This article was originally published in Haus Party, DAOhaus’ newsletter, on October 21, 2020. This version includes some light edits.

Welcome to Part 2 of this series on Goodhart’s Forest and what it means for tokens and DAO governance. I recommend giving Part 1 a read before continuing on:

In Part 1, we looked at the three dangers lurking in Goodhart’s Forest:

1. Tokens are unlikely to reflect the full breadth and nuance of their project’s goals.
2. Noisy markets fray the connection between the price of the token and project’s success in meeting its goals.
3. In a permissionless market, adversarial actors can use a project’s token to threaten its success.

These dangers impact protocols’ ability to use a token for governance and coordination. Token-governed DAOs are no exception.

In particular, a token-governed DAO is at high risk of its own members making decisions that stray from the DAO’s goals because they are optimizing for the price of the token (from Danger #1), especially as the token price fluctuates in the noisy market (Danger #2). Additionally, such a DAO is powerless to stop Dark Forest predators -- including rival DAOs -- from voting maliciously or manipulating the token price to damage the DAO (Danger #3).

Here’s Zefram Lou, again, telling it like it is:

The value proposition of naive token-based voting systems, that token holders are incentivized to participate in the process and make decisions beneficial to the project, is simply without basis in reality.

Staying Safe in the Forest

For some time, the debate around the merits of token-based governance has been binary: you’re either for it or against it. Thankfully, some nuance has recently started to enter the conversation.

The distinction between “agile things” and “quasi-automata” is another way to think about Goodhart’s Law. The more clearly defined a thing is, the easier it is to find a metric that fully reflects the thing’s objective(s) and therefore the less likely creating an incentive out of that metric will backfire. Conversely, when a thing is in flux, defining a quantitative representation of its objectives is quite difficult and therefore less likely to succeed.

In this framing, we can see how Goodhart’s Forest is especially hostile to younger DAOs that are still figuring out what they want to do and exactly how they want to do it. And we can also see how a mature DAO — one that has refined its purpose and hardened itself to adversarial attacks and adverse market conditions — may be safer in the Forest.

How, then, can a young, vulnerable DAO give itself space to mature? The answer is to construct a safe Garden walled off from the rest of the Forest.

Building a Safe Garden with a Moloch DAO

1. Put up walls and a gate. Protect your DAO from adversarial Forest predators by making participation permissioned.
2. Don’t use a token. If there’s no token, there’s no target metric to fall prey to Goodhart’s Law.
3. Don’t hard-code operational logic. Leaving room for the social layer of the DAO to handle the bulk of coordination empowers the DAO to iterate on its purpose and operations.

If those ingredients sound familiar, they should, since they are primary properties of moloch DAOs. Moloch DAOs are permissioned, don’t use a token, and have a minimalistic, non-opinionated proposal system that pushes the majority of coordination to the social layer of the DAO.

Permissioned participation
In a token-governed DAO, anybody who holds the token is able to participate in DAO operations. The intent is for only people who want the DAO to succeed will choose to hold the token, but there’s nothing stopping speculators (Goodhart’s Forest danger #2) and adversarial actors (GF danger #3) from also acquiring the token.

In a moloch DAO, on the other hand, new participants must be explicitly admitted by the existing members, which protects against those dangers. That protection contributes to the high degree of trust a moloch DAO engenders among its members, which creates room for them to take small risks together and helps the DAO iterate on its operations.

Share-based voting
Membership in a moloch DAO is defined by having shares in the DAO. Those shares are not transferrable and have no price, which avoids Goodhart’s Law (GF danger #1) altogether.

Unopinionated proposal system
Moloch DAO members vote on proposals with their shares. Successful proposals trigger on-chain actions like granting new shares to new or existing members, transferring DAO funds, or interacting with other smart contracts (via a minion).

What’s relevant for our purposes is that the technical conditions for a proposal to pass are as simple as can be: all a proposal needs is a simple majority of shares voting Yes, with no quorum. That simple framework enables each DAO to establish their own socially-determined conditions for proposals.

For example, Raid Guild has a rule that new members receive 100 shares in return for sending the DAO 500 DAI as tribute. The rule is technically informal; its enforcement comes not from smart contract code but from a social agreement among the members. And since it’s a social rule, the DAO has the flexibility to change it by rough consensus. Raid Guild has done just that with the creation of its Apprentice program that allows new members to work their way into the Guild instead of tributing 500 DAI.

By using social consensus to establish and enforce the majority of its rules, a DAO can be much more agile, which can help it refine its operations and mature more quickly.

Right to exit
In addition to voting weight, moloch shares grant their owner a proportional claim on the assets in the DAO’s treasury. At any time, a member can exit the DAO, relinquishing their shares and receiving their proportion of the DAO’s assets. This concept, known as ragequit, is perhaps the most important property of moloch DAOs. Much has been made of ragequit’s protections against the tyranny of the majority. Less appreciated is how ragequit catalyzes a DAO to iteratively align around its purpose.

Because any member can ragequit at any time, every change to the DAO creates a decision point where members choose whether to stay or to go.

Every change in the DAO—e.g., new members added, funds disbursed, and changes in socially-enforced rules—creates a slightly different version of the DAO with slightly varied purpose and operational approach. Each member that stays with the DAO after the change has implicitly endorsed the new version. Even when a member does ragequit, the remaining members are even more tightly aligned around the DAO’s purpose.

Iterative alignment and protection from adversarial forces are the keys to staying safe in Goodhart’s Forest. The four properties of moloch DAOs form a safe Garden for DAOs to grow.

Leaving the Garden

Once a DAO has grown up within the protection of its Garden, it can start thinking about entering the Forest. How a DAO can make that transition will be the subject of Part 3 of this series.

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