance.

The next pillar

I think the next pillar is to put in place are ‘Founding Documents’ which include the following:

  1. The agreed upon Shared Mission

  2. The DAO Principles

  3. The Code of Conduct

  4. An agreement for Levels of Engagement

There is a place for groups without a strong and explicit Shared Mission or Principles or Code of Conducts, think social movements, community groups, social clubs, but they are not businesses.

Document One: Shared Mission

In order to have a well functioning and well coordinated DAO there should be a clear, short, and inspiring Shared Mission. It should be easily remembered by everyone in the DAO.

The Shared Mission is ‘what we’re trying to achieve together’ and is written down in one sentence.

The Shared Mission is a ‘North Star’. The North Star or ‘Polaris’ is famous for holding nearly still in the sky while the entire (northern) sky moves around it. Similarly, the Shared Mission is a fixed destination that everyone can navigate towards even while there is significant change around us.

People can use the Shared Mission to guide action:

  • When participating in governance
  • When considering if and how their own initiative serves the DAO

The simple question should always be ‘does this help us achieve our Shared Mission’?

The mission should be proposed as early as possible. I have been in too many situations where retrospectively trying to make a mission has caused conflict, endless discussion, and ultimately inaction. Thus I advocate that one of the first steps of the Governance Group should be to pass the best possible version of the Shared Mission via governance (a draft already exists).

This process could involve discovery interviews and refinement of the existing draft with core contributors including early team members to draw out the best possible version of the Shared Mission, this should then be passed by Governance and listed in the Founding Documents.

Document Two: DAO Principles

There are numerous rush jobs where DAOs have tried to achieve so-called decentralization at breakneck speed and the lack of process and guidelines has resulted in a tyranny of structurelessness. I believe Centrifuge DAO can maximise lessons from these experiments and decentralize (i.e. allow for distributed decision making) in an iterative, purposeful and progressive way using tools like Principles to guide action.

Principles should have a sense of direction, accumulating to a clear ethos and be generative rather than constraining. Principles suggest patterns of thought and action, ways of being, even priorities.

There are two levels of principles:

Guiding Principles can directly reflect and draw out the essential pieces of our Shared Mission. They guide action.

Some Proposed Guiding Principles

  • Open access: We work to give open access to the new financial system

  • Transparency: We avoid the pitfalls of traditional, centralized financial systems by designing for and committing to transparency

  • Ownership: We prioritize ownership as a form of stewardship

Operating Principles describe how core contributors and owners put guiding principles and the shared mission into practice and get things done.

Some Proposed Operating principles

  • We choose simple over complicated: We reduce unnecessary steps and make it easier to get things done

  • Goodwill guides our communication: In all our community channels including forum, social, calls, meetings and discussions we uphold integrity and goodwill. We avoid polarized posting. We moderate bad faith behavior based on our Code of Conduct.

  • We are bureaucracy light. As we progressively ‘decentralize’ or distribute decision making we avoid ‘direct democracy’ or governance overload i.e. asking all community members to vote on all things.

  • We make things explicit: We avoid the pitfalls of implicit interpretation by clarifying and agreeing on what we mean when we work together.

Following discussion of the ideas above I will publish recommendations of what could constitute Parts Three and Four of the Founding Documents, including:

  1. A Code of Conduct: a clear ‘code’ of behavior outlining what is encouraged and what is not accepted nor encouraged and, crucially, what will happen if someone breaks the code
  2. An agreement on Levels of Engagement which acknowledges and presents the different levels of knowledge, capacity, mandate and involvement in any DAO

Thanks for reading, curious to hear what you think :cyclone:!

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I’m into it! Though I think this could be a single document four sections so it’s easy to absorb.

  • Shared Mission
  • DAO Principles
  • Code of Conduct
  • Levels of Engagement

I’d feel the most able to give feedback/see how it affects our work if I were able to see a full draft of the above before any other discussion.

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Good day Kate
Thank you for sharing your experience and vision.

I completely agree that every action or any change in Procol should first answer the question if this change will help the Protocol to achieve its Shared Mission.

Q1:
You have a very big DAOs background and I would like to ask you how evolved your vision of DAO in the last 12 years.

Q2:
Your background and experience definitely bring you to this point.
Do you think that described vision of DAO is the ideal scenario (unattainable, but in any case, we should strive to achieve it) or with hard and collective work could be achieved?

