With the Eden election just around the corner, I think it is important to understand all implications of the current direction of Eden. In my current understanding (which was largely formed by Dan's posts on the matter), if Eden continues to go down the path it has started in the previous two CD terms, it has to form a legal entity to protect its members from being severely liable. I suspect this will be an expensive, time-consuming endeavor and who knows if protection will be sufficient and reliable in all jurisdictions (I'm not a lawyer). Another observation is that Eden is becoming an election process for projects to fund. There already is a legal entity that represents EOS and directs EOS inflation (ENF), does EOS need another? Sure decisions in Eden would be made by a decentralized organization of a bigger number of people, so maybe this kind of Eden is worth having.
Either way, if Dan is correct about the legal implications of developments in Eden, it is imperative that all Eden members realize this and CDs are elected which would resolve the matter. I believe that besides forming a legal entity, there are other ways to protect all members from liability. Dan has written a bit about it and fractally is designed with these protections in mind.
Here I will present another model that could protect all the members. It might be better suited to how Eden currently works. Additionally, it would integrate the new EdenFractal and Eden into a more robust unit and enable it to influence EOS governance much more effectively. This is presented in the context of EdenOnEOS, but could potentially be applied for DAOs on any chain.
The general idea is for Eden to rule through word and no action, leaving all "doing" and decisions to a process that is much more informal and harder to attack legally and otherwise. Smart contracts that belong to Eden should only issue on-chain statements, which express consensus opinion of a group of people. It should not control any tokens and it should not issue any tokens. Only on-chain statements, which the world can ignore if it wants to.
The will of Eden would be executed by EOS accounts that try to earn new tokens by "guessing" the results of EdenFractal consensus meetings. Something similar to a prediction market, except predictions, would result in actual decisions, and instead of betting, they should be staking EOS in order to get rights to predict Eden's will. Eden can make these predictions as easy or as hard as it wants to, controlling the accuracy of predictions.
Thus, governance decisions and all the liability that comes with it are left to EOS-token-weighted governance, which is potentially run by anonymous entities, while Eden members, which are much more public only issue opinions. Thanks to some economical incentives these opinions could still direct governance decisions.
Let's look at an example solution that follows these principles.
Sketch of a solution
In this solution, the Eden process should consist of both Eden elections and fractally-style consensus meetings (which are already being run as EdenFractal meetings), where people are awarded respect. For this solution, I suggest making this respect non-transferrable and not a token. Basically, it should only be a record of points awarded to each account, which tries to reflect the total value of contributions from each account. To differentiate from fractally Respect, I will call these awards "points" instead of Respect in the remainder of this text. Instead of Respect token, I suggest a new token, which we will call "fuel" for now. This token should have a utility which I will talk about later but it should not be issued by Eden, EdenFractal, or any other of its smart contract.
Among the responsibilities of delegates elected through Eden elections should be:
- Identifying their preferred choice of fuel smart contract and the on-chain account that holds it;
- Specifying recommended set of BPs to vote for;
Ideally (for this solution) delegates should get no budget just for being elected and it should be clear that their actions do not represent Eden as an organization. How Eden will be able to fund initiatives will be covered in the section "[[#How will Eden fund stuff]]". Besides electing delegates Eden elections serve an important function of community getting to discuss and discover their values and future vision while revealing it to the world as well. This should make the results of EdenFractal meetings more predictable, which, as you will see, for this solution is a good thing.
Before participating in EdenFractal meetings, each contributor would have to specify a set of BPs he recommends voting for. The result of EdenFractal meetings as was already mentioned should be non-transferable points awarded to contributors. Otherwise, the process is the same as in fractally.
Fuel smart contract
The aforementioned fuel would be a token backed by EOS (1 fuel token would always be backed by some fixed amount of EOS). Holder of fuel token could at all times burn it and retrieve the EOS that backs it. It is important that the token smart contract which issues and controls this token is not created by Eden. It should however be able to read the state of Eden consensus. We call this smart contract "fuel smart contract" here. This smart contract would allow any EOS account to stake some EOS and select an EdenFractal contributor. For doing that the staking account could earn the rights to produce fuel (by transferring some EOS to back it). How much fuel an account is given right to produce is proportional to how much points the selected contributor earns and how much is staked for him. More concretely, for a given account
a, which staked for contributor
c the amount of fuel that
a can produce from EdenFractal meeting number
w is given by a formula:
r_aw = (e_acw / t_cw) * p_cw
r_aw- the amount of new fuel that
acan produce after EdenFractal meeting number
e_acw- amount of EOS staked by
afor EdenFractal contributor
c, during the week before EdenFractal meeting
t_cw- total amount of EOS staked for contributor
cduring the week before EdenFractal meeting
p_cw- amount of points earned by contributor
cduring EdenFractal meeting
Note that the total amount of fuel that can be produced by staking for a contributor is totally determined by the amount of points contributor earns in fractally meeting. By staking more EOS you can only earn a bigger share of these rights to produce fuel. The more EOS is staked for a contributor - the less profitable it is to stake more for him unless you can stake a big enough amount relative to everyone else. Therefore all EOS stake should distribute across contributors in a way that approaches the distribution of points awarded in EdenFractal meetings.
Now, this is powerful - using only economic incentives a pool of EOS could be created which is distributed to reflect the distribution of points awarded by a fractal. By adding requirements to be able to stake for contributors fuel smart contract can control what this stake does.
