Automating Ostrom for Effective DAO Management

Designing Cyber-Physical Commons to be ‘Ostrom Compliant’

This article is part of a series explaining the cyber-physical commons architecture that is being built out by the Commons Stack.

Few people have contributed as much to our knowledge of the sustainable management of the commons as Elinor Ostrom. Winning the 2009 Nobel Prize in Economics for her work, Ostrom’s 8 principles for commons stewardship have set a standard for community management of shared resources. These principles, collected over a lifetime of research into effective commons worldwide, are the best research we have into human collaboration outside of the corporation and the nation state. Although applying these rules at scale can be challenging, recent research suggests that blockchain technology may have a role to play in overcoming key obstacles, further enabling communities to manage themselves.¹ Elevating trust from the interpersonal to the protocol level opens up space for experimentation with new forms of collective action to achieve common goals.

As first steps in that exploration, we’ve identified several tools and processes that could help translate Ostrom’s principles into DAO templates, which form a ‘cyber-physical commons’ framework that allows purpose-driven communities to effectively manage shared resources. By implementing these principles using blockchain technology where appropriate, the Commons Stack wants to contribute technical and cultural tools to aid in the decentralization and democratization of current power structures, and empower the commons.

A Cyber-Physical Commons Framework

At the Commons Stack, we’re using the principles of Token Engineering to create a customizable library of tools for facilitating the communal management of public goods. So what is a cyber-physical commons? Building on existing literature, we propose it as an extension of cyber physical systems like power grids:

“A cyber-physical system (CPS) is a mechanism that is controlled or monitored by computer-based algorithms, tightly integrated with the Internet and its users. In cyber-physical systems, physical and software components are deeply intertwined, each operating on different spatial and temporal scales, and interacting with each other in a lot of ways that change with context.”

A cyber-physical commons would consist of a purpose-driven community using a cyber-physical system to achieve shared goals. It links the commons to the growth of digital networks and represents another step in the paradigm shift that has revived interest in cooperatives, the growth of the sharing economy, and the thriving open-source and blockchain movements.

Obviously, any effort to coordinate communities around shared goals needs to take into account the necessary cultural requirements to make those efforts a success. Our focus on the Trusted Seed is a key element of cultural initialization, but these communities will also need to establish standards, legal strategies, policies and procedures to ensure they are well positioned to achieve their goals without succumbing to social breakdowns. Ensuring there are established best practices in place that deliver these cultural requirements is a key objective of the Commons Stack. For this article, however, we will focus on how the technical aspects of a cyber-physical commons architecture align with Ostrom’s famous 8 principles for commons management and can help us achieve ‘Ostrom Compliance’.

Ostrom’s 8 Principles and the Commons Stack Toolkit

To start, it may be useful to draw some parallels between commons and digital networks, to understand the overlap of these topics. To quote David Bollier:

“‘There is no commons without commoning’. The commons is neither the resource, the community that gathers around it, nor the protocols for its stewardship, but the dynamic interaction between all these elements. An example is Wikipedia: there is a resource (knowledge database), a community (the authors and editors) and a set of community-harvested rules and protocols (Wikipedia’s content and editing guidelines). The Wikimedia Commons emerges from all three.”

To take it a step further, Shermin Voshmgir and Michael Zargham consider multiple different types of resources that can be managed by cryptoeconomic networks, from the physical (hardware, electricity), to the financial (tokens, fiat money), and the social (attention, governance participation, code contributions, evangelism). Managing these resources towards achieving shared goals is the same challenge that Elinor Ostrom was studying in commons initiatives around the globe.

Let’s dig into Ostrom’s 8 principles, beginning with the social necessity for each one and examine how the cyber-physical commons framework can provide tools for each of them.

1. Commons need to have clearly defined boundaries.

Without defining community boundaries, the use of a shared resource becomes a free-for-all, leading to overuse and collapse due to the free-rider problem. This problem is demonstrated clearly in the collapse of global fisheries, due to the difficulty of drawing clear boundaries in international waters.

