I lost $80 of Bitcoin in 2013, and I have no way to get them back because my hard drive crashed. Yeah. This brings up so many fascinating elements. There is no universal solution when it comes to governing the messiness of humans pursuing any given purpose in a non ergodic world. That's two words, Eric.

Hi. I'm Jamila. And I'm Eugene. And this is the Governance Futures podcast, where we explore the past, present, and future of decentralized governance.

Eric has worked with many governments, DAOs, and all kinds of other organizations on constitutions and governance. Eric's governance work is heartiness. Chances are you've encountered it firsthand or indirectly. Today, we invited Eric to talk about the limitations of democratic decision making, why conflict in governance isn't inherently negative, and answering some of the questions such as

And now, here's the chat with Eric. Hello, Eric. Thank you. It's a pleasure to have you here. We've been really looking forward to this conversation because there's just so much richness in your work from how you think about constitutions to the way you frame governance as inherently shaped by conflict, not just consensus. So to set the stage, I propose to look into two key themes. First, how do we define governance? And the second topic I'd like to touch upon is the limitations of democratic decision making. So let's start with the first one. You've described governance as rule based ordering of people and natural resources. How does this definition shift when we talk about digitally networked context like blockchains?

So in in some, most of what's being coordinated on blockchain networks through rule choice by their participants as well as potentially, you know, polycentric rule systems that they're subject to such as regulation or, you know, sort of private investment contracts is the big difference that I see is the natural resources being coordinated are actually relatively limited because most of the network native units of account and abstract commitments built upon those network native units of account are not direct claims over natural resources themselves. But my my definition still holds, which is many, many important instruments in our societies are themselves simply an institutional commitment for something to happen in the future. And so my retirement accounts, I can't eat them. I can't drink them. I can't directly use them to satisfy my sort of true human physical needs. But my hope is, and boy am I betting on this hope, is that those same accounts enable me to do valuable things in the future to pay for my medical bills, to take care of my family, etcetera. And so, similarly, most of the kind of units, the base units on blockchain networks are not themselves claims over resources. An interesting element of the of the proof of work consensus algorithm that supports Bitcoin and other sort of famous cryptocurrency networks is that it is tethered to actual expenditure of real resources associated with electricity, powering the GPU units that are, crunching away at the cryptographic hash puzzle, but interestingly, a Bitcoin itself is not a guarantee to that power. It's a guarantee that that power has been consumed to, you know, successfully resolve the cryptographic hash puzzle before any other validator. And so still even Bitcoins are a claim as against the network to be able to transfer those Bitcoins to another party at some future date. Why would you wanna do that? Probably because you wanna cash out and spend those Bitcoins on the natural resources that, a lot of these rule based commitments can actually command in practice. And so one big distinction is these aren't direct sort of claims over natural resources. And the second distinction is that these network processes are highly complete compared to many real world forms of governance, and that's a very much a double edged sword, which is to say, you know, it I lost $80 of Bitcoin in 2013, and I have no way to get them back because my hard drive crashed. And so that which is settled on the network is settled with finality, can't be reverted. And if you, the individual key holder, lose your keys, those are probably gone forever. And so there's certain forms of finality, completeness, and transparency that are other novel features of governance on these networks.

I like your parallels to real world form of governance, and I've heard you previously reference some of the examples or questions rather that you like to ask your students. For example, do you want to subject to a popular vote nuclear safety regulations when you were talking about inherent limitations of democratic decision making, especially in the organizational context. So here is my second question on the limitations of democratic decision making. Why democracy, while powerful, isn't always the best institutional fit, and what can we learn by looking beyond it?