In order to stake for a contributor, we could require this stake to vote for BPs, which the selected contributor recommends voting for. The more fractal points the contributor earns, more EOS is staked for him, more EOS is voting for the BPs recommended by the contributor. This way consensus of a fractal could influence EOS governance without holding any significant amount of EOS itself. The size of its influence would be proportional to the perceived value of the fuel token (the more valuable it is, the more profitable it is to stake EOS for it). This makes sense - the more value the fuel token brings to EOS ecosystem, the more governance power it should be able to yield.
This creates a potentially more user-friendly way for EOS holders to influence EOS BP rankings. Researching BPs is a time-consuming and partly technical endeavor and so it is no surprise if users do not vote actively. Here people could influence EOS governance by voting on something they can better understand - projects which offer specific functionality.
Additionally, we need a way to change the fuel token smart contract. The same EOS staked for contributors should vote for smart contract changes. But in order to stake for any contributor, we could add a requirement that this stake votes for smart contract code that is recommended by consensus of Eden. Thus Eden would be able to influence code changes of fuel smart contract.
How will Eden fund stuff?
As you probably understood by now, the solution presented here tries to eliminate any requirements for CDs to take any actions on behalf of Eden. That includes control of budget awarded to CDs for getting elected. As was already mentioned, Eden, as an organization should not have any budget at all. This is in line with philosophy that true DAOs should not hold any property. This is important not just for autonomy of a DAO, but also for avoiding legal liabilities for all of its members. But the solution presented here also eliminates Respect as a transferrable token. So how will Eden fund anything? There are multiple potential answers to this, I will start with the most interesting one.
Funding method 1: BPs
The system presented above incentivizes BPs to fund contributors:
If contributor is well funded it means that he can perform his work better, which will increase the amount of points he earns for contributions in EdenFractal meeting, which will increase the amount of EOS tokens voting for BPs contributor selects. Therefore funding up-and-coming projects becomes a way for BPs to invest in attracting more voters and increasing their BP reward.
Funding method 2: Fuel rewards
Some of the fuel to be claimed could potentially be reserved for a contributor who performs work that earns the points. Contributor would still need EOS to provide backing tokens for fuel. Contributor could get some of this EOS from existing funding sources of EOS - Pomelo / ENF.
Funding method 3: budget for fuel smart contract
ENF or any other donator could fund a budget for a fuel smart contract. The action of creating fuel should trigger a transfer of EOS from this budget to the contributor that earned points that enabled this fuel. The amount of EOS transferred should be proportional to the amount of points earned.
How CDs could have more say in where the funds go
CDs could change a function that determines how points are distributed to different accounts based on their rankings. They could set a limit for how many points each account earns. For example, they could say that anyone who hasn't participated in the Eden election is limited to earning up to 10 points until the next election. As a result, the amount of fuel that accounts who hasn't participated in the Eden elections earn would be limited. They could also make it so that delegates get to earn more points.
By manipulating the distribution of points like this CDs would direct all three: the distribution of fuel, distribution of EOS stake voting for contributors and their BPs, and distribution of EOS from the fuel smart contract budget (if funding method 3 is used). This might be desirable to make Eden more focused: if consensus from Eden elections say that Eden should prioritize certain work over other, then it might make sense for CDs to try to limit leakage of funds to other (unplanned) work and reserve it for planned work. By choosing a function that determines the distribution of points, they get a chance to do so.
Utility of fuel
Projects could use fuel as "fuel" for actions. So to earn the right to some utility of a project user would burn some fuel. Contributors are incentivized to use fuel in their projects like this because it increases demand for fuel, which incentivizes more EOS to be staked for it, which in turn incentivizes BPs to fund them.
That doesn't mean that they cannot have a unique token for their project. They could issue their own project-unique fuel, but it could be backed by this general fuel, the same way that this general fuel is backed by EOS.
What was presented so far in this post is obviously not a complete solution (especially when it comes to tokenomics). I came up with this quite recently and I'm sure it can be made better. But the main point of these ideas, in the context of the upcoming Eden election, is to try and convince people that a path where legal issues are avoided without forming a legal entity is possible. Would this protect against all liability? I'm not a lawyer, so I don't know. But I'm pretty sure that you cannot do much better than preventing a DAO from holding any property or doing any action apart from issuing statements of opinion which are not binding to anyone.
Note that the token-weighted governance is an important component of this solution and we did nothing to protect it from being interpreted as a general partnership or other legal issues. But this is why in the solution I suggest EOS is used as a governance token. It already performs governance functions for EOS blockchain. The idea is to use existing processes that already risk legal interpretations of being an organization, instead of creating new risks by creating new tokens .
Besides the legal advantages mentioned above the sketch of the mechanism provided here would enable Eden to wield more power in EOS governance process. Another intention of this model is to integrate EdenFractal and Eden elections into a single robust unit. Chief delegates would have to participate in EdenFractal weekly meetings in order to get paid themselves and fund their projects. This will create a continuous feedback loop between the community and chief delegates, which I think every delegate-based governance system needs more of.
The solutions presented here could be applied to any blockchain to build a DAO on it and influence its governance process. It would be especially interesting to consider this model applied to PoW chain, where rights to "stake" for contributors would be distributed based on proof-of-work done. Since hardware that can participate PoW is so ubiquitous, PoW chains might be more secure against legal action against it and hence the overall solution here combined with PoW chain might not have any weak spots at all? ↩