One of the benefits of using blockchain technology in commons management is that the boundaries of inclusion are clear: token holders are part of the system, non-holders are not. Tokens can represent a holder’s contributions to a community, giving appropriate access rights and proportional decision-making power in that group, as well as fractional ownership. The Commons Stack’s Augmented Bonding Curve (ABC) takes it even further by creating an economic boundary that insulates the internal economy of the Commons from the external economic world. All interactions with the outside world happen by interacting with the bonding curve.

For example, participants could opt in to the boundaries of a Commons and receive tokens by contributing funds (likely a stablecoin) to the ABC, or contributing time by proposing and completing tasks. Contributed funds fuel the internal economy and can be used to incentivize the completion of tasks. Completed work is paid out in tokens or converted to stablecoins via the bonding curve. These tokens could then be used to govern the Commons ecosystem proportionally to the time and/or financial contributions of each participant.

By clearly defining the economic boundaries of a Commons ecosystem, the ABC improves on traditional coordination tools and satisfies Ostrom’s first principle by demarcating a clearly defined system boundary.

2. Rules need to fit local circumstances.

There is no one-size-fits-all approach to shared resource management. Rules and values should be determined according to the needs of engaged participants and ecological limits, or they risk falling out of touch with people on the ground and become irrelevant. Commons architectures must enable value-aligned groups (including a trusted core community) to coordinate around shared problems that are relevant to them. It is worth noting that certain digital technologies offer to expand the definition of ‘local’ from ‘shared geography’ to ‘shared purpose’.

Many projects in the blockchain space provide prescriptive, platform-based solutions. The Commons Stack is taking a different approach to supporting localism by giving communities greater choice in the structure of their Commons, with the features of these software-aided organizations being highly customizable. The interoperable library of Commons Stack components can be combined, parameterized, and simulated to suit a wide range of different contexts. This makes the Commons Stack library uniquely suited to serve the varied needs of diverse communities.

For example, in addition to deciding what funding streams are appropriate for its specific context (such as whether to implement an ABC or an alternative funding tool), a community can also choose an appropriate governance template (such as Conviction Voting, or a simple majority vote multisig), among other customizations. The flexibility that Commons Stack components offer in defining different types of Commons ecosystems satisfies Ostrom’s second principle of adaptability to suit local conditions.

A future Commons Stack library of interoperable tools & mechanisms to enable ‘localized’ customization of Commons ecosystems.

3. Participatory decision-making is vital.

Ostrom tells us that people will be more likely to follow the rules if they have a hand in writing and modifying them, and that including stakeholders in the decision-making process is the best way to ensure broad community buy-in.

With the new tools available to us, we can start to think outside our legacy voting systems and turn the dream of large-scale community decision making into a reality. That all starts with a trusted group of people dedicated to a shared goal and incentivized to guide these early Commons experiments towards success. Conviction Voting offers us the opportunity to eliminate time-based attack vectors on our community voting systems and increase voter engagement. By designing our decision-making systems with a modular approach, we can allow communities to implement the right governance solution for each type of decision being made, instead of reusing the same limited yes/no time-boxed voting method every time. This is a radical opportunity to empower communities to orient their political processes to fit their social paradigms, rather than having to take social action against the grain of their existing political systems, as we see too often today.

Another benefit to using blockchain technology is that governance rights can be tokenized. Being able to granularly measure contributions to a communal cause and allocate reputation that represents decision-making power in that community becomes much easier when using the cyber-physical commons architecture. This allows us to move past “one person one vote” systems, and allows members to express the intensity of their preference for certain proposals, weighted by their contributions to the group. This can further be improved by tempering an unequal distribution of voting power using methods like quadratic voting. Of course, we must do this carefully, and allow each community maximum freedom in how they want to define those decision-making systems.

