We discussed the various forms of decentralized organizations from a high level in our previous post on DAO Structure, breaking down the benefits and vulnerabilities of coreDAOs, govDAOs, and pseudoDAOs.
In this article, we will take another step further into the governance process, and explore the different methods of decision-making within a decentralized organization.
We can think of decentralized governance as a set of processes that blockchain projects use in order to perform decision-making and converge to a widely accepted direction. Ideally, decentralized governance allows the system to evolve along with the will of those who govern. In practice, a well-thought-out voting system may enable us to promote or reject ideas before implementation.
Consensus: a generally accepted opinion or decision among a group of people; the state of agreeing with someone or something. (Cambridge Dictionary, 2022)
Decision-making models can be divided into two primary categories: voting and consensus. In its simplest form, voting (specifically, plurality voting) is defined as a system in which each actor votes for a single option, and the highest-scoring option is determined to be the victor. The winning option only needs to achieve a simple majority; the various actors involved do not need to come to total agreement.
In a consensus-based model, the various actors make an effort to come to an unanimous agreement through active discussion. This often results in every actor indicating that they favor the outcome, even if it is not their original or preferred choice. This process can be observed in small groups, small communities, political assemblies, and international organizations. Over the last century we have seen a general trend towards decisions by consensus, and now we are seeing it proliferate within decentralized organizations.
Neither of these models is necessarily preferable to the other; each has its pros and cons. Voting is often considered to be fair and efficient, while consensus-based decision-making is typically time-consuming but ideally arrives at a common middle ground.
In practice, both systems can be used together. For low-impact decisions, when the sheer size of the group prohibits the ability to come to a consensus, voting is preferred. For high-impact decisions, small groups may use consensus in order to determine the best course of action.
Dimensions of Decision-Making Modes
The primary positive outcomes of the decision-making process can be condensed into two categories: majority decision and amicable agreement.
If a disagreement is openly articulated, the first question is whether or not the substance of the conflict is resolved. If not, one may still speak of a decision, but this decision is limited to the procedural matter, leaving the conflict unresolved. This may be defined as a non-decision.
By contrast, if the substance of conflict is resolved, then a distinction can be made along a second dimension: formalization of the decision. A decision may be made in a formalized way if, at the end of discussions, all actors explicitly express their opinions and final position. A decision may not be considered as formalized if an actor simply interprets what they believe to be the essence of the discussion, and this interpretation is then accepted by the other actors.
Decisions by interpretation are not feasible due to uncertainty about whether or not dissent in the group still exists. This uncertainty does not exist in formalized decisions, since a majority decision is applied if dissent persists. If the dissent does not persist at the end of discussions, the decision is made by amicable agreement.
Decisions by interpretation are distinct from majority decisions. Decisions by interpretation don’t necessarily lead to a victory of the majority, and it’s often unclear which group has the most supporters. Can decisions by interpretation be sufficiently distinguished from amicable agreement? For cases in which everyone explicitly agrees with a decision, there may be no functional difference between a decision by interpretation and an amicable agreement. But in cases without full explicit agreement, there may be a difference.
Finally, before we discuss collective decision-making, we should question whether or not decisions by interpretation can be sufficiently distinguished from non-decisions. Functionally speaking, it makes no difference whether a debate is ended by non-decision or decision by interpretation. While the two modes are functionally similar, they can be distinguished conceptually by noting that 81% of decisions by interpretation are implemented (Steiner and Dorff, 1980).
Modes of Collective Decision-Making
Although widespread, the term “decision by consensus” is unclear. It is often informal and found where unanimity rule or an absence of voting procedure is observed. It is considered more democratic, and may benefit decentralized finance (DeFi) and the wider crypto ecosystems by helping to align values and governance.
Let’s begin by identifying two distinct ways in which collective decisions are made. The following two studies provide clear descriptions.