Yeah. And I I think correctly, to be clear, for many things, especially those surrounding public government, some form of democratic constraint on those exercising concentrated governance authority, I think, tends to outperform, which is most successful nations, whether you choose human development metrics, economic metrics, you know, you you name it, most successful nations have some element of democratic constraint embedded in their processes. That being said, democracy is not a panacea, and most democracies are actually highly delegated representative democracies. They aren't direct democracies or liquid democracies as they're called. And so I kind of list three canonical reasons that democracy, like all institutional tools, is a choice that carries benefits and costs. And depending on the context, those costs might exceed those benefits. What are those costs or limitations as you correctly put it? I list three, sort of in sum. One is simply attention costs, which is that obtaining everyone's input on every question that they are subject to The way I put this to my students is imagine if you've got a push notification on your phone for every policy decision made at a municipal, state, and federal level in The United States. That would be like a constant churn of notifications, and what is the right amount of time from when somebody has received a notification for them to truly deliberate in a democratic sense about a particular policy proposal? So the first one is the attention costs associated with doing that would be huge. Second is simply the fact that most policy decisions don't directly implicate my interests. Some do, but many don't. And so, therefore, why am I especially well situated to vote on, say, you know, water management in a place I've never been to? And I don't use the water. I don't know what the predominant agricultural, industrial, and, you know, demographic uses of water are in that particular environment. And so, one, I don't care that much. I don't live there, and I'm not using water there. Two, like, wow, are hydrological questions pretty complex in practice. So similar to the point you made about nuclear safety, there's a specialization component, which is some people have deeply specialized knowledge with respect to questions being made for a particular community. But I think this is actually quite acute in blockchain networks, which is to say, I can't audit a a smart contract. I can't audit whether a z k circuit has been run. Granted, we might come to it later about why there's still desirable elements of this as a form of coordination and therefore governance that make it so that I can rely on others, but it is that reliance on specialized authority that's an additional limitation on the benefits of direct democracy in all cases, overall things. And finally, the, the, the sort of third bucket is even if we posit that we're all equal, creating concentrated incentives for one subset of a group to make decisions on behalf of a much larger group is also kind of an emergent characteristic in many, many governance systems, private and public alike. Kind of the storied example of this is that of corporate managers or activist shareholders in very similar public traded corporate contexts, which is to say the activist shareholders or the managers, they tend to have a concentrated block of ownership rights over the activities of that particular enterprise. What that means is if the enterprise makes a $100, they can anticipate a gain of 20. Me, the atomistic shareholder, I can expect a gain of 50¢. But the activist shareholders and the corporate managers, if they're paying attention because they make so much from the fact that the the company's doing better in a future period, I benefit as well. I can have a passive, well diversified retirement portfolio that doesn't require me to engage. And so attention costs, specialization, and concentrated incentives are, to me, reasons that you might want more centralization of authority than a strictly democratic system, you know, broadly construed. And, again, this narrative isn't anti democracy. It's simply saying that no institutional tool is well suited to making all decisions for all groups at all times. Considering the trade offs associated with each, to me, is essential for governance design, broadly construed.

I think this sets us up really well to zoom in and to something that you've written and spoken extensively about, Eric, which is the idea of what constitutes a constitution within the organization. I'll let Eugene pick this up and take us a bit deeper.

Yeah. And, that's that's an interesting analytical artifice. What do I mean by that? Well, absent a sufficient core of shared values, meaning, and if we're talking about inner temporal, which we must be if we're erecting a governance edifice to make decisions in the future as a function of why we came together today, that why we came together today, that set of shared values, that set of, you know, shared vision for a particular organization, for a particular set of natural resources is what I call animating purpose. This concept is rightly criticized by people saying, what do you mean? Everyone's here for exactly the same reason. Everyone agrees fully on all things. I think we're gonna come to some of my work on conflict in a bit. And so, no, I'm not saying that. I'm fundamentally not saying that, but there is a sufficient kind of if you if you view the union of every individual's reasons for contributing to an organization, for, you know, allocating value to a particular blockchain network to showing up to a town hall. If you view as a union of all of those individuals, there is some sufficient core. Absent a sufficient core of we all agree we're here to try to do this cool thing, to me, you can't even constitute a a resilient organization in practice. It's like, you know, putting chemicals that cannot mix to one another with one another into the same container. And so absent a sufficient shared core, a sufficient alignment of vision among individual organization members, you can't constitute the things, so to speak. And to me, it it I there's you know, there are numerous path dependent constraints as a function of people who are present in an organization, as a function of what kind of resources it commands that greatly determine even a changing organization. Because the two criticisms to the reification of an animating purpose for an organization is people have different reasons for being present in an organization. The second criticism is simply that an organization's purpose can change over time. Yeah. But a sports team is not going to become a top tier university in physics. That's the specialized individuals that have trained their entire lives, the coaches that obsess over their particular sport, probably because in many instances, they were a professional player in decades past. All of these things determine in a path dependent sense both the capabilities, interests, values, preferences of those present within a particular organization. And but since sports teams, you know, rise in the rankings and become a top tier football club, others fall. And so none of this is to argue that there isn't an important element of dynamism. It's to say that there is an identifiable core that has to be sufficiently cohesive to actually attract people to be willing to put in costly attention, to put in costly resources, whether it's their own effort, labor, or whether it's just, you know, capital broadly construed, which is another way to be a member of an organization. Although the extent to which, you know, investors are active or passive is something we've already discussed. So none of this requires a belief that everyone's there voting on every decision, working on every output of the organization. It's more they agree to the extent their interests are bound up in the organization. They tend to have to agree with the output of that organization to a sufficient extent. That's kind of, to me, the animating purpose of an organization, and, yes, this does apply more cleanly to private voluntary organizations. That which is a public sector organization is this is, you know, the debates over, is there a social contract? I was born into this nation, and I'm subject to its authority, and I never chose to be here. Nonetheless, the ability to emigrate the sort of canonical voice exit and loyalty of Albert Herchman, are a means by which people still influence the public governance processes to which they're subject. And if they disagree at a sufficiently fundamental level about what that organization is doing, the possibility for immigration, voting with your feet as it's called, still exists, although that can be quite costly in practice.

