Decentralized governance remains a challenging topic in the blockchain space. It’s fraught with dilemmas such as on-chain versus off-chain governance, or how to prevent collusion and curb plutocracies.
Crypto Briefing recently spoke with the COO and co-founder of Digix Shaun Dije to get a better understanding of some of these challenges. For the uninitiated, Digix recently shuttered its DAO project following a user vote.
The Rise and Fall of DigixDAO
The difficulties of managing a traditional business apply to decentralized autonomous organizations (DAOs) as much as they do to overall blockchain governance. Although DAOs aren’t yet mainstream, even in the niche blockchain space, they’re becoming more prevalent thanks to projects such as MakerDAO, MolochDAO, and Gitcoin.
The DigixDAO was one of the earliest to arrive on the scene, having successfully executed an ICO in 2016.
The goal of the DAO was to encourage the growth of projects around Digix’s gold-backed DGX token, using funds from the 386,000 ETH stored in the DAO smart contract.
However, the DAO ran into issues, including a controversial governance mechanism launched in 2018. This mechanism rewarded users for voting with the majority.
More recently, members began to express their unhappiness that there was no way to withdraw their funds from the DAO. The dissent ultimately led the Digix team to devise “Project Ragnorok,” a quarterly vote where members could decide if they wanted to dissolve the DAO entirely.
In January 2020, 58 members took part in the first poll, with a majority voting to invoke Project Ragnorok.
Crypto Briefing recently had the opportunity to catch up with Shaun Dije, COO and co-founder at Digix.
From the interview, one learns about his take on what happened with the DigixDAO, his insights into some of the challenges facing DAOs, and what’s next for Digix now that the DAO will be dissolved.
It’s worth highlighting from the outset that although the DigixDAO will be dissolved, this doesn’t necessarily mean that the DAO itself fundamentally failed.
Dije was quick to point out that there were no malicious actors, and the governance parameters functioned exactly as they should. In this sense, the passing of Project Ragnorok was a kind of wayward success.
The COO also offered some insights into the governance challenges that likely contributed to the vote going the way it did. From the discussion, two critical themes emerged – the influence of whales in any given poll and providing the right incentives so users remain engaged enough to keep voting.
“Like every other token project, I think it’s fair to say that the distribution curve of [DigixDAO’s DGD] tokens is quite skewed, in that the top ten to twenty owners will naturally hold weight over the entire supply system. So, in the context of a DAO, this means voting power isn’t equitably distributed.”
This certainly isn’t a challenge unique to the DigixDAO. The EOS delegated-proof-of-stake voting (DPoS) system has faced multiple accusations of manipulation at the hands of large bag holders.
According to Dije, one way to overcome this could be to ensure that the long tail of smaller token holders is motivated to vote. This doesn’t necessarily mean rewarding people for votes, as Dije explained:
“A reputation-based voting system means that smaller voters could gain more voting power over time. Even though you may not have as many tokens, [if] you’re able to amass influence and reputation in the ecosystem, it gives you a bigger weight. The entire thing could be driven on the blockchain using identifiers assigned to your wallet address.”
However, Dije highlighted a critical drawback:
“I think it’s something that takes years to build out. Managing the community’s expectation at the beginning is something we learned a lot about.”
Dije offered further insight into the correlation between the value of the DGD (DAO) token and DGX, which is Digix’s gold-backed stablecoin.
The DGX token directly tracks the price of gold, whereas Dije explained the value of the DGD token as follows:
“DGD tracks two things. Firstly, the underlying number of Ether in the DAO Treasury because DAO members believe that in a doomsday scenario, you can always recall your invested Ether. But the other school of thought is that the DGD token holders will stand to gain from the transaction fees of DGX. So, if DGX is successful, with millions or even billions of transactions a day, then the DGD token will go up in value because it represents a fractional share of the DGX transaction fees.”
However, Dije went on to say that :
“At this point, the impact of the second school of thought is still very negligible, and the DGD price is derived from the value of Ether in the Treasury.”
Dije ultimately highlights that investing in a DAO means settling in for the long term and being prepared to accommodate growing pains. If one compares the DigixDAO to a startup, this actually makes perfect sense.
After all, VC firms investing in startups know it will take at least a few years, if not longer, to see any return on their initial investment. Similarly, it may take some time – and perhaps a few more dissolved DAOs – for this mindset to permeate to DAO investors.
The Future of Digix
Digix will continue to operate independently as a private company regardless of the dissolution of the DAO, and Dije was optimistic about the company’s future post-DAO.
He pointed out that only having one token, the gold-backed DGX, will mean that the team can give their full attention to developing Digix’s core offering.
In terms of the company’s immediate roadmap, the COO did mention that Digix is gearing up for a new product launch, although he couldn’t reveal any details. He added that the company wants to expand its footprint into emerging markets across Asia.
Dije outlined the problems facing gold investors in these regions:
“For someone in an emerging market today, buying physical gold requires a lot of trust. You don’t really know which gold dealer is selling you real gold, and you can’t accurately price gold when you’re buying it in physical form. Digix offers a transparent pricing model for buying market price gold, and you don’t have the security considerations of physical delivery and custody.”
He also believes that gold will resume its role as a safe-haven asset in the event of an economic downturn, stating:
“Many of the younger generations are facing the possibility of an economic recession for the first time in their professional lives. Gold-backed tokens give them access to an asset of solid value that they can buy and store through their mobile phones.”
On the topic of whether Digix may consider reestablishing a DAO once the concept has matured, Dije is keeping an open mind.
“Who knows? In the future, we might be helping other organizations set up DAOs, or even maybe even establish our own DAO again, you never really know. But I do think that overall [the DigixDAO] experiment showed us that there’s a lot to be learned.”