In 1970, Sherif El-Hakim observed a collective decision-making process in a Sudanese village. He found that two principles governed participation in decision-making. First, “notables,” who held a degree of authority typically associated with their responsibilities, had specific roles and weight in the process. Second, every male villager had the right to participate in any decision.
Only the most influential villages were able to take the initiative of calling a meeting aimed at making a collective decision. The villagers made efforts to notify all those who would be affected by the decision. After a stated period of time, the notable presented the meeting purpose, details, context of the problem, and opinions expressed in previous informal meetings. If the notable believed that an absence of input from one or more villages concerned with the matter would adversely affect the proceedings, this would be pointed out.
The notable ended the presentation with a statement of their proposed solution. Other individuals at the meeting could then speak up to express their opinions. Once they had done so, another man – never the same person as the one who opened the meeting – presented what seemed to be the consensus. El-Hakim then observed that the meeting proceeded in one of three ways:
- If the proposed statement was met by signs of acquiescence and nothing else complicated matters, it would then be considered a collective decision and the meeting ended, even if only one or two supported the statement while all others remained silent.
- If the statement was explicitly contested, the meeting was broken off by general agitation.
- Disagreements were often expressed indirectly by way of counter-proposals; these often had little to do with the issue, but actually worked to change it. Discussion began again, until another proposal was offered that resulted in the same way forward as the first. If no consensus was achieved, the meeting ended without a decision.
No accounting for preferences or formal rules for aggregating views were observed.
In 1978, Barbara Yngvesson studied the decision-making process of a community of fishermen in Sweden. Aboard the boats and in the assembly, Yngvesson observed clear concern that the proceedings be egalitarian, and that collective decisions should follow the same protocol as the island’s political body. A rule of “non-opposition” was revealed. Decision-making followed three steps:
- One fisherman suggests moving the location.
- For a minimum of half an hour afterward, the other fishermen are expected to express their reaction to the proposal.
- If no counter-proposals are offered, the first speaker reiterates his proposal, and the boat sets course for the newly designated location.
It is important to note that in both the above studies, what follows discussions is not a vote, but a statement of a proposal (or series of proposals) that corresponds to consensus. The “apparent consensus” is gained not by the counting of preferences, but by noting that no opposition has been made.
We can define three typical contexts in which “apparent consensus” is used in decision-making. However, we will use the two most pertinent to crypto. The first is Areopagus – a modern learned assembly made up of wise persons, savants, and magistrates brought together in the name of competence and qualifications. The second is assemblies or commissions that use several rules for decision-making, in order to make consensus expedient.
Typically, projects choose decision-making by apparent consensus in two situations:
- When they want to speed up a decision-making process that already seems headed toward approval by a majority; and
- When conditions seem to indicate an appropriate balance between the concerns of i) those proposing a consensus interpretation in hopes that it won’t be contested, and ii) the opposition that may not want to speak up out of concern that they may reveal they’re in a minority.
To define the decision rule “apparent consensus” we must reference six characteristics:
- A rule for getting the decision made and thereby bringing the process to an end;
- What concludes the process is collective recognition that an apparent consensus has been reached;
- There is an impression of continuity between the process and its end point;
- The apparent consensus rule prevails in contexts for which, for various reasons, the attempt to reach consensus is indexed on concern about decision quality;
- It does not require unanimity, but rather the consent of participants reluctant to approve the decisions; and
- Participants’ contributions to the decision-making process are marked by a contrast between i) the equal right of all to participate, and ii) legitimately unequal degrees of influence.
It is important to note that decision-making is never aimed at attaining a state of knowledge; the point is to determine an action to be taken. Concern is only with a decision for which there is a discernible time lapse between making that decision and acting on it. A decision fixes an intention to act (Raz, 1975).
Apparent Consensus and Decision Quality
Decision-making by apparent consensus may be particularly useful in contexts for which the importance of consensus is closely linked to participation approval and decision quality. Apparent consensus differs from a voting system in two ways:
- The concern to i) make a good decision, and ii) have a high quantity of participants approve it;
- The fact that consensus is not the sum of individual opinions.
