The Problem of Procedural Perversity
It is said that in the course of studying for his citizenship
test, the mathematician, logician and philosopher Kurt Gödel
discovered an “inner contradiction,” or loophole, in the
U.S. Constitution, whose discovery threatened to derail his path to
citizenship. Though the official formalization of this
contradiction was never put down on paper, it is suggested that its
substance concerns the fact that Article V of the Constitution,
which describes the process for amending the Constitution, can be
applied to itself.
Notably, Article V contains an explicit restriction on what can
be amended in the Constitution:
“…provided that no amendment which may be made prior to
the year one thousand eight hundred and eight shall in any manner
affect the first and fourth clauses in the ninth section of the
first article; and that no state, without its consent, shall be
deprived of its equal suffrage in the Senate…”
As Article V does not explicitly bar application to
itself, however, the procedural barriers to amendment of
the Constitution can themselves be eviscerated, leading to a
greatly increased possibility that the Constitution can be amended.
Gödel, having escaped from Nazi Germany, was understandably
fearful of this possibility and worried that the weakening of
safeguards to amendment via Article V could easily turn a
democratic model for self-governance via elections into an
autocracy.
Putting the merits of Gödel’s fears to the side,
Gödel’s loophole is an example of what we might call the
problem of procedural perversity, where the
procedures for self-governance do not adequately guard against the
possibility of bad actors. The problem of procedural perversity is,
however, not limited to the U.S. Constitution, and can pop up in
any system of self-governance, especially where the system of
self-governance is not drafted by writers as illustrious as our
Founding Fathers.
Procedural Perversity and DAOs
Consider Decentralized Autonomous Organizations (DAOs), which
are a form of self-governance based on a smart contract in which
the power of governance is distributed amongst participants, as
opposed to being held by a single separate centralized entity. One
prominent example of a DAO is the Decentraland DAO, which oversees
the governance of the Decentraland metaverse. Governance
determinations of the DAO are made by a series of three votes,
where a proposal must meet a minimum level of Voter Power, and also
achieve a simple majority of Voter Power in each vote, in order to
be advanced and eventually adopted as a governing law. Decentraland
participants each have a Voting Power based on their ownership of
Mana (Decentraland’s cryptocurrency), Land and Names. When a
Governance proposal is put up for a vote, Decentraland participants
have the opportunity to vote on the proposal within a certain
period of time. If a sufficient amount of Voting Power is utilized,
and the Voting Power in favor of the proposal reaches a simple
majority, then the proposal is advanced to the next vote in the
series – or if a proposal reaches the final vote in the
series, it is adopted as the law of Decentraland. If a proposal
either fails to reach a sufficient amount of Voting Power or the
Voting Power in favor of the proposal does not reach a simple
majority, for any vote in the series, the proposal is rejected.
Notably, Decentraland’s use of Voting Power is itself
intended to deal with a problem of procedural perversity associated
with account-based voting systems, in which each blockchain address
gets one vote. As noted in Decentraland’s DAO guide, if voting
was distributed giving each blockchain address one vote, then bad
actors might try and subvert the DAO voting system by simply
creating thousands of addresses. By moving to a voting system based
on Voting Power, this is prevented, since the creation of thousands
of addresses will not by itself increase an individual’s
leverage. Of course, basing determinations on Voting Power
still creates a system in which some individuals will have more
leverage than others. Individuals could simply buy up several
million MANA, thereby giving themselves a greater amount of Voting
Power than an individual who owned only one MANA. However, a system
based on Voting Power arguably distributes leverage in a way that
seems plausibly fair in some way: The system gives individuals a
say in how the world is governed in direct proportion to the extent to which they
have invested in the world.
Of course, this is not the only area in which there might be an
issue with procedural perversity in a DAO. Consider, for instance,
that under Decentraland’s Terms of Service, disputes over
intellectual property are determined by the Decentraland DAO via a
vote. However, nothing in the Decentraland DAO or the Terms of
Service appears to prevent an interested party from purchasing an
inordinate amount of Mana and using it to procure outcomes
favorable to itself when a dispute over intellectual property in
which it has an interest is presented to the Decentraland DAO for
determination.
