Economic DAO Governance: A Contestable Control Approach

Abstract: In this article, we propose a new form of DAO governance that uses a sequential auction mechanism to overcome entrenched control issues that have emerged for DAOs by creating a regime of temporary contestable control. The mechanism avoids potential public choice problems inherent in voting approaches but at the same time provides a vehicle that can enhance and secure value that inheres to DAO voting and other DAO non-market governance procedures. It is robust to empty voting and is code feasible. It not only facilitates the ability of DAOs to meet their normative and operational goals in the face of diverse regulatory approaches, but also strengthens the case for creating a less burdensome but at least equally effective regulatory regime for DAOs that employ the mechanism. Designed to shift control to the party with the most promising business plan, at the same time it deters value destruction by control parties, maximizes social surplus, and distributes that surplus in a way that tends to promote investment by other parties both at start up and on an on-going basis.