It is not that voting should outright be rejected, since there is the possibility of putting the matter to a vote after opinions have been enriched by discussion. The quest for representativeness has seemingly replaced the concern for quality. Voting can create a disjunction between the concern for a quality decision that is presumed to govern discussion, and the counting and adding together of individual preferences.
Apparent consensus decision-making does not disregard or oppose concerns about decision quality. On the contrary: it merges the wisdom of the greatest possible number of participants.
Silence Means Consent: The Rule of Non-Opposition
Consensus decision-making is possible because implicit consent is assumed for silent participants. In most cases, a minority rallies to the option that seems to produce consensus. Of course, not all Areopagus members may fully approve of decisions made due to their silence, so this approach implies adherence to the principle of majority rule. (Hazard, 2022) & (Urfalino, 2006).
In apparent consensus, consent is more personalized and requires a more active role. Once a given proposal pulls ahead of other suggestions by the decreased amount by which explicit opposition is observed, any hold-outs against said proposal must ask themselves if they will continue to express disagreement or keep silent. Since the apparent consensus approach grants each participant a veto, it’s worth asking those who oppose the proposal to explain the reasons for their opposition. There are two common reasons given for silence:
- Opponents remain silent because it is in their interest to do so given the proposal’s main partisans’ power relations. This could be expending political power, or in a coin voting system it could be due to futarchy systems in place.
- At a given point dissent becomes illegitimate and provokes disapproval.
The assembly of wise persons — selected for their competence and qualifications — should be elected through the same rules of consensus used for all proposals. Delegates and their team members take on significant responsibility requiring time commitment and technical understanding, so the process should be selective.
Candidates should be able to act autonomously while demonstrating high levels of organization and understanding. Furthermore, they must remain engaged and responsive in a productive manner.
As a simple example of this process, consider the use of a delegation rubric to assess the candidate(s). If the desired individual is adequate and approval is granted, then an agreement in the form of a delegation letter may be made, which helps to reinforce the responsibility and accountability required (Kroeger, 2021).
Now we have distinguished, defined, explored the characteristics, and provided examples of consensus decision-making and plurality voting. Let's summarize their pros and cons.
Pros and Cons of Plurality Voting
Plurality systems are used widely across the globe for democratic processes.
The main benefits of voting systems are:
- Ease. It is easy to form a plurality poll, tally votes, and determine a victor. Discussion is either absent, limited, or extensive, depending on the setting, poll format, and time constraints.
- Convenience and low cost (capital efficiency).
- Easy to understand. It is often less complex and features a set number of options to choose from.
- Allows for proportional representation.
Cons of voting systems include:
- Minority outcomes – i.e., the possibility of arriving at decisions with which the majority disagree.
- Tactical voting. Voters wanting to prevent specific outcomes may vote for the leading contender, even if they also disagree with that option and prefer an alternative.
- Competition. Winners and losers are defined, reducing the possibility of discovering alternative solutions and compromises. This may undermine collaborative efforts.
- Lack of connection. This approach lacks expressiveness, interactiveness and engagement, potentially leading to voters becoming less connected and committed to the decision. This is amplified in voters on the losing side.
- Polarization. Due to the restricted nature of plurality voting, it is easy to create divisions within a community, creating groups that vote in a polarized fashion.
- Manipulation. With the proposed options put to a vote originating from a minority, there is the possibility of controlling outcomes through the selection of these options.
Pros and Cons of Consensus Decision-Making
Consensus is typically considered a more egalitarian and democratic approach to decision-making, with the goal being an acceptable resolution that can be supported by the majority even if not the favorite of any one individual. The main benefits include:
- Collaboration and cooperation. Consensus decision-making encourages the community to collectively deliberate on a single proposal.
- Connection. Since decision-making engages the whole community rather than a subset, consensus is more inclusive by nature.
