Decentralizing Marketplace Governance
Decentralized marketplaces demand decentralized governance. The TIKI DAO is a governance model of influence relative to market impact, measured by participation.
TIKI is rolling out a decentralized governance model based on the model of market influence = market impact. User and business engagement in TIKI’s decentralized exchange increases their governance influence commensurate with their data market impact.
Historically, exchanges were owned by the floor members they served and were run like monopolies. The shift from floor-based to electronic trading in the ’80s revolutionized the exchange business, increasing competition and promoting demutualization. It was no longer in the best interests of an exchange to be dominated by floor members. Major exchanges moved from cooperative organizations to for-profit, shareholder-owned corporations. The effect of demutualization is well documented to strengthen the governance of an exchange; decentralization is the next phase.
The TIKI DAO (Decentralized Autonomous Organization) is a novel approach to combat the coalescence of power. Put simply, the data market impacts everyone, and we all have an impact on it. A large brand, reliant on consuming millions of dollars of consumer data, has more to lose and should have more say, but not disproportionally, to the point that users are drowned out. Ideally, collectively buyers and sellers should have a 50/50 say. Unfortunately, the standard in most marketplaces today, centralized or decentralized, is the big fish aggregate power to exert undue influence, increasing their power —rinse and repeat.
The TIKI DAO (Decentralized Autonomous Organization) is a novel approach to combat the coalescence of power.
While decentralized governance remains experimental, key processes have been standardized to govern marketplaces/exchanges sustainably and equitably. Several digital marketplaces have transferred decision-making power from a small team of founding members to global, distributed communities of stakeholders. This includes governance.
There are two primary types of digital marketplaces, centralized and decentralized. A centralized marketplace is a market structure consisting of a single (central) exchange through which all orders flow, such as a stock exchange. A decentralized market is the inverse, where orders are processed independently, often with the help of decentralized exchange technology. Simple examples are peer-to-peer transactions or a flea market, with the Foreign Exchange Market as an example of a complex, massive-scale decentralized marketplace.
With a centralized marketplace, parties are subject to the governance rules set forth by the exchange, often driven by a mixture of geographic laws and management’s business objectives. Take Amazon, a centralized marketplace. Amazon ultimately sets the rules for what and how things are bought/sold via the platform, taking care to meet legal requirements in various jurisdictions. With a decentralized marketplace, transactions take place directly between buyers and sellers. Governance is equally critical but necessitates and different structure.
Exchange governance is a well-established principle and something that parties to exchanges have participated in since tulips were traded in Holland in the 1600s. Governance sets the rules to adhere to, ensuring consistency. There is an abundance of academic efforts on exchange governance for centralized exchange success. Decentralized exchanges face similar changes, and we can pull from the research many qualities essential to the success of an exchange.
An example of a decentralized market with little or no governance is the subprime mortgage market in the early 2000s —this led to the fall of Lehman Brothers in 2008.
Decentralized governance should be viewed as the opposite power structure of traditional governance models, where decision-making is delegated to the members or parties of the decentralized entity. In a decentralized model, engaged members are empowered to make changes and improvements. There are several examples of decentralized exchanges where governance is vested in a company or small cohort, such as OpenSea. This poses the question, is a decentralized exchange with centralized governance truly decentralized?
“OpenSea is not decentralized, openness and governance are inherently contradictory” —CoinYuppe
Decision-making is critical in the governance of any exchange. With a centralized exchange, power is vested in a small cohort, and decisions can be made quickly without community consultation. The challenge is always the cohort's objectivity and predispositions (see crony capitalism). With decentralized governance, decisions are made transparently by parties to the marketplace. Decision-making becomes more complex and often time-consuming; however, once ratified, it represents the consensus of the majority.
With a decentralized exchange such as Uniswap, the responsibility for governance decision-making is delegated to the parties of the exchange. This ensures collective responsibility for decisions and amendments, good or bad.
TIKI is a decentralized data exchange (DEX) in which FMV (fair market value) is established by willing and informed users agreeing to exchange data with businesses for compensation.
Decentralized marketplaces demand decentralized governance. Therefore, TIKI is establishing the TIKI DAO, where governance decision-making is delegated to exchange participants. The TIKI DAO operates under the concept of crowdsourced governance and provides a framework for ratifications, improvements, changes, and edits to the rules and regulations of the DEX.
on crowdsourcing: “The act of taking a job traditionally performed by a designated agent (usually an employee) and outsourcing it to an undefined, generally large group of people in the form of an open call.” —Jeff Howe, Wired Magazine, 2006
The TIKI DAO is a micro-outsourcing oversight model where parties vote on changes (amendments) via an open call. Any user or business participant in TIKI’s DEX can elect to engage in DAO oversight by proposal creation or vote. A popular example of a crowdsourced micro-outsourcing model is Wikipedia. A pervasive peer review model for millions of topics with contributions from hundreds of thousands of writers. Anyone Wikipedia user can create an article or become an editor of articles.
With TIKI, all parties agree to the exchange governance and can opt to amend it through a proposal and vote structure. The amendment process is enabled by a non-transferable (soulbound) token earned through participation in the exchange.
Tokens determine a participant's influence (often referred to as reputation tokens) over the voting process. However, each token awarded degrades over time —initial tokens come in 1 and 3-year degradation flavors. Today’s participation carries more influence than efforts one year ago.
Tokens are non-transferable (cannot be bought or sold)
Tokens are only earned through participation
Every token’s influence power degrades over time
The TIKI DAO aims to add decentralized governance to TIKI’s decentralized exchange, enabling a truly decentralized marketplace for data to flourish. We propose market impact, measured through participation, is a better model for determining governing power.
This blog serves only as an overview of the challenges of marketplace governance and basic DAO/token structure. An entire whitepaper will be published shortly and linked below.