Proof of Personhood: A Path to User-Centric Governance

Proof of Personhood helps in the development of DAO governance models by empowering users with rightful intentions 

Written by

Josephine Foong

From traditional to modern governance

The blockchain industry is not just about developing advanced technology that is better, faster, stronger technology. But it is also a place where we can discover new social and economic innovations that can pave the way for new ways of value creation and redistribution. It's an exciting and dynamic field where new possibilities are constantly emerging.

Capital and People: The Dual Drivers of Value Creation and Redistribution in Companies

A company is often referred to as possessing two things: “Capital” and “Work”. Capital is used to purchase machinery, while labor involves the individuals who operate and manage them. The creation and redistribution of value are centered on these two elements, with capital occupying a pivotal role.

Work refers to the manpower required for a company's operations, and this workforce is comprised of people. Therefore, an alternative perspective is that a company's resources can be divided into Capital and People. As for the balance of power between shareholders and workers, there has been a significant shift over time, which can be traced back to the industrial revolution.

Rise of Stakeholder-Focused Corporate Governance

In the last few decades, the concept of stakeholders emerged in favor of shareholders, expanding a company's scope beyond just workforce and capital. Externalities matter too. Rather than concentrating solely on these two factors, a company's performance across various categories should also be assessed as stakeholders including clients, suppliers and society.

The shift towards considering a company's broader impact arose from the demand for improved corporate governance that meets social and ethical expectations. By viewing the company within a value chain and considering its impact on its surroundings, it creates an opportunity to maximize value creation by addressing the needs of the various entities.

The emergence of DAOs

Decentralized Autonomous Organization (DAO) is a form of legal structure that has no central governing body and whose members share a common goal that serves the entity's best interests. In these systems, tokens represent voting rights. If more than 50% of the tokens are used to vote for a decision, then that decision is implemented. The beauty of this lies in the innovation of the distribution model. 

To foster community growth, new projects offer tokens to their users, who, in turn, can participate in voting on the project's future. This approach marks a shift away from the Capital vs. Work paradigm and towards a system where stakeholders wield decision-making power over the project's trajectory.

Consider a platform where users can lend their cryptocurrency to others in exchange for interest, but it needs enough borrowers to attract lenders. To alleviate this problem, the platform can distribute tokens as incentives to both borrowers and lenders. This very model referred to as the DeFi Summer exploded in 2020, implying that suppliers and customers have the ability to vote on the direction and decisions of the protocol's future.

The concept represents a significant shift in governance, prioritizing stakeholders over shareholders. The evolving traditional economy empowers suppliers and users to determine how projects should be managed in consideration of societal issues. 

However, the current system has limitations, as it grants tokens to users and suppliers based on the value they can provide and borrow, leading to an exclusive focus on capital. While it may seem reasonable for the highest contributors to receive greater rewards, this approach constrains the system's value distribution.

This is where things get interesting. DAOs represent an exciting new concept, and the next generation of these organizations is expected to follow a path similar to traditional companies. They offer significant potential to change how value is created and distributed in a project, allowing for experimentation with various approaches that reward both internal and external stakeholders. By doing so, DAOs can transition from a capital-focused model to one that distributes value more evenly, helping to move the emphasis from Capital to People.

Our vision for the next phase of Web3 involves reputation playing a critical role. Users will earn tokens not just for providing capital but also for undertaking unique actions on the blockchain, creating a new kind of value.

Implementing Proof of Personhood for reformed governance models

As part of our efforts to advance DAO development, we have developed a solution that allows projects to identify unique users. Vitalik Buterin discussed the importance of proof of personhood in crypto. And in line with his ideology, we believe that Proof of Personhood will enable new types of governance for DAOs by addressing Sybil attacks.

Building new governance models and reimagining ways of distributing the value created by a project will be a complex and ongoing process that is likely to involve setbacks and mistakes. However, we are excited about the potential to establish more equitable and ethical frameworks through our efforts.

This reformed concept of governance will shape the future of organizations as a whole. DAOs aren't limited to crypto. We believe that DAOs are the key to unlocking the next logical evolution of governance.