what is Moloch DAO...

As we set off to further define what functions the Tangier Protocol will support, we need to start examining current DAO frameworks to better understand their smart contract functionality; in order to develop a sound topical knowledge base…

  • It will be more beneficial to build from a successful DAO framework that is already in place and make adjustments to it than to develop one (and write our own smart contracts) completely from “scratch,” so to say.

That is why today we’ll look into Moloch DAO… It is a framework we are tentatively interested in utilizing.

Moloch DAO origins…

The name and philosophy behind Moloch DAO is quite unique, complex (and honestly bizarre), so it deserves a proper introduction and explanation… I’ll share a few excerpts from the Moloch DAO Whitepaper to provide the context required ~

The name “Moloch” is an ironic joke about the possible futility humanity has at solving problems that require coordination.

[Moloch] refers to the Canaanite God of child sacrifice… Allegedly, in ancient times, Carthaginians believed that sacrificing a child to Moloch in times of war would increase the odds of their tribes victory. Members that didn’t participate were seen as risking survival of the entire group. This practice continued for years, despite the toll it took, because of the power of the group’s incentive structure.

The creators of this DAO’s framework were introduced to this concept … as they explain

We first came across Moloch in "Meditations on Moloch" by Scott Alexander, which discusses the eponymous character from Allen Ginsberg's poem, Howl. In Meditations, Alexander points out that while Ginsberg is typically interpreted as discussing the pitfalls of capitalism, the poet is likely instead referring to human beings' tendency to consistently choose suboptimal solutions to group coordination problems

Howl by Alan Ginsburg

The Moloch DAO founders created this framework, as their philosophical reasoning meandered, to address the problems associated with collective action where individual incentives are misaligned with “globally optimal outcomes” (meaning individual inputs benefit the group more so than the individual). So to make this DAO’s name as such, they hoped through the governance framework, (we’ll describe in further detail below), to help spread awareness and a way to solve the real life “Moloch” problems faced in society today.

Moloch DAO goals and mission…

Now if you’ve made it past the call backs to ancient gods and obscure Beatnik literary theory (from some guys blog) and are still reading… I’d like to explain a bit more about the Moloch DAO’s main purpose for being created and utilized. I’ll share a few snippets from their vision and values / Manifesto.

Moloch is Ethereum. We believe Ethereum is more than a Ponzi scheme riding the coattails of cypherpunk. This infrastructure is changing the world and we will break our backs to keep it running.

The immediate goal of the Moloch DAO is to fund and further the development of the public infrastructure related to Ethereum 2.0.

They’ve come to this priority through the following concepts.

  • They’ve defined the blockchain public infrastructure to be a technology where the total benefit generated to the community is greater than the individualized benefit of any particular entity or user.
  • The cost for any one user to invest in developing this infrastructure is disproportionate to the benefit accrued.
  • As a result, an incentivization problem exists (for individuals to develop this infrastructure), often leading to the infrastructure not being developed.

Basically, if I as an individual spend a lot of time (and money) trying to improve the Ethereum infrastructure - the main benefit will be seen by the end users of Ethereum collectively. There is not a great incentive for me to contribute in this environment as I will gain a disproportionate share of the utility provided by my inputs (compared to the benefits of all Ethereum users).

So their goal is to fill that gap by funding and furthering the development of these public infrastructure projects by incentivizing coordination between the various Eth 2.0 projects and ecosystem stakeholders who can contribute to the development of these projects.

  • basically, they want to set up a grants program to allow for the funding of good projects to help Ethereum.
  • they are making the “game theory” based decisions of choice more attractive for people to contribute their time and ETH.

How does Moloch incentivize ?

As they explain in their Whitepaper, Moloch has a seemingly “standard” initial set up - however there are a few additional features that makes this framework unique.