- Convergence. Consensus reduces polarization; instead, it attempts to drive participation and engagement by bringing participants together on proposal discussions.
- Effectiveness. Leveraging more participants for input may lead to a better-informed, more competent, and more representative solution.
- Understanding. By pooling knowledge and providing the reasoning behind the solutions, all participants can develop a better understanding.
Cons of consensus decision-making include:
- Time-consuming. Due to the time required to gather as many relevant individuals as possible, consensus is slower than many other methods.
- Encouraging groupthink. The opposition may be unwilling to speak out if the majority – and/or particularly popular and powerful individuals – appear to be in favor.
- Open to sabotage. Disagreements may be used to maliciously sabotage a decision, leading to frustration and lowered participation.
- Complicated process. The process of consensus decision-making is less well understood than plurality voting. More rules and guidelines must be in place.
Core Procedures for Consensus Decision-Making
Once an agenda is set, each item on the agenda is addressed. This is called “blocking.” Although effective for small and trained groups, in large groups blocking can be susceptible to status quo preservation, widespread disagreement, stagnation, exclusion, and channeling decisions away from inclusive processes. Typically, each decision arising from an agenda follows a simple structure:
- Discussion. Direction and potential proposals for action are identified, with the goal of identifying opinions and information on the topic at hand.
- Proposal formation. A formal decision proposal is drafted and presented.
- Call for consensus. The facilitator of the decision-making body calls for consensus on the proposal. Each member of the group must usually actively state whether they agree, consent, or object. The number of objections are counted to determine whether the consent threshold has been achieved. Dissenters are asked to share their concerns, so any potential harms can be addressed. (Harm can happen even if the consent threshold has been achieved).
- Identification and addressing of concerns. If consensus is not achieved, each dissenter presents their concerns on the proposal in question, potentially starting another round of discussion.
- Modification of the proposal. The proposal is amended in an attempt to address the concerns of the decision-makers. If necessary, the process may then return to the call for consensus, and the cycle repeats until a satisfactory decision is made.
Specific Roles in Consensus Meetings
A variety of roles are available to improve the efficacy of consensus decision-making processes. While not all organizations use these roles, the vast majority use facilitators. Roles need not be fixed; they can be rotated or randomly assigned.
The common roles in consensus meetings are:
- Facilitator. The intention of this role is to help ease the process of a consensus decision. Facilitators accept responsibility to move groups through an agenda, ensure adherence to mutually agreed-upon process mechanics, and — if necessary — suggest alternates or additional discussion. Shared facilitation may be adopted to diffuse the perceived power of having one facilitator.
- Consensor. The consensor (or team of consensors) is responsible for accepting relevant proposals; displaying an initial list of options; drawing up a blanched list of options to represent the entire debate and deliberation; analyzing and casting additional ballots; and, if needed, determining a composite decision from the options provided.
- Timekeeper. This person ensures adherence to the set schedule in the agenda, often providing time updates and warnings of short time.
- Note taker. A scribe or secretary documents the decisions, discussions, and action points.
Similar Practices of Consensus Decision-Making
Deeply anchored in socio-cultural values, Japan’s effective corporate communication system is related to the country’s high level of productivity and technological innovation. Many Japanese companies use consensus decision-making that seeks unanimous support across the board of directors. A ringi-sho — a document used to obtain agreement — must first be signed by the lowest-level manager; it then continues upwards. If it is revised, the process starts over.
For the ringi system to operate effectively, certain conditions must prevail. It calls for a good organizational culture, with harmony among employees and well-organized communication patterns at the workplace. Much of the discussion, negotiation, bargaining, and persuasion are performed through mobilization of personal networks. To make this possible, organizational and physical settings must encourage regular and frequent face-to-face interaction. It is important to have a strong sense of shared understanding and values among participants (Sagi, 2015).