It's a great question. And, I mean, the the the ugly version of this is, like, the corporate vision exercise, but across every employee at a at a corporate, you know, entity. And some of those folks are probably there for and I don't mean this in a pejorative sense, but they're for mercenary reasons, which is they value the wage they're obtaining, and they're willing to exchange the services for the wage that they're obtaining, as as remuneration for those same services. And so there are many people who are present within a particular organization contributing to its joint productive output that may or may not be, you know, deeply motivated by the animating purpose of the organization. And my true answer to your question is a bit of a fudge, which is you know it when you don't see it, which is it's it works when everyone's like, this is a great thing we're doing. This is important. This network is worth contributing to. We're excited to be here. It's that's a direct indication of that. There is some shared core that's successfully animating, if you will, the collective action and furtherance of that same purpose of the organization. And so to me, it's more in cases where an organization is not working or in cases of radical uncertainty that a lack of sufficiently sort of shared core of animating purpose among the many individual members can be most obvious or most detrimental to the success of the organization. Because it's when the existing commitments, when the existing practices of an organization are insufficient to provide guidance in a case of something truly unforeseen, whether it be a massive change in the regulatory environment, whether it be an explosive growth in, you know, a number of users on a network. And, you know, it it it these can be good things, but the need to kind of reaccommodate suddenly changed circumstances by an organization, what guides you in those moments? It's typically this deeper understanding of this is what we stand for. This is what we're about. This is what we're trying to do. This is our animating purpose as I like to call it. And, again, it's never gonna be identical across every member, but absent a sufficient kind of union of those visions that does result in a kind of a a a shared core of purpose. To me, it's those times of uncertainty that actually can reveal the inherent fragility of a particular organization.

Yeah. And, I mean, this is I think DAOs are a great example. Even though novel organizational forms are themselves kind of an iterative evolutionary discovery process for the humans that the new organizational form is intended to coordinate more effectively in pursuit of a particular purpose. And to to argue by analogy, I often have been in the the strange position of being the optimist in the room when it comes to DAOs, especially relative to some people who have really been in the trenches, and they're like, participation rates are dismal. Those who show up are more self interested than altruistically interested. You know, you name the criticism that has been made of DAOs and ask any corporate lawyer or scholar of corporate governance, whether now well over a hundred years after we had generalized liberalized access to the corporate form, whether or not we've figured it all out. And many scholar or practitioner of corporate governance would be like, of course we haven't. We're constantly ironing out the margins of our, you know, organizational forms that we assemble in furtherance of a particular purpose, but these things are like a pretty profound artificial institutional vehicle, which is to say the University of Colorado where I teach is just a bunch of people bound by very different contracts to a particular arbitrary geospatial location. If I ask my students, I'm like, are these buildings the essence of the university? They're like, well, without them, we couldn't come to class in person. But to say that this pile of bricks is somehow that which essentially constitutes the organization of the University of Colorado. It's the people. It's the reason they're there, the animating purpose, and, therefore, those things greatly determine what they're trying to do, who's trying to do it, and, therefore, the governance structure best suited to that pursuit. That can lead to the sort of the the erroneous belief that always in the first instance, you know the best governance system suited to that pursuit, which the only point at which I would agree with that is figure out the closest thing to what you're trying to do and likely mimic that governance structure fairly closely. Not identically, but they're the reason most universities look pretty similar. And you need some level of centralized decision making even though it's relatively decentralized precisely because the faculty members at a given university are the experts in their respective domains. And so the president of any university could not possibly be conversant in every single topic that the university specializes in. And even if they're the rare instance of, you know, sort of a polymath that is very conversant in every topic, simply attention costs would dictate that the faculty member actively publishing in the super specialized area probably still exceeds that polymath's capacity to understand every last question at the university level. And so for me, choosing a particular organizational form is necessarily it requires first the consideration of what are we trying to do here, the animating purpose we've already discussed and who is attracted by that same purpose and who is necessary in order to achieve that purpose. That might tell you whether you know, think of it it command on a military battlefield or coaches in the middle of a very tight match versus the structure I was just describing in terms of universities where the deans do not walk into professors' offices and say, you will start researching this tomorrow, and in two weeks, you will have a finished product in furtherance of this topic that I'm excited about. So in some context, as a function of what they're trying to do, a high level of centralization is actually necessary. In other context, it would actually be destructive to the intended purposes of the organization, which is to say the kind of the choice in how you pursue a particular purpose is inextricable from your success in pursuit of that purpose, and it also means there is no universal solution when it comes to governing the messiness of humans pursuing any given purpose in a non ergodic world.

