Without privacy, DAO governance fails

But total privacy is not the answer — DAOs need a combination of transparency and selective private governance to succeed


Midjourney modified by Blockworks


On-chain governance — the cornerstone of decentralized autonomous organizations (DAOs) — was envisioned as the paragon of democratic decision-making in the blockchain industry. 

Yet the promised utopia of fair and transparent governance has encountered a significant stumbling block: the lack of privacy.

While transparency is a hallmark of blockchain’s promise, it has inadvertently laid bare the vulnerabilities of governance systems. Non-private activity during voting processes becomes susceptible to a myriad of human biases. Bandwagon mentalities, vote-bribery, social signaling and group-think emerge as unsuspecting accomplices, distorting the sanctity of decisions made within DAOs.

The current landscape of on-chain governance resembles a glasshouse, where participants’ actions are visible to all. While transparency is a hallmark of blockchain’s promise, it has inadvertently laid bare the vulnerabilities of governance systems. In this glass house, non-private activity during voting processes becomes susceptible to a myriad of human biases. 

The ideals of fair representation and democracy — the bedrock on which DAOs were built — start to erode under the weight of these biases and vulnerabilities. Participants’ voices are muted by the overpowering influence of social dynamics, and the genuine will of the community becomes increasingly difficult to discern amidst the noise. 

It is crucial to recognize that we do not suggest returning to total privacy as an answer. Instead, a balanced, practical approach that strategically combines public transparency with selective private governance is the best solution to DAOs’ privacy problem.

The pitfalls of non-private governance

The absence of privacy within on-chain governance creates a spectrum of pitfalls, each one corroding the robust democratic outcomes that we desire.

The phenomenon of the bandwagon mentality looms large in most group systems. In the absence of privacy, individuals are swayed by others’ visible actions, leading to herd-like behavior where decisions are made not based on independent analysis or conviction, but by the momentum of popular sentiment. This undermines the very purpose of a democratic process where every opinion is meant to be considered on its own merit. We even have real-world examples of this in practice within the US Congress.

Social signaling and group-think exacerbates these biases. Participants, aware of the transparent nature of their votes, consciously or unconsciously engage in behaviors meant to signal their alignment with popular opinions or powerful entities within the DAO. 

I’ve heard stories from DAO members who admit they tend to avoid voting against proposals that might impact individuals they’re personally connected to. Whether it’s reducing a leader’s token allocation or cutting a workstream’s budget, public profiles mixed with personal relationships can sway decision-making, challenging the DAO’s objective governance. Such signaling distorts the authenticity of individual voices and skews decision-making towards safe conformity, rather than a thoughtful hard evaluation of proposals or issues at hand.

Equally concerning is the vulnerability of governance systems to vote bribery and manipulation. The visibility of voting actions can inadvertently become a loophole exploited by those seeking to influence outcomes. This can take the form of direct bribery to influence votes, or even centralized entities restricting individuals from voting entirely via the threat of legal action on their public profile. 

To be clear, the remedy to these issues doesn’t necessitate a hard-drawn line demarcating transparency and privacy. Instead, it requires a recalibration — a reimagining of how information is shared, and how visibility is granted within these decentralized systems. 

The critical role of anonymous governance

Anonymous governance doesn’t equate to fostering illicit activities. Instead, it safeguards  individual voices from undue influence, bias or coercion. It ensures that decisions are based on the merit of ideas rather than the identities or social standing of participants.

By embracing anonymity for certain decisions, participants are liberated from the shackles of conformity. The fear of social repercussions and the allure of aligning with influential entities fade, allowing for a more authentic expression of individual perspectives. 

Read more from our opinion section: Washington shouldn’t give in to crypto panic

Instead of complete transparency where every action is exposed to the public eye, a practical approach to privacy and selective information sharing provides the necessary base-line transparency without compromising the privacy essential for fair decision-making. With this approach, proposals related to public-facing initiatives, such as funding public goods, could be encouraged to maintain 100% public transparency. Matters involving more sensitive decisions, such as core contributor cuts or budget approvals, would probably benefit from a judicious integration of privacy measures. 

Selective sharing acts as a filter — a mechanism that ensures transparency where needed without exposing participants to undue vulnerabilities and human voting biases. It strikes the delicate balance between fostering an open environment for decision-making and protecting the privacy and autonomy of individuals within DAOs. 

Practical privacy standards for DAOs will serve as the foundation upon which the ideals of transparency and fairness converge. This stands as an invitation — an opportunity for DAOs to transcend the limitations imposed by biased decision-making, ushering in an era where fairness, transparency and trust become the pillars supporting decentralized governance.

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