For example, whether participants contribute time or money, their skin-in-the-game will be rewarded with tokens from that community, which means that more engaged members will earn a larger say in the direction of the community. Future iterations of the Commons Stack library will include vote delegation, enabling liquid democracy and further broadening participation in these ecosystems. These tools satisfy Ostrom’s third principle of including stakeholders in decision-making processes.

4. Commons must receive legal recognition in the jurisdictions where they operate.

If rules agreed upon by a community are not recognized as legitimate within the community’s jurisdiction(s), friction is inevitable. Without legal recognition, a Commons risks falling apart either through the exploitation of its resources by outside groups, or due to an inability to escalate problems to higher-level authorities when internal sanctions are insufficient to settle a particular conflict.

The legal status of blockchain-based Commons ecosystems should be a core consideration for anyone seeking to experiment with these new sociotechnical systems. Commons and DAOs will likely be seen as general partnerships if no other legal designation is sought. Communities that use the Commons Stack library may choose the appropriate legal structure for their jurisdiction and use case, and reference the legal and cultural offerings that the Commons Stack is working to provide.

For example, the Commons Stack is exploring options around legally registering DAOs internationally which would limit the personal liability of the participants, just like many types of legal entities do today. By ensuring that communities have an awareness of the need for a legal status, and access to a variety of options to suit their needs, we satisfy Ostrom’s fourth principle of commons receiving legal recognition.

5. Rules are enforced by effective & accountable monitoring.

Once rules have been established, communities need a way of checking that people are following them, in a manner that is still accountable to those in the community. Contributors need good information to ensure they are making the best decisions for the future of the organization.

Social science literature has much to say on the positive behavioral norms engendered by transparency. Observability often encourages good behavior, and good governance requires that decision makers be informed about the interactions within a community. Blockchain technology, when used appropriately, can bring the features of transparency and accountability to commons management. Two components of the Commons Stack in particular contribute to the successful monitoring of a Commons: the Giveth Proposal Engine brings transparency and accountability to funds paid out for work that advances the cause(s) of the Commons, and the Commons Analytics Dashboard makes transactions and their impacts observable to all relevant community members.

For example, a member who submits a proposal to carry out work in the community is paid out for their efforts on verified milestone completion, with the impact of that work towards achieving community goals being reported to other members as required. The combination of these tools creates a highly effective monitoring system that satisfies Ostrom’s fifth principle, that a Commons must be accountably monitored.

6. Sanctions for violations should be graduated.

The outright banning of people who break the rules tends to create resentment rather than strengthen a community. Instead, graduated systems of warnings, fines, and reputational consequences are less disruptive to an organization, and keep the punishments for wrongdoings proportional to the level of the offense.

With the Commons Stack library of tools and the How To DAO wiki, communities are able to choose how to apply graduated sanctions to suit their use case. It is important to consider the systemic impact of particular sanctions, which is why we see holistic simulation of agent interactions using cadCAD as a core component of the Commons Stack. The difficulty of enacting sanctions should increase with the severity of the response, to ensure these decisions are not taken lightly.

For example, a community may implement a reputation system that penalizes wrongdoing with a loss in social credibility, while others may go for metrics based on experience, where a history of unsuccessful proposals leads to a higher bar for passing future ones. Other forms of sanctions are also possible, including the extreme option of blacklisting members from participation in the group. In other words, communities using Commons Stack tools have multiple suitable options to satisfy Ostrom’s sixth principle of graduated sanctions.

7. Conflict resolution should be easily accessible and low-cost.

In other words, the process for overcoming issues that arise unexpectedly should be cheap and straightforward. Everyone should have the opportunity to seek mediation anytime a problem arises; no issue should be ignored due to the high costs associated with addressing it.