Constitutions often do that, but they tend to do that in a kind of preamble way, which is to say the very reason that you're referring to your purpose in times of uncertainty, why are we here, what are we trying to do, is a direct testament that you can't perfectly codify the human values, vision, dreams that animate a particular organization. Any such codification will be reductive relative to the deeper set of human values that is the reason people are present in any organizational form, setting aside the sort of mercenaries point I made earlier. But one one nice thing about mercenaries is their incentives are fairly easy to define, understand, and shape, which is if they just wanna put pick up a wage and leave, then that is not central to the coordinated constitution of the organization itself. But to me, your constitutional design is intimately related to your purpose, and I've given a few examples of that, which is military generals and coaches expect to have a high level of command authority, and they expect obedience especially in, you know, at match time or during battle in ways that most organizations do not precisely because of how essential that is to perform the functions effectively that are baked into the very purpose of the organization. To me, there are, though, kind of a set of emergent necessities associated with constituting an organization. What do I mean by that? Organizations are collective action vehicles. Therefore, because of that, collective action can be decomposed into a decision and implementation of that decision at its most raw, which is you have to decide what you're gonna do if you're gonna collectively act together, and then you also have to figure out who's going to be doing the acting, if you will, in furtherance of that particular collective decision. And so that means, though, the first primal question is, what is the decision rule? How do we decide as an organization? And often, due to the sort of storied and, you know, very familiar and famous nature of democracy, people are like simple majority. We all vote. We're all members. 51% carries it. And I'm like, well, I hope you don't have an even number of members because you probably need to think through things like deadlock if you do. But setting that aside, there's a deeper structural problem that, to me, gives rise to one of the canonical constitutive elements of any constitution, which is to say, if I perceive in a particular group, and everyone's like, yeah. We just assumed we're gonna vote on it, and we assumed it's gonna be simple majority, but we haven't codified any of this. If I perceive that I'm likely to lose a given decision, then I'm like, look. This decision is so important. It could not be simple majority. We need to first decide that this is this is the two thirds majority decision. This is super majority territory because I think I'm gonna lose if I actually you know, if it's simple majority, it'll be fifty two forty eight, and boy do I have intense preferences about not being in the losing camp on this one. And so if you don't enshrine your processes for making a collective decision. First, you can have a problematic set of strategic cycling. So first, you kind of have to decide how you're going to decide before you can even make a collective decision. But the problem is is the group that's, you know, sick of Eric being strategic and occasionally declaring super majority rule, when they obtain enough power within the ecosystem, their incentive is to say, alright. We've settled all of the sort of, you know, decisions about who's going to decide about how power will be distributed in this ecosystem. Now we're gonna change the decision rule to prevent it from ever any of this ever changing again. And so what you wanna do, once you have a sufficiently legitimate rule by how a group will decide, you want to entrench that at a higher level of difficulty for change relative to the ordinary decisions of the group. So if we decide things democratically, you know, 50 simple majority, 51%, we all have equal voting rights, one person, one vote, if you will, chances are if everyone's like, that's a good rule. This is simple. It's intuitive, and we just want our decisions for this group to be representative. Chances are what you also wanna do is to say to amend these secondary rules as they're called, the rules about making rules as they're also called, to amend these, you need a two thirds majority. Because if a a group manages to take control, if we're talking about voting on, you know, elected officers, etcetera, then they might wanna change a lot of rules to cement their power for self interested reasons, or they might believe they're doing it for the good of the group. Think of the narrative of many dictators in practice. They're like, my absolute authority is for the common good. Setting aside whether that's true, the problem is if your secondary rules are not entrenched at a more difficult barrier or threshold for change, then you can see a variety of problematic outcomes occur with respect to those who briefly control enough of the group to change those fundamental rules. And so to me, before