Community and Institution
November 10th, 2022

I found the discussions around institutions and communities fascinating.

A community is decentralized and formed by people with the same interests. An institution is centralized and structured by traditions and societal standards. Through my experience in Web3, I understand there is strict celling for the community (often defined as a platform for individual free will expressions) as it will eventually succumb to institutions. The community, a seemingly idealistic world, can easily turn into complete chaos followed by individuals' greed (the tragedy of the commons) and the powerful player will only become more powerful over time. 

I have worked at one of the largest investment DAO (Decentralized Autonomous Organizations) in the world with over 2 billion in its treasury. The organization gives each token holder proportional voting power on how to allocate the assets in the treasury. (For example, if I have 100 tokens, I have 100 votes on certain investment decisions.) Everyone can come to the DAO and writes an investment proposal and the token holders will vote on them. 

The idea seems to be good and decentralized. However, the founding team later realizes that retail investors do not have the capacity of discerning good projects since they are not professional investors. Most of them join the DAO due to they are solely drawn by the concept that there is a large DAO with a lot of money.  If the DAO continuously makes wrong investment decisions, the treasury will be drained quickly. Furthermore, if there are large token holders in the group (we call whales), they can easily turn down or accept any proposal that undermines the rights of those with small voting power.

The team addresses this issue by holding back over 50% of the tokens within its founding committees and collaborating with venture capital to make investment decisions. At the end of the day, this investment DAO appears to be a community but few know it is an institution; it appears to value every token holder's votes but the committee is the only one that can make the final calls. 

The reality of this DAO is a bit disappointing but I do find their concern pragmatic. Maybe one will argue the committee should spend time educating the token holders. However,  this is even more costly since token holders change over time. A successful DAO is too idealistic. In this sense, we all dream to have a community but eventually, it will conform to institutional powers. I am concerned about DAO's future and I do not believe an organization that solely functions based on the individual will be successful without institutional interventions.

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