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Securing Digital Rights for Communities (Game Theory and Governance of Scalable Blockchains for Use in Digital Network States)

Chapter 22. DAOs and Community Proposals for Self-Funding

Neutral funding removes compromise and maximises the neutrality of the tech

Audio Version

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22.1 Decentralised and Neutral Funding

A major advantage of properly designed blockchain ecosystems is the ability to fund projects through truly decentralised, neutral mechanisms. Unlike traditional ventures or ICO's with centralised teams and venture capital, these models allow a community-owned treasury to fund ideas and community projects without a controlling entity or CEO. Community members vote on proposals using their stake, and once a proposal meets a threshold, funds are released on-chain to the developer or group that will perform the work.

In a truly neutral environment, there is no single legal entity, foundation, or board that dictates funding. Instead, participants stake their tokens for voting power, propose initiatives, and decide on projects that add value to the network. The key benefit is that funding does not come with the usual "strings attached" seen in centralised or venture-backed deals. Rather, it aligns community incentives toward shared goals.

22.2 What Is a DAO?

A Decentralised Autonomous Organization (DAO) is a community-governed treasury and decision-making structure on a blockchain. It generally has:

• On-chain funds: Often funded from newly minted tokens or fees.
• Proposal system: Projects request funding by submitting proposals.
• Stake-weighted voting: Token holders cast votes. If a proposal meets the required threshold, funds are released.

A genuinely decentralised DAO has no outside venture capital dictating decision makers. It has no single company or CEO that can override votes, and no foundation controlling funds. Instead, the community's stake decides how to allocate resources.

22.3 Decentralised vs. VC-Backed DAO's

Many DAO's appear decentralised but are, in reality, influenced or controlled by large venture capital allocations ordained or obtained far below market price at a pre-mine stage early on in the project, often before the tokens are traded on the open market. These VC's can concentrate voting power, leading to outcomes favourable to a few stakeholders rather than the entire network. Venture Capital firms also usually reside in "regulation friendly" jurisdictions, making them prone to regulatory pressure that can significantly shape funding decisions.

In contrast, a truly community-driven DAO has widely distributed tokens, no pre-mine, no ICO, and no single party holding a controlling majority stake. The ideal scenario and balance is where, even without the votes of the largest stakeholders, projects can still obtain funding via obtaining votes from the rest of the community. These are the rare DAO's that cannot be easily shut down, coerced, or dominated by external investors. Their funding decisions reflect actual community interests rather than extractive-driven agendas which do not necessarily serve the community.

22.4 Returning Value to DAO's

Because these DAO-funded projects do not have strings attached from corporate entities, it is crucial for the community to establish accountability:

• Milestone-based releases: Funds are released only after certain goals are achieved.
• Monthly or phase payments: Ongoing work (e.g., maintenance) is funded incrementally, with the community free to remove votes if progress stalls.
• Open bidding: The community can publish desired tasks, inviting multiple bids. Stakeholders then vote on the most competent developer with the fairest price.

The community expects projects to benefit the ecosystem long-term. A neutral DAO often funds tools or protocols that enhance network utility (for example, off-chain storage, social features, or scaling solutions). The team's reputation is on the line: if they fail to deliver, future proposals are unlikely to pass.

22.5 Example: The Hive Blockchain Decentralised Hive Fund (DAO) and SPK Network

On The Hive Blockchain (a text-based storage layer), the SPK Network received funding from Hive's decentralised proposal system to build off-chain media storage. SPK's work benefits Hive users who want to store large files (videos, images) beyond the scope of the base chain. In return, SPK gains community recognition and support but has no direct "contract" with a corporation. In return for this, the project dropped its mining tokens to the entirety of the Hive community in a claim drop. The users who claimed tokens are able to mine more efficiently in the network and therefore earn the network's governance token for providing infrastructure operation. Due to DAO funding, there was no need for a pre-mine or ICO to fund the project, and therefore the SPK Network has a highly neutral layer that protects the rights of users and their content storage.

The community can stop funding at any time if deliverables fall behind or if the project ceases to align with Hive's goals by un-voting the proposal and dropping its total votes below the community set threshold of votes required to receive funding.

This model shows how a community can sponsor critical infrastructure without relying on ICO's, venture capital, or centralised companies. It aligns incentives around expanding the chain's ecosystem while preserving user ownership and governance.

