Recently, there has been a fair amount of hype in the Ethereum community around a new DAO, aimed at accelerating the development of public Ethereum infrastructure; Moloch. Named after the Canaanite god of child sacrifice, Moloch DAO is advertised as "a radical experiment in voluntary incentive alignment to overcome the tragedy of the commons". The objective of the project is to align the community of builders on Ethereum on a more granular level and remove roadblocks that Ethereum developers are commonly running into. The initiative is lead by Spankchain founder Ameen Soleimani; Connext.network developers Lane Haber, Arjun Buptani and Rahul Sethra; and Brainbot lead developer Heiko Fisch.
Stripping down the technobabble, Moloch is really a pay-to-play venture studio that will distribute grants to project teams, via smart contracts. One of the ways it's being pitched as, is an idea meritocracy that will direct funds to projects solving common problems in the Ethereum ecosystem (e.g. Layer 2 scaling solutions) by somewhat circumventing the red-tape involved in securing research grants from the Ethereum foundation.
At first glance, while a great initiative for the ecosystem, the concept of the idea meritocracy comes at odds with the participation fee.
Moloch DAO is a worse version of @PoWH3D . Governance should not be pay to play. Meritocracy is better. Your standing in the P3D community is literally based on contribution and badges are awarded on discord. Incentives are naturally aligned and governance is off-chain.
— Anthony Bourchain (@bourchain) February 15, 2019
The pay-to-play element of the DAO manifests as follows:
Prospective members, a limited number of whom can be processed in a day, must submit $5,000-worth of ETH and a proposal for how the DAO funds should be spent.
In return, they request a number of “voting shares,” with which they can vote on funding projects and on-boarding new participants.
DAO participants have the power to approve applicants with good ideas that cannot afford the entry fee.
The incentive to co-operate (self interest = group interest) is coded into the DAO's structure, whereby, participants have the option to "ragequit" by exchanging their voting share for a proportional share of the DAO's funds. As such, the incentive structure, encourages pro-social thinking, as a participant's potential payout by rage-quitting becomes larger as the fund gets larger. Thus the incentives are designed for ALWAYS committing, IF you expect the value of the DAO to be larger in the next round. The idea here is based on literature on coordination games where positive network externalities increase in each round.
In fact, the incentive structure of Moloch DAO looks a lot like the classic stag hunt game - hunters pool resources together in expectation of a bigger payoff (stag) than they could extract individually. The problem here is that if the rewards take multiple rounds to appear, and at the same time the participants see credible alternatives that don't require cooperation (hare), the incentive to defect from the group increases, along with the opportunity cost.
The counter argument from the architects here is that there is reputation involved, in a way that defecting from the DAO leads to reputational damage in a tightly knit community, such as Ethereum's, and a subsequent exclusion from future value creation - on and off the DAO. While that might be true, it's a concept that doesn't scale trust very effectively beyond the confines of the Ethereum community. Further, as a non-profit, the incentives to scale participation outside the community that will directly benefit by the proposals of the grantees, is low. Finally, another concern arises with the structure of the voting process. With potential for up to 7 proposals taking place over a 7 day period, it is unclear if the processing overhead for voters will be low enough to allow for actual meritocracy - and control for the effect of heuristics in decision making. The effect is compounded by the poor UX currently in place (some 126+ clicks required for a full cycle).
In all, this is an interesting experiment to follow, for all its potential shortcomings. If anything, it seems that introducing alternatives to the Ethereum Foundation for allocating grants is a good thing. Whether the model proposed by Moloch will succeed however, remains to be seen.