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Hey @devin thanks for your comment! Parts Three and Four will be on the Forum at the end of the week so you’ll be able to see the full recommendation.

It’s not so much a draft (ie I will not turn this into an RFC) as a recommendation of what I think make key pillars of any DAO, however, others may have additions, or even other ideas for what needs to be part of Founding Documents - maybe we’ll see some posted here :grinning:.

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Hey ImdioR,

Thanks as always for your lively comments and questions.

Q1. The 12 year experience is in decentralized communities and governance research rather than DAOs (which as you probably know only really kicked off in 2016) but I think the older vision that decentralized networks could provide a third way to organize - beyond the state and beyond the overreach of corporate capitalism - was kicked into another gear with the advent of DAOs.

I think there can be different pases of DAOs from an organizational design perspective - note these are not linear, and can exist at any time:

Phase 1. Code is law = super scalable: belief that trust between humans is not needed
Phase 2. Governance maximisation: DAOists realised they had overestimated that automation does not negate the need for human-to-human collaborate to execute proposals: the reaction was to over-govern
Phase 3: (CURRENT) DAOs striving to be distributed: Understanding that direct democracy doesn’t work, encouraging different levels of participation, fractalization etc
Phase 4: Stigmergy and emergence become less scary states, self awareness of those involved reduces both the need for so much organizing

Q2. I think it’s attainable. It will take a lot of hard and collective work. But not trying is to let the whole vision of web3 and DAOs die a slow death via one thousand cuts :herb:

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I’ll present on the Code of Conduct and Levels of Engagement in the Centrifuge Gov Call tonight at 18:00 - there are quite some open ended thinking on Levels of Engagement so I’d be keen to hear any ideas to sharpen it up! :person_fencing:

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Hi Kate! Thanks for sharing your background and the in depth-research you conducted. Is there any chance you could summarize both cited publications in a TL;DR-version in the forum which would be very interesting for the community?

For the ones who don’t have the capacity to browse through 200 pages of scientific research on governance :grinning:

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Thanks so much for sharing this @Kate_Bee!

This type of approach to governance feels so incredibly relevant right now. CeFi failures of late have shown an obvious need for transparent and community-oriented ownership, but the past performance of DAOs in our market isn’t exactly comforting. Speaking from a place of vulnerability, I see the DAO as the most exciting feature within the protocol, but also the most anxiety-inducing.

Just echoing a few statements you made

I love this approach. What we’re doing here feels like it is at the peak of complexity - DeFi, structured credit, decentralization, disruption. Although it’s difficult to truly understand it all, I believe the founding team has done an incredible job in developing a mission and vision that is incredibly motivating. Capturing this and passing it on to the community to “own and steward” will provide an incredible foundation for our work.

To me, this is the most important document to develop. Way too many DAOs either neglect a Code of Conduct or have a weak one because they fail to use it. The only way you can truly do this is to make sure we handle it at the social layer, and this is where I hope our community will be able to shine. It’s all about the vibes, and so we must protect the vibes at all cost.

I have a ton of other thoughts about definitions, incentives, purpose, etc. but I’ll leave it here for now. I’m looking forward to engaging with our Governance Group on all of these!

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I’d like to add to “Proposed Operating principles”:

Any identified problem, should have a proposed solution.

This should guide us all to seek solution to problems, be proactive in owning and constructively finding a way forward, rather than remaining stuck in a problem.

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Dear All

@Kate_Bee, love your PPT, couldn’t resist to write some thoughts.

The share understanding of the DAO is complicated for English speaking ppl, imagen for everyone else.

I have always seen two big issue in DAO especially where you have OG’s and new ppl onboarding all the time when it comes to voting. 1 coin 1 vote will never give you any good decentralize DAO because it just rewards ppl with more money and give them all the power. Since tokens are publicly purchasable all proposal are always won by ppl holding the most coins. At the other hand ppl (OG’s) that developed the DAO and put their souls in the project and a lot of time to developed it, they can at the end become voteless compered to some rich coin holder.

The DAO governments and voting should have some kind of mechanism that would allow token holders to have more fer voting power.

Regarding the punishments’ of bad actors on discord it can be solved easily. Carrot and stick principal always works.

