Written by Vince Wicker
June 24th, 2022
Published in the SBU DAO @ https://medium.com/bees-social
DAO Basics
The “D” in DAO: Decentralized
When we hear decentralization positioned in cool tech terms such as “the Decentralized Web” or “Decentralized Apps (Daaps),” many of us fail to visualize what it means. Some of us even struggle to appreciate the significance of “decentralization.”
In my cryptocurrency and blockchain course, I explain the concept of a blockchain as a network. This network contains nodes that communicate and reconcile with one another programmatically so that upon completing a transaction on one node, the entire network is aware of every transaction and action.
Geek Sidebar: Decentralization as Blocks in the Blockchain
What makes the blockchain decentralized — from a programmatic perspective is the way blocks are connected — in a chain.
Block one is connected to Block 2, which is connected to Block 3. Block 1 has a unique “hash” generated when it was created — as do Blocks 2 and 3.
Blocks 2 and 3 also contain the previous block’s hash and the time the miners created their blocks.
These “hashes,” their connection to previous blocks, and their creation times make the blocks — and the relationship between the blocks, unique.
What goes on in those blocks are transactions and data. For example, in the SBU DAO, it could be a proposal or a vote. We can “trust” each transaction because no one can easily corrupt the integrity chain because of the hashes and dates in the chain of blocks containing the data.
“Integrity” is the knowledge that if someone attempted to change a block in the chain, one would need to consider the hashes and potentially a new out-of-sequence block time. In short, anyone viewing the blockchain will notice one change everywhere.
That’s why it’s “trust-less;” there is no need to trust the blockchain — anyone can transparently verify the chain’s inherent integrity at any time.
Compare this to a centralized database where I could go in and make a change, corrupt the database, and no one would know.
In a blockchain, trust is decentralized.
SBU DAO As an Example
One component of the SBU DAO is a set of decentralized apps that work entirely on-chain (on the blockchain). Some other DAOs do a bit of their work and governance off-chain. In short, they have some centralization built into them.
DINO (“DAO in Name Only”)
Some organizations claim to be DAOs, but they have a voting mechanism to serve up holder opinion. A centralized group of individuals either make the final decision — or in the case of a Treasury disbursement — connect to a multi-sig wallet (i.e., a wallet that requires multiple signatures to open) to send funds to the winner of a proposal — a DAO in name only.
Humans at the Center — Where it Makes Sense
The ideal (negative) view of the centralized world is one of command and control — where one group calls the shots. Decentralization is when everyone’s in charge.
But let’s be realistic. Nothing great ever happens great with mob rule.
Most DAOs attempt to keep their purpose clear and — from a governance perspective — build rules — supported by voting into their mechanics.
Take, for example, the SBU DAO’s mechanics around the yielding of BHNY to holders of an SBU BEE NFT. The mechanics discussed here are in place to prevent the inflation of the token in the market.
Let me explain it from a burn, yield, and DAO voting perspective.
The Burn Rate Example
There are several burn mechanics in place within the DAO for BHNY. “Burn” means that after a token is acquired, the contract will automatically send it to an unrecoverable address on the Ethereum blockchain. Currently, these are the three (3) ongoing burn operations in the SBU DAO:
Transaction-Based: 1% of the BHNY obtained in the BHNY Transaction tax is sent to a burn address
Auction-Related: 10% of the BHNY used in each Auction is sent to a burn address
Honeypot Proceeds: 10% of the tokens used to purchase a Honeypot will be converted into BHNY and sent to a burn address
People watching the market may calculate the annual burn rate — obviously dependent upon the amount of transaction tax, Honeypot purchases, and auction proceeds.
Yield Rate vs. Burn Rate Considerations
At the same time, a group will calculate and propose a yield rate for the BHNY stored and associated with each unlocked BEE.
It will be up to the DAO to vote on the yield rate. Logic assumes the yield rate should be less than the annual burn rate. Therefore, members in the DAO will propose and vote on a yield percentage.
If they propose and vote on a percentage lower than the burn rate, the market may reward them for that decision — a vote in the opposite direction may result in the market punishing the token’s value.
In this way, dynamic mechanics and burn rates work hand in hand with a decentralized membership via proposals and voting to maintain the integrity of the BHNY stewardship portion of the DAO.
So What?
Decentralization does not mean that DAO members wait for a proposal — that is, the centralized world. That is the world where people complain about “them” and “those people” who make decisions for them.
Decentralization comes with responsibility. The people are the “them” and the “they,” and they must educate themselves to act in the best long-term interest of the DAO and its members.
A short-sighted vote could damage long-term value. When the DAO contains a token traded on exchanges, more people will pay attention to the DAOs vote than just the members of the DAO.
Decentralization — within the SBU DAO means that the members own the value of the DAO and are thus responsible for it in their activities.
Humans are the center — but so are solid mechanics in the DAO. So as you assess other DAOs and projects, look at their long-term vision and viability through the lens of the SBU DAO.
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