22.6 Alternatives to "No Strings Attached" Funding

A common concern with "free" funding is that teams could run off with the money. DAO's mitigate this by:

• Clear scopes of work: Publicly outline tasks and deliverables.
• Reputation and trust: Developers who leave projects incomplete damage their standing, making future funding unlikely.
• Revocable votes: If a project deviates from its stated goals, community members can un-vote their support, temporarily or permanently halting further payouts.

These checks protect communities from severe losses and ensure ongoing alignment. The outcome is a more transparent, flexible funding environment that encourages collaborative development.

22.7 Why Neutral DAO Funding Matters

• Eliminates Venture Capital Control: No massive early allocations or pressure to chase short-term profit.
• Scales Through Collective Effort: Communities that must fund and maintain the chain
  themselves learn to optimize and reduce bloat.
• Resists Regulatory Capture: Without a centralised owner or foundation, a decentralised treasury cannot easily be forced to censor or comply with unfavourable rules.
• Protects Against "Exit liquidity" Behaviour: Teams funded by neutral DAO's are less likely to dump tokens or pivot abruptly because they rely on continued community approval and can be dropped governance or mining tokens in exchange for DAO funding, excluding the need for bringing in Venture Capitalists whose values and reasons for being involved in the project may not align with those of the community.
• Promotes True Decentralisation: Everyone with stake can contribute ideas and vote, reflecting widespread consensus rather than corporate edicts.

Projects developed under this model become genuinely community-oriented. Their tokens have higher community trust because there is no hidden pre-mine or venture round waiting to sell into unsuspecting community members at higher prices. As a result, DAO's with a broad, participatory user base produce ecosystems that are more censorship-resistant, equitable, and sustainable in the long run.

22.8 DAO’s are Always More Centralised than the Witness Pool

Community members that vote for Witnesses often do not also partake in DAO voting to fund projects. Fewer people vote in DAO proposals since new funding proposals are submitted on a regular bases and are more difficult therefore for the whole community to keep track of when compared to voting for Witnesses which evolves much more slowly over time. The result is that whale votes in DAO voting is more extreme than in Witness voting and DAO’s can often seem more centralised than the Witness voting distribution. This is because the influence of one whale in the consensus Witness when voting along side a vast majority of the community seems less significant when compared to that same vote when compared to the fewer number of participants that vote in DAO funding proposals.
This may lead to accusations of DAO’s being centralised as it is often the case that one whale can sway a community decision on whether or not something is voted above the voting threshold for funding.
There are two key things to remember here:

1. That the Witness voting remains decentralised when the voting tokens are well enough distributed that one whale cannot vote to manipulate and decide the top Witness pool such that your fundamental rights to transact and grow community on chain is no longer preserved. If one whale can vote in a super majority of the witnesses then the Witness voting mechanism is centralised and highly corruptible.
2. Should a situation arise whereby the voting threshold for funding is voted so high by the community that only whale can decide which proposals get funded and which don’t, while this is not an ideal situation, it does not mean that the base chain is centralised.

Ideally there should not be a situation when only one member of the community can have a vote strong enough to elect proposals past the voting threshold for funding. Proposals should be able to be elected into funding without the vote of the largest voter on chain.

Times where situation 2) may benefit the chain is when:
a) the largest voter feels that a proposal is not legitimate and is an attack on the chain and that community members have been mislead into believing a proposal is genuine, when in fact it is an attempt to drain the DAO’s funds and,
b) when a collective of users feel that the chain is spending from its DAO beyond its means to sustain such spending and so drastic measures are needed to increase the voting for funding threshold high enough that only the largest voter can put proposals into a position where they exceed the voting threshold for funding. The result is that spending from the DAO is vastly reduced.

Scenarios a) and b) are however highly controversial situations and should only be temporary if at all, until such a time as the attacking proposal is removed, or until spending is bought into control.

Should this situation continue past either of these points, then the community should find diplomatic ways to ensure that the largest voter on chain de-escalates and allows money to flow based on decentralised community decisions again.

Neither of these scenarios however mean that the blockchain itself is centralised. Only that there are extreme or edge case scenarios whereby one of the funding distribution mechanisms (the DAO) can potentially be decided by one user for a temporary period when it is justified. The community itself can however collectively influence the whale in question to de-escalate prematurely if there is enough social consensus against the action taken.