You could create groups where if you wanted to participate you would have to put a few CFG in the discord wallet and if moderator would lets say warn you twice, the third time it would deduct 1 cfg from your wallet. You have incentive to play nice. And lets say that moderator could reward you with token if you lets say engage in conversations a lot. Or you could make different groups on discord and more you talk the higher group you go to. You could also reward groups. The higher group you are in, more tokens you get per week. Lets say 0.25 CFG per week. This is how you get ppl that would engage more. Also you could lose your group rank if you stop engaging in chat.

just my 2 satoshies on the subject.

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:top:

Thank you for your comment and feedback.
Just now the voting power is mainly based on the amount of tokens that you have in your wallet and the conviction (0.1-x6) that you can use and increase your voting power in exchange for the locking of tokens.
image

Anyway, I think the delegation of tokens (gov 2) could be very useful in the future.

Unfortunately, this is true. The community without any incentive doesn`t want to participate in discussion, governance and etc. I partially agree that in some-how the community should be able to earn or receive incentives.
But reward groups for messages i-m not sure if this could give some good results.
It is hard to find a balance between the quality of the message/content and the quantity (Especially if you encourage the amount of payouts of something.)

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Part 3 & 4: Code of Conduct & Levels of Engagement

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Nice one @ctcunning

I agree this would be a good principle to add which reflects our need to be a ‘do-cracy’ to make this work.

I.e it can be as simple as: if you see a problem, take action - even if that action is just clearly articulating the problem and trying to get others involved to help solve it. It also goes as far as seeing a problem and starting action immediately to solve it.

This needs to be met by an open attitude and support.

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@DamjanKM great to hear your voice here. The topic you’re addressing is plutocracy right: how to avoid rule by large token holders rather than by regular token holders? It’s an important one!

I’m curious as to where it fits in the post that I wrote because I do not think that I address voter participation in my post? Are you suggesting that me not including it is an omission and that trying limit plutocracy should be included in a Founding Document somewhere (i.e. as a principle?), if so please let me know :slight_smile:

If your point is not related to my recommendations (i.e the post I made) per se, but is a new point that you believe needs to be discussed could you start a new thread on this? You can do this either by proposing a discussion or RFC on mechanism design relating to voter participation and preventing plutocracy.

This would really help us in our governance discussion: it’s good practice to discuss what is being addressed and if there is a new unrelated point, to link it to the original thread or to start a new discussion

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Thanks for starting this discussion @Kate_Bee! I think this is an extremely important topic for Centrifuge to mature as a DAO and I want to share some of my personal reasons for this below. This post is already getting long enough as it is, so I will leave it as my thoughts on why this important and reply about some of the ideas on the contents in a second post.

To build Centrifuge to become a successful DAO and functional protocol it will require many of us working together towards a common goal. In some ways this is no different than a startup, it starts with an idea and from there people join, start contributing to the project and refining the idea, this work is continuously tested by talking to users, launching products and seeing what works adjusting our course to whichever way is deemed to be the most direct way to reaching product market fit (building something that people want and can use).

But Centrifuge is a decentralized protocol. What does this mean? A few things change, but ultimately the protocol needs to serve a purpose and provide value to its users. As such Centrifuge needs to reach protocol-market-fit. As with startups, we don’t know which route will take us there, and likely there are thousands of paths we can take to get there, to ultimately reaching what we agree on is the purpose and vision for Centrifuge. However what will certainly kill both startups and protocols is a lack of focus, or more visually presented the scenario I’ve sketched on the left: too many contributors jetting off left and right and instead of unifying their forces to push forward in one direction all of them fighting their own battles. So for decentralized protocols and startups alike the more focused the energy/capital/humanpower is spent and the faster results from different areas can be shared to inform and direct the collective path forward the more likely we are to reach our goal.

direct_path_to_success
direct_path_to_success1600×754 182 KB

As an organization working together we need ways to align our efforts and ensure we push forward. We need to build guardrails that nudge all of us unto the right path that we determine together. In a startup these guard rails typically come from working culture, from a CEO sharing their vision, from the board providing feedback, from business development/sales people providing market feedback, from product managers researching problems and solutions etc. But at the core of it are: leadership and a strong vision, functional communication, alignment on a common goal, a shared definition of what success is and good collaboration. In the above sketch those are the guard rails that help us all work towards a shared direction with fewer distractions and misdirections.