The automated nature of smart contract systems mitigates the threat of ‘contract breaking’ by participants. When users opt in to a smart contract, the agreement is enacted according to programmed conditions. Looking past the technical aspects, however, conflict resolution at the social level will still remain a necessity. Along with our Trusted Seed, we are pioneering a set of cultural best practices that will include establishing a deliberative ‘space’ for conflict resolution, so that communities using the Commons Stack can implement similar, tailor-made solutions in their own projects. Other disputes that may arise — for example, the quality of delivered work — could be preempted by requiring multiple signatories to sign off on completed tasks, which would ensure a higher degree of accountability. In the most extreme cases, conflict resolution can be handled through graduated levels of future decentralized court systems similar to Aragon Court and Kleros, with escalation to real-world legal systems where necessary.

For example, a low-level dispute could be resolved with a random court of 5 ‘jurors’ chosen from among the community who are incentivized to provide a judicious ruling, and if this small tribunal is not able to achieve a fair outcome without appeal, the next court could call 7 jurors, 9 jurors, and so on, with costs rising at each successive dispute layer. These future components of the Commons Stack library will satisfy Ostrom’s seventh principle by keeping conflict resolution accessible and low-cost.

8. Commons should be in nested ecosystems within larger commons.

Some resources can be managed internally, while others call for wider regional cooperation, with nested layers of decision-making expanding jurisdiction to appropriate levels. For example, the management of a field may only require local stakeholders, whereas the management of a river should involve downstream stakeholders as well. Decision-making power should flow to the people most connected to that which is being governed.

Although the Commons Stack library is initially intended for use by small community groups, our design is fractal in nature. Each participant in a Commons could be another Commons, allowing for the creation of federated community structures, a tactic suggested in the DisCO manifesto. This facilitates polycentric governance with a sociocratic structure, enabling flexible decision-making networks of nested responsibility that could operate under a hierarchical structure, a horizontal ‘leaderless’ structure, or anything in between.

For example, local Commons could participate in regional Commons, which could collaborate with global Commons on work that helps to realize shared objectives. Liquidity between these Commons is guaranteed through their respective Augmented Bonding Curves, ensuring the smooth interaction between various groups which operate under different structures suited to their circumstances. We foresee the Commons Stack infrastructure creating an ecosystem of Commons, a ‘commons forest’ within which each community plants their own ‘commons tree’. This fractal design pattern satisfies Ostrom’s eighth principle that a commons is most effective when nested within other commons.

An ‘Ostrom Compliant’ Cyber-Physical Commons

The importance of managing shared resources as a collective cannot be understated. Most of the biggest problems we face as a species come down to collective failures to manage common resources, like our air, our water, and our natural assets. Elinor Ostrom has laid the groundwork in establishing her 8 principles for sustainable commons management, and we have explored the existing possibilities at the intersection of blockchain technology and cyber-physical systems. The Commons Stack will begin to experiment with community-scale applications of cyber-physical commons, with limited functionality in the beginning but with growing sophistication as each iterated component is added to the library. .

We look forward to a future in which we can increasingly ‘automate Ostrom’ to facilitate the application of these principles by communities seeking to effectively manage shared resources. We believe that a templated cyber-physical commons framework can be used by communities to easily implement Ostrom’s rules, empowering the commons to connect and thrive through the emergence of networked alternative economies.

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If you would want to support the Commons Stack initiative and help us create a new way to fund public goods and open source projects, you can do this by 👉applying here👈.

Credit to Michael Zargham, Griff Green, Kris Decoodt, Felix Fritsch, and Adam Reese for ideas and edits.

Footnotes:

1. The potential of tokens goes far beyond being currency as they can represent equity, decision-making power, fractional ownership, labor certificates, or reputation in a community. The capacity to tokenize and denote both monetary and non-monetary value can be used “to readdress latent power relations” (Rozas et al., 2018) in communities by acknowledging contributions, such as care work, that often go unrecognized. The self-enforcing nature of smart contracts forces communities to consciously formulate and sanction