anything else, a kind of canonical feature of secondary rules or constitutive choices as they can be understood is that they are entrenched relative to the ordinary processes of collective decision making. But we've already talked about attention costs, and so I've spun up a narrative where I'm saying you've got a collective decision, and then you've got implementation of that decision. What do you tend to see in practice? Both due to the reality of specialization that I've already discussed, is you can see the separation of the decision process from the implementation or execution of that process. So you've got one group deciding, one group kind of implementing that decision. But we've already discussed delegated representation within democratic systems. In groups above a certain size, everyone deciding in every moment on every question and implementing each individually, every aspect of every decision, that makes no sense. So you tend to see delegated authority where some members of the group exercise concentrated authority on behalf of other members of the group. This leads to several problems especially associated with agency costs, which is to say, do those elected or selected or chosen to exercise concentrated governance authority, do they always do so in ways and furtherance of a particular group's purpose, or do they sometimes pursue their own objectives? And this isn't always bad faith. People disagree for good reasons, a point we may come to later in this discussion. But, nonetheless, one way to tamp this down is to simply separate competencies among different empowered individuals. We've already discussed the separation of a collective decision and collective action and furtherance of that decision. But for sufficiently important ecosystems, you tend to see the emergence of a review or appeal function from those collective decisions or actions and furtherance of a given collective decision. And so for that review function, for those overseeing appeals in a particular context associated with the collective decisions or collective implementation of those decisions, you need some measure of independence of that review function, some measure of its own authority in order to check and balance, as it's often called, the other fonts of governance authority. Not coincidentally, I have just, without using these terms, referred to the legislative, executive, and judicial functions of canonical constitutional orders. But there are other ways to allocate these authorities, but my contention is is fundamentally the the any collective action process has to have a decision and has to have implementation of that decision. And at sufficient scale, those especially empowered to do this are subject to some form of external discipline, whether it be shareholder votes, whether it be board governance in corporate context, still having this threat of independent review is super important. Two final points on kind of canonical constitutive choices, which absolutely should be tailored to a particular context, what folks are trying to achieve in that context, etcetera. But two final points are major constraints that have emerged on these concentrated fonts of governance authority are the input of broader members of the group. So whether it be directly electing a president, whether it be directly electing legislators, whether it be recall elections for judicial authorities, you name it, but periodic input from the broader group as to whether or not a particular set of individuals exercising that concentrated governance authority are doing so in a faithfully representative way. Finally, there's things that we like to call rights, which is generally no group with extremely limited circumstances that are still controversial. Generally, no group can actually collectively decide to kill other group members. This is why many people are like the death penalty is a violation of human rights. Setting aside your perspective on that, the number of people subject to that ultimate form of collective decision authority, which is our processes have decided to kill you, person, because of what you've done, that's extremely rare in practice. Generally, there are things that the collective decisions and actions of a group cannot reach or can only reach in exceptional circumstances. Only for public purposes and with due process can the government take away my property without my consent and only if they fairly compensate me at market value. And so these are guardrails around what a collective decision can reach and what collective implementation of that decision can entail for those subject to it. This is canonically the bill of rights, which is not withstanding the powerful authority vested in this collective decision making apparatus. Nonetheless, those collective decisions can't just arbitrarily take away my life. In many societies, there's simply no capacity for that because they ban the death penalty outright. And so to me, those are the sort of fundamental limitations that emerge precisely because of the agency costs associated with concentrating governance authority even in a delegated representative context.