As a DAO we need to decide together what these items are. The better we can organize and work towards a common goal, the fewer resources we will waste on pushing in different directions. When I got into crypto and started diving into Ethereum I got excited about the very basic idea that truly open and decentralized blockchains allow us to create systems of coordination unlike any that exist today; without a central authority that exerts unnecessary control, with no unnecessary intermediaries. From there over the years I’ve refined my goal of what I would like to build: a way for borrowers to access liquidity that doesn’t depend on the terribly inefficient financial system we have today. A more direct way to borrow and lend providing a better service to borrowers and lenders around the world based on this idea of a truly open and decentralized system of coordination: Centrifuge.

As the DAO matures and with launching the network and decentralizing the control over it a process that has concluded with the launch of Centrifuge Chain and CFG token holders taking full control last year we are now at a place where we need to define for the DAO what direction we want to go in but also how we want to work together.

I’m looking forward to making these decisions together with everyone of you - if you think you’re part of the DAO then join this discussion and process.

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Having said why I think @Kate_Bee is doing super important work, I want to comment on some of the things you’re proposing.

Shared Mission

I believe the hardest will be to define a shared mission. Why? Because to creating an inspiring and concise mission is a creative exercise that will be hard to do “by committee” (i.e. everyone wanting to see their own version of it expressed perfectly). How should we go about this? Is this a process that would be facilitated by the Governance Coordination Group or do we create a public document where everyone can edit as they please? (Probably not the latter - maybe the former?) I would love to contribute, should we set up a group of motivated people who meet on coming up with a process to design this document and bring back a proposal to the forum?

DAO Principles

I like @ctcunning’s proposal of focusing on solutions instead of problems. Creating a culture where pointing out problems becomes the main sport will bring us to a halt.

Guiding Principles

I would suggest to add something about sustainability & long term horizon thinking. This should be ovbious but in crypto unfortunately it’s not. I think our industry is full of short term opportunists and I think that is not how we will build long term sustainable success. As an example, as “RWA TVL” shot through the roof when a lot of other projects launching pools lending to relatively risky crypto businesses like 3AC, Gensis, FTX we consciously stayed out of it. In the end this was good, instead of getting distracted we kept building our expertise in what really is the real world.

Operating Principles

In addition I personally care about the following principles and think they could be considered to be added:

  • Direct and honest communication: Not addressing issues or talking around sensitive topics is rarely helpful. Being honest (without being disrespectful) is the best way to get to alignment, a resolution of an issue and result that will let us move forward.
  • Cooperate and assume the most positive intentions: Choosing to interpret someone’s actions as hostile will only lead to conflict that maybe wasn’t there in the first place.
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Yes, the GCG will facilitate this process and spend the next month taking the feedback from here and here, along with the input in the Governance calls, into consideration, and talk to people from all corners of the DAO (issuers, ambassadors, token holders, VCs, team etc.) to get their take on all four documents.

We are still trying to figure out how to propose the Shared Mission in the most participatory way but in the end the GCG will propose some suggestions to a Shared Vision that the community can vote yes or no on.

Great, we will reach out to you, and everyone else we would like to hear some input from, latest next week once we have everything ready to start the process. Initially, we would like to approach everyone 1 to 1 - but we could follow this up with a meeting/call where everyone can attend.

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I totally agree but for one to start focusing on the solution he/she/they needs to understand and focus on the problem/issue first. Ignoring the problems will never give you a good solution. I’m with you on the second half that after problem is well understood focus should go to solution.

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Love this 2 points. Honesty is always the way to go. We need to let ppl speak freely.

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Thanks @lucasvo - I appreciate your approach of adding to the discussion by making some of your own recommendations about what you’d like to see

Agree this is really hard. Shared Mission (SM) by committee sounds very uninspiring. Luckily I think there’s already a strong basis for the SM and it just needs to be shortened so that everyone can remember it. It sounds like the Gov & Coordination Group have a plan to try get to this shortened (yet still inspiring) version and I’m happy to support them in anyway I can.

I like this, it seems it reflects well the actions of Centrifuge until this time - thinking systemically and for the long term, rather than short-sighted quick wins. Would you recommend removing one of the guiding principles above (i.e. Open access, Transparency, Ownership) and instead implementing Long Term Thinking

Would it be possible to combine these two principles in some way with the principle below? I feel like they’re very similar.

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