The Internet Engineering Task Force (IETF) employs the rough consensus model. Rough consensus is used to indicate the “sense of the group” concerning any particular matter under consideration. The means to establish rough consensus is described by the IETF as follows:
“Working groups make decisions through a "rough consensus" process. IETF consensus does not require that all participants agree although this is, of course, preferred. In general, the dominant view of the working group shall prevail. (However, "dominance" is not to be determined on the basis of volume or persistence, but rather a more general sense of agreement). Consensus can be determined by a show of hands, humming, or any other means on which the WG agrees (by rough consensus, of course). Note that 51% of the working group does not qualify as "rough consensus" and 99% is better than rough. It is up to the Chair to determine if rough consensus has been reached.” (IETF Working Group Guidelines and Procedures)
Subsequently, the IETF published a document pointing out that for determining rough consensus, it’s more important to ensure that opposing views are addressed than it is to achieve a certain percentage of support.
Integrating Plurality-Based Token-Weighted Voting with Consensus
Many DeFi projects have elements that loosely resemble corporate governance. Token holders, for example, might be considered roughly comparable to shareholders. It’s worth highlighting some differences here, too, however — e.g., laws that preserve shareholder rights in traditional finance are absent in DeFi and DAOs. With projects such as Aragon, which aims to be a web3 court that settles disputes requiring human judgment, analogous structures are beginning to emerge.
The question across both plurality voting and consensus decision-making is whether an outcome may be enforced. If not, it cannot be considered passed or failed. If we look to corporate organizations which share the most similarities with DAOs, such as mutual funds, we may observe that voting has become vestigial, or in some cases absent entirely. Often we see an inherent vulnerability within DeFi and DAOs towards forms of oligarchic and plutocratic governance. Token holder voting is not analogous to shareholder voting (Buterin, 2018).
A 2022 beigepaper by Hazard suggested:
“...token-weighted voting measures the scale of a threat to exit. When considering a proposal, those who would exit if the proposal were to pass, may signal that fact using a token-weighted vote that only counts “no”s. The result is the number of tokens that would exit, allowing the group to measure the degree of consensus. In other words, we propose that the natural use for a token-weighted vote is to answer the question, “are there any objections?”
This suggests a combination of consensus decision-making and voting. To help ensure quality and competence, parties may deliberate actionable options while giving dissenters opportunities to express concern or opposition. Finally, a token-weighted vote quantifies consensus.
Much of what has been explored and discussed above alludes to meritocracy – a political system in which economic good and/or political power are vested in those of talent, effort, and achievement, rather than wealth or social class. In meritocratic societies and institutions, power is earned through contribution, reputation, quality, and competence.
Does the presence of those selected individuals have a negative effect upon the legitimacy of decentralized governance? It appears not, and evidence suggests that the answer is no. Providing their authority is properly limited, they play critical roles towards the betterment of the specified project or protocol (Lee & Cole, 2003) & (Hazard, 2022).
It is clear that governance of blockchain platforms lacks a well-established set of methods and practices that are adopted industry-wide. Instead, each different system adopts their own unique approach, or simply copies another. Approaches vary in levels of sophistication and degrees of integration.
Both plurality voting and consensus decision-making have vulnerabilities and strengths. The two are compatible, and may be used to benefit one another. Productive communities need a clear form and structure of governance in order to orient their interdependent efforts towards mutually agreed-upon goals.
Employing game theoretics, the prisoner’s dilemma may be optimized in the context of DAOs and within DeFi. Given that Dunbar’s number may limit the sustainability of social relationships within large scale and “flat” governance, it is reasonable to suggest that structure, division of labor, restrictive rules, and enforced norms are necessary to maintain cohesiveness. We need institutions and hierarchies that allow for effective division of labor, specialization, strategy, and vision. Thus, we may achieve both a high-level vision and long-term goals through the competent deployment of skills and resources in the short term, using highly specialized local knowledge.
When legitimate and competent leaders and group members are guided by collective interests and a common goal aligned with self-benefit and (if possible) shared values, governance can become resilient, effective, and successful. Those involved must be held accountable and responsible by a shared positional authority. We need a monopoly on power (the ability to bring violence to bear) to have a legal system, and we need a legal system to have property rights which underpin all markets.