Absolutely. And I actually wrote the piece you're referencing, governance as conflict, after just, observing and sometimes consulting with a lot of early stage DAOs. And there was this, you know, fascinatingly persistent refrain coming from people who are like, we all agreed we're gonna do something amazing. We came together with our shared vision, which was like, do you wanna do this cool thing? We've got this new technology. We can coordinate in this new transparent network context in such a cool way. And other people are like, yes. Let's let's do that awesome thing. We're here to do the thing. So they constitute the DAO. They create it. They say these are our decision rules. This is a membership in the DAO. This determines how your power of voting rights. And they're like, why are we fighting all the time? What is happening? We agreed to do the cool thing, and now no one can agree on anything. They're like, what what did we do wrong? I'm like, you didn't do anything wrong other than, to me, forgetting something that's just structurally emergent within any governance process. And two cuts at how I like to emphasize this. The first is just that if everyone in a group agrees, this is what we should do next. This is who should do it. These are the resources. And I'm like, yeah. I agree. And my resources for this exactly should be devoted to that because we all think we should do this. I'm gonna do this. You're gonna do that. If it's pure, a 100% agreement among every group member about what should be done, what resources should be devoted to obtaining that outcome, that'll emerge endogenously. But the more that there's actually a fifty fifty disagreement or a plurality of disagreement on a more complex issue, the less it will just emerge endogenously. And to me, this flows from two kind of axiomatic principles that are very hard from from my perspective to contest. One is heterogeneity of group members or diversity as it's often put. We're beautifully different. That's something we shouldn't we shouldn't, you know, strain against, and we should just embrace as an axiomatic reality to be clear and uncertainty, which is we will have to adapt our processes in real time. In one sense, this is a a way to understand the very need for governance is predicated by the fact that we can't foresee every downstream decision that we'll need to make in practice. Precisely because of that, then if you pause at heterogeneity and a need to change our system in the future, it means some people will win and some people will lose according to the change. Not in you know, not like, oh, I totally won everything. I now control the entirety of the system. It's more if we expand our you know, the set of processes our network is coordinating, we'll really accommodate this new class of users. And some people are like, yeah. I I we want more users for this network. Other people are like, do we really wanna support, you know, the the type of people that are attracted by meme coin issuance? And so one group is like, we do need to grow the system, and I believe their interests, values, beliefs, and preferences are, hey. We should accommodate this new class of users. Maybe we should embed a meme coin launch on our network because, boy, is Solana doing effectively in this particular bull market by accommodating that class of users. Other people are like, do we really want, like, yes, better transactional throughput, more demand for our block space is something all else equal that we want, but maybe that's not a demand for block space that we wanna inculcate. And so any change to the system will implicate people's interests, values, beliefs, preferences differently, and so this is a direct input to conflict. And the analogy I use to argue about this is it's king Solomon, the parable of king Solomon, which I think has been radically misinterpreted over time, which is to say that's often presented as mechanism design is important. I agree. Mechanism design is important to be clear, but it's like wise king figures out a decision rule that reveals the true mother. The information was hidden, and the right decision rule can reveal the hidden information and determine the true mother. Two problems with that. The lying mother, the one that was not actually the mother, does she want half a baby? I don't think so. And so from even, like, from a rank self interested perspective, it's like why she would be like, oh, I'm fine with us just cutting this thing in half, this human infant. Second, and to me, much more fundamentally, is the fact that if it is a wise king and they are using a mechanism design and practice to actually reveal hidden information, their threat needs to be credible in order for the parties to be, you know, hue to the incentive effects of that threat. There is no wise noble king that I wanna be a subject of that would credibly threaten to cut an innocent infant in half, period. Full stop. I'm like, that so that parable always perplexed me until I began thinking about conflict more often, which is to say, one response I get to that piece is, are you saying there's never an obvious decision for an organization that everyone agrees or the vast majority of people agree about? I'm like, no. Cherish those. Those are wonderful. When the path forward is obvious and everyone agrees and, like, even if it isn't endogenously emergent, I'm like, go to bed easy knowing that you had a great day where you didn't have to fight one another about how to proceed. But the essential hard questions in governance are ones exactly like that which confronted King Solomon in the parable, which is one party gets everything and another group, another interest group within that community gets nothing with respect to the particular issue. Those are the issues that will trigger conflict because there is no compromise path forward. There is no way to split the baby as it as it said. And so for me, there are going to be essential conflicts that emerge with positive probability, and those will become what the governance system is essentially and rightly obsessed with. We have to resolve this deadlocked issue that presents a trade off among deep values or massive economic interest within the community, and there is no middle ground that will sufficiently satisfy all parties.