To solve the problem of misaligned incentives, the DAO has the initial set up to restructure the costs and benefits equally among all the DAO members. This is accomplished through the set up of a contract called the Guild Bank, where all member funds are pooled together. Contributors to the Guild Bank are given voting rights in equal proportion to the amount of funds they contribute. This is all very straight forward and easy to comprehend. The following equation describes the voting rights…

Voting weight for Moloch
Voting weight for Moloch

Dilution

Moloch DAO considers and represents “cost” in a unique way. They utilize the principle of diluting member’s shares each time a grant proposal is accepted as a way of redistributing funds to cover costs... For instance, consider the following example…

Imagine if 50% of the companies represented by the S&P 500 needed some open source accounting infrastructure. This infrastructure would cost any individual company 5% of their stock price to build - and would improve each company’s stock value by 1%. Building this infrastructure would not, for any one individual company, make any rational economic sense because the costs would outweigh the benefits.

However, if the investors in the S&P 500 inflated the supply of the index by just 0.01% (ex. 5% divided by 500), diluting themselves down by that amount, they could pay that to an independent organization to build and open source the technology and have each company integrate it. This would yield a stock price benefit of 1% across 50% of the companies in the index (0.5% benefit to the S&P 500 overall) meaning that the investors would have gained 0.49% value.

So when a proposal is being considered… if it is voted to pass, all members’ shares are diluted in proportion to the total cost outlined in the proposal.

  • Note - all Moloch DAO shares correspond to ETH. So when shares are diluted, their ETH value goes down.

When a proposal is voted yes… the amount of shares diluted (in proportion to the proposal’s outlined cost) will be redistributed to the party who made the proposal initially → so that they can go forth to build the infrastructure outlined by using the funds represented by their shares.

Through this dilution and redistribution mechanism, Moloch DAO allows for more suitable decision making to be enacted to put the group interest ahead of each individual’s self interest.

Rage Quitting

The Ragequit is another unique feature introduced by the Moloch DAO. It is designed as a safe guard for members against vote manipulation and malpractice. Moloch DAO explains…

We recognize that in any voting based system, there are a large number of edge cases create by possible collusion or unavailability of stakeholders. To handle these, we built a catch-all mechanism that allows participants to exit with their funds if they did not agree with the result of a vote.

This is done by allowing members to Ragequit the guild within a “grace period” after voting on a proposal completes - but before those members’ ownership is diluted or affected by that proposal.

There may be many situations where a member may want to ragequit. For instance, they may just not like the overall direction of the DAO any longer - or there could be a 51% attack where a collusive collective may try to steal the treasury of the DAO. In those cases, to leave with their share of un-diluted funds intact, the member can ragequit the DAO, give up their shares and have their money returned to them.

To further protect against collusion and attacks on the DAO governance, the ragequit is only an option for those who vote NO to a proposal - ensuring that people who vote YES on maleficent proposals cannot then leave with their shares. They will bear the costs of any votes in these situations.

shares not tokens

There is one thing that caught my mind as well is that Moloch DAO does not use tokens for its membership. They do this to avoid allowing people to buy and sell influence on the open market - as the ERC-20 token allows for. I am particularly curious about this to see if these shares are considered securities - as they cannot be bought or sold. This is one thing I will surely investigate further - as for the Tangiers protocol we are looking into ways to avoid using ERC-20 token standards as our governance model.

minimum viable DAO

The creators of Moloch also had the mindset to create a very simple DAO framework. It was designed to accomplish a simple task - to fund grants. After the the 2016 infamous $150mm hack of The DAO, (one of the original DAO frameworks), it’s been in the interest of new contracts to have minimal functionality that is easy to explain and easy to audit (to protect against more hacking and other types of attacks). The Moloch DAO has done well in creating a very minimal framework.

In summary…

Moloch DAO, while having a strange vibe to it, does seek out to solve group incentivization and decision making in some new unique ways. I have not gone through all of the specific features, but the ones I pointed out I feel is a strong base for us to start to sift through to learn more about if we should model the Tangier Protocol from this framework. The simple voting structure - coupled with the unique features like dilution, shares (not ERC-20 tokens through which influence can be purchased through on a secondary exchange…!) and ragequitting make this framework one that does provide its members with security and safety from vote manipulation.

We’ll need to continue to deep dive their Whitepaper, however we will surely utilize some parts of their framework for Tangiers, and it will be exciting to build upon some of the things they have started and seen work well.

Lets look more into Moloch together…

Moloch V2

Moloch DAO V2 has now been released, btw!

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