“Property rights and prosperity are inextricably linked. The importance of having well‐defined and strongly protected property rights is now widely recognized among economists and policymakers. A private property system gives individuals the exclusive right to use their resources as they see fit. That dominion over what is theirs leads property users to take full account of all the benefits and costs of employing those resources in a particular manner. The process of weighing costs and benefits produces what economists call efficient outcomes. That translates into higher standards of living for all.” (O’Driscoll & Hoskins, 2003).
Bitcoin’s innovation is that
“it detaches property rights from the legal system and the monopoly on violence. For the first time, we can have property that does not rely on a local authority to enforce and protect. It is easy to conceal, defend, divide, move, and verify — all by yourself, granting you the highest level of personal sovereignty.” (Su Zhu & Hasu, 2019).
In order to employ effective plurality voting and consensus decision-making, a defined structure and hierarchy should be created. This should be divided into groups of active and highly specialized individuals which are elected and continually reviewed (within a stated time period). The structure should be based on a meritocratic system, properly incentivized, and functionally held accountable and responsible (Hall & Smith, 2022). An always-on-voting system (a repetitive blockchain-based voting framework that allows participants to continuously vote and change elected candidates or policies) may be used to maintain or change these individuals or groups, when implemented within pertinent parameters.
Ideally, projects and protocols should have a constitution in place to guide decision-making and proposal implementation. The constitution should cover foundational principles, vision, goals, and strategy. It should serve as an evolving document yet also be hard to change, in the sense that any changes would require extensive deliberation and discussion.
It is important to note the centralization risk associated with the implementation of such structures. To remain true to the idea of any form of collective consensus, a veto system must remain, some form of which is accessible to all participants.
Ultimately, in decision-making in the context of DAOs and DeFi, there is a sliding scale between representative democracy and direct democracy. However, democracy or not, it must remain transparent, public, and censorship-resistant.
Aragon (2022). Aragon Court.
Britannica.com (2020). Plurality system.
Britannica.com (2019). Proportional representation.
Buterin, V. (2018). Governance, Part 2: Plutocracy is still bad.
Cambridge Dictionary (2022). The meaning of consensus in English.
Clark, D. (1992). A cloudy crystal ball - visions of the future. In Proceedings of the Twenty-Fourth Internet Engineering Task Force.
El-Hakim, Sherif M. (1978). The structure and dynamics of consensus decision-making.
Hall, A. & Smith, P. (2022). Lightspeed Democracy: What web3 organizations can learn from the history of governance.
Hasu (2022). Governance from first principles.
Hazard (2022). Governance by apparent consensus.
Kroeger, A. (2021). a16z Crypto Governance.
Lee, G., & Cole, R. (2006). From a firm-based to a community-based model of knowledge creation: The case of Linux kernel development. In Organization Science.
LongForWisdom. (2022). Consensus decision-making vs plurality Voting.
O’Driscoll, G., & Hoskins, W. (2003). Property rights: The key to economic development.
Raz, J. (1975). Reasons for Action, Decisions and Norms.
Resnick, P. (2014). On consensus and humming in the IETF.
Steiner, J. & Dorff, R.H. (1980). Decision by Interpretation: A new concept for an often overlooked decision mode.
Sagi, S. (2015). “Ringi System” The decision-making process in Japanese management systems: An overview.
Su Zhu & Hasu. (2019). Independent Property Rights.
Urfalino, P. (2006). Apparent consensus and voting: Two modes of collective decision-making.
Urfalino, P. (2014). The rule of non-opposition: Opening up decision-making by consensus.
Wikipedia. (2022). Consensus Decision-Making.
Wikipedia. (2022). Meritocracy.
Wikipedia. (2022). Rough consensus.
Yngvesson, Barbara. (1978). Leadership and consensus: Decision‐making in an egalitarian community.