So would you say that it's all about finding the middle grounds given that your your example on the there's no way to split a baby? So, would you say that the key, to successful governance is about finding those overlapping topics which would hopefully benefit a little bit to both parties instead of just fully benefiting to one and then leaving with absolutely nothing the other party?

So I wish all decisions could be ones that have a basis in compromise. But to me, I view these two classes of decisions as separable even though I acknowledge there's ultimately a continuum underlying them, which is to say for, you know, second amendment rights, guns in The United States, there's probably a way where people could have 10% of the guns they currently possess, and that still could be a, you know, a right to bear arms. But and I think a lot of those opposed to the level of gun ownership that we currently see are like, yes. Please. Let's move in that direction. And so there's a way in which to say that that would be a compromise where, you know, people still get to bear arms, but maybe there's some limitation on the type of weapons or the number of weapons. And provide that narrative to any, guns rights enthusiast, and they're like, no. Hard no. That is an infringement of our rights. And so to me, I can frame it as a, hey. We're compromising. You still get some guns. And from their perspective, they're like, absolutely unacceptable. And so for me, it's it is a fallacy to say all conflicts in values or conflicts about how to proceed can result in compromise. But to me, the first question that you've correctly identified that you should be asking is, is there a route to compromise that will sufficiently satisfy both both disputing groups within this ecosystem to this decision? But at the end of the day, there are certain King Solomon splitting the baby decisions where you can't cut the baby. That is the axiom, and, therefore, what that means is one mother, hopefully, the true mother, gets her child, and the other mother leaves empty handed. But there are ways to ameliorate the likelihood of conflict, which is to say there's a tendency to wanna define everything in the moment. But the more you say these are all of the things we stand for, these are all of the rights we're going to protect in this ecosystem, You can't be everything to everyone, and you can't do everything that you might wanna do in furtherance of your organization's purpose. And the more at the constitutional level that you say there's a right to this, there's a right to this, there's a right to this, the more likely in future periods that those rights will conflict with one another or those priorities for an organization will necessarily, especially in context of scarcity and conflict over resources, those priorities of the organization will come into conflict with one another. And so this yes. A lot of this has a flavor of public constitutional ordering. I study that stuff a lot, and it's pretty familiar to your average audience. But to me, in a large firm, you kinda want the, you know, the head of the marketing department if you ask them, could you do more amazing things for us if we gave you a 20% budget increase? I want the head of the marketing department to almost always be in a position of, yes. If you give me more resources, I will do amazing things. Similarly, the head of the r and d department, do you ask them the same question? I want them to be like, absolutely. Here are the exact awesome things we would try to do if we were given a 20% budget increase. But not everyone can have a budget increase, and boy is conflict emergent in context when, actually, it's not about a budget increase, but who has to take a 20% haircut. The head of the marketing division is like, well, everything we're doing is valuable by definition, and same with the r and d department. And so for me, of necessity, this conflict is going to be emergent in good faith. It's not, oh, the sort of perverse self interest of somebody protecting their rents. Although make no mistake, the public choice criticisms of most ordering are present. But setting aside rank self interest and opportunism within these decisions, my argument is one that conflict is emergent for good faith reasons simply as a function of heterogeneity among beliefs, values, preferences, and interests of those within an organizational context. And so that is ultimately sort of the underlying perception. One way to reduce conflict is don't define everything all at once upfront because people will coordinate around and derive sort of they will come to expect certain things because they've been defined ex ante. Another important element is that of decentralization or subsidiary to smaller subunits within an organizational ecosystem. And so one way to understand layer twos on the Ethereum network is they're providing for a diversity of ways to settle certain transactive components on chain relative to those that are, you know, proved off chain as a function of a particular zero knowledge proof architecture. And so given that, that to me enables tailoring where if you're a certain kind of actor in the Ethereum ecosystem, you might prefer base. Others might prefer scroll because of certain constitutive choices. And this is, to me, directly analogous to the fact that many people move from red states to blue states, and some people do vice versa. California starts to tax too much or, you know, pass regulations that somebody feels are not justified in terms of their benefits, and they move to Texas. I'm not taking a stance on who's right here. What I'm saying is the tailoring that Texas and California provide, for example, is one where if we decided it at all at the center, there would be more conflict than enabling representative tailoring at a smaller subsidiary level, and these are, you know, the storied benefits of federalism. The final resolution mechanism that mitigates conflict is giving people appeals to an independent authority to resolve things after the fact. And so the knowledge of the existence of that option lowers the stakes to any collective decision and operates as a sort of pressure release valve in cases where people are like, I wanna exit. I would otherwise wanna exit, but I can make a claim that this decision violates my fundamental rights and should be reconsidered by the group. And so those are kind of the canonical ways to ameliorate conflict. But as a final concluding thought on this question of conflict is the first step towards having civil discourse surrounding the issues a group disagrees over is to acknowledge that conflict can and will occur for good faith reasons. Only with that recognition can you begin to create a normative foundation for people being willing to say, notwithstanding our differences, we are here to do this cool thing, the animating purpose of the organization, and you are probably disagreeing with me in good faith, not because you have some subversive hidden reason for doing so, but good people can, for good faith reasons, disagree with one another with positive probability. So recognizing the emergent nature of conflict is a direct input to creating a normative basis for civil disagreement as it's understood.