There are also potentially problems similar to the one that
Gödel feared. The earlier example involving Gödel’s
loophole was an example where the procedure for amendment could be
applied to itself, thus allowing for the possible evisceration of
the barriers to amendment of the Constitution, leading to a greatly
increased possibility of an autocratic government. Similarly, the
Decentraland DAO does not appear to contain any bar restricting
application of its voting mechanism to the requirements for passage
of a Governance Proposal. So, a Governance Proposal could,
hypothetically, revise the minimum threshold for passage of a
Governance Proposal, for instance, which might arguably go against
the intentions of the initial DAO creators.
Evaluating Loopholes
Of course, while each of the above illustrations indicates a way
in which a DAO’s procedures may be subverted via a loophole, it
is a related, but different, issue as to whether said loophole
represents a substantial problem to be fixed. For the purposes of
this blogpost, we will not delve too deeply into any loophole
utility analysis. However, a good analysis would seemingly involve,
inter alia, an examination of 1) how likely the loophole is to be
utilized, 2) how disastrous the consequences are of the loophole
being utilized, and 3) the benefits of maintaining a system with
the loophole. Moreover, while one might be tempted to analyze a DAO
by direct comparison to real-world democracies such as espoused by
the U.S. Constitution, it is worth noting that such analysis has
its limits, as DAOs are not like typical real-world constitutions
in important ways.
Looking at the Decentraland DAO, for instance:
- As noted before, unlike with a real-world democracy,
individuals can amass Voting Power based on one’s degree of
ownership in the system. This is in contrast with most real-world
elections, in which voting is restricted to identified citizens of
the nation, and individuals are restricted to having one and only
one vote, regardless of ownership. - Unlike with many real-world democracies, DAOs such as a the
Decentraland DAO involve direct voting, where individuals can vote
on individual issues in order to determine governance outcomes.
This is in contrast with a representative voting system, where
individuals primarily vote on representatives to make
determinations about governance outcomes. - Unlike with many real-world democracies, votes in the
Decentraland DAO also have the potential to be either anonymous or
non-anonymous. For any entity whose blockchain address has been
identified, the exercise of Voting Power is never anonymous. This
is because, at least in Decentraland, voting is partially mediated
by the Snapshot tool, which publishes how every blockchain address
votes for a particular Proposal and the amount of Voting Power
expended. At the same time, for any entity whose blockchain address
has not been publicly identified, the exercise of Voting Power is
anonymous. As a result, it is possible for unknown entities to
exercise an inordinate influence on governance outcomes.
How these differences may affect an analysis of a DAO’s
procedures is unclear, but the fact that the Decentraland DAO may
allow for an anonymous entity to buy up inordinate Voting Power,
and vote directly on issues in which it has an untoward interest,
may give one reason for some concern.
Representative DAO Voting?
Notably, Decentraland appears to be addressing some of these
issues through the encouragement of something akin to representative voting. Under the Delegation
program, citizens of Decentraland can delegate their Voting Power
to one of a number of designated Delegates, where Delegates are
chosen based on an application that includes specific information
about the Delegate. The intent of the program is to encourage
“a more healthy [Voter Power] distribution” by allowing
more passive participants in Decentraland to transfer their Voting
Power to Delegates who are active in the Governance process and who
have an interest in the success of
Decentraland. As Delegates are chosen by a Decentraland
participant based on some evaluation of the Delegate, the voting of
the Delegates arguably represents in some way the views of the
Decentraland community as a whole. Moreover, in the case that
Delegates with a bona fide and impartial interest in the governance
of Decentraland are chosen, this would seem to lessen the effects
of possible procedural perversity, especially where the Delegates
control a very large amount of Voter Power.
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