Really glad you brought up emergence. I just last week published a handbook exploring rule choice given sufficient complexity and uncertainty. And guess what? At the time that you're entrenching secondary rules and defining collective decision authorities in, dare I call it, a constitutive infrastructure, you are probably organizing a sufficiently complex group of people in furtherance of an animating purpose that's gonna be intertemporal and therefore is going to be shocked by emergent phenomenon that you cannot predict. And so in one way, this is a means to understand governance is necessary to confront that which we can't predict in this moment. And so just saying I'm really jiving with your frame. Where do I think Web three governance will be going? To me, I think we're still in a kind of an institutional exploration phase. So first, it was direct democracy, which has problems in pseudonymous, you know, tokenized context, namely the big one that's been identified as plutocracy, but rational inattention, low participation rates, etcetera, have been significant problems with that model. Then we got delegated representative authority as well as deep interest in things like quadratic voting in things like, you know, it it plural plural voting mechanisms, different tailoring of the quadratic voting insight, and most recently has been a wave of, experiments with futarchy or conditional funding markets. To me, pursuant to how we began this conversation, there is no universal institutional solution. And so I view this Web three ecosystem as engaged in a fundamentally productive, and this makes me an optimist, but a fundamentally productive discovery phase where we're figuring out what are the right voting rules, what are the right levels of delegated representation, and what are the right checks on that delegated representation? In terms of periodicity, how often do we elect our delegated representatives? Can they ever be recalled? You name it. And, you know, going down the list, quadratic funding, conditional funding markets, the none of these are suited to all decisions a group needs to make. So going all the way back to animating purpose, it's a function of figuring out which of these has properties that we think are desirable given our foresight about this animating purpose at the moment of constituting the dApp. But going forward, the question is which ones will succeed and the knowledge that institutions matter. Last year's Nobel Prize in economics was another kind of click on that point, which is choice in institutions is not separable from the success in the joint productive outcomes that a particular organization or entire society is pursuing. And so for me, my take on web three governance going forward is it is still in a fertile period of institutional experimentation and discovery, trying to find the right fit between the institutional choices that have already been made as well as map to both the animating purpose of a particular DAO or network coordinated context and, crucially, what technological change means for the settled understanding of what is good or better institutional choice broadly construed. And so I am also a technological optimist, which is that which we can fully automate to a sufficient degree of reliability over which there's sufficient agreement within a particular ecosystem, we should. But I'm also in the sort of devil's advocate camp where I'm like, we can't automate everything with respect to unforeseen downstream contingencies and the way that those unforeseen downstream contingencies implicate different group members' preferences, values, beliefs, and interests differently. And so it's kind of this this messy discovery period, and, yes, some DAOs will flame out spectacularly, but I think those that make good governance choices in furtherance of a sufficient core of an animating purpose for its members, those will flourish in ways that we can't fully predict right now.

Thank you, Eugene. Okay, Eric. We're bringing you into the hot seat now, the quick fire quiz. This is the part of the episode where we hit you with some fast, sometimes slightly provocative questions, and we ask you to answer with just one word. Ready?

Let's do it.

Great. So, what defines a healthy contributor culture?

One word. Tolerance.

Strongest advantage of decentralization.

Representation.

Strongest advantage of centralization.

Efficiency.

Your favorite governance buzzword.

Uncertainty.

Delegated governance is

Emergent.

The collective action process is mainly defined by

Secondary rules.

That's two words, Eric. We can count the hyphen.

The constitution. A constitution then.

Great. We'll take that. And before we let you go, the last question, finally, what's the future of governance in one word? Brilliant. Great. Thank you so much for joining us today. This has been fascinating and thought provoking discussion. We've covered a lot of grounds. And from really what defines governance to trade offs, between centralization, decentralization, to how constitutions shape both conflict and resilience. And once again, thank you so much for joining us today.

Thank you. This has been loads of fun.

Thanks for tuning in. The Governance Futures podcast is sponsored by the Skrull Foundation and produced by the governance team at the foundation, Eugene Leggingsau and Jamila Kamalama, with editing support from Khurdis Sapota. Music used in today's episode comes from Blue Dot Sessions. Images come from Shutterstock with attestations in the notes. Feel free to subscribe, leave a review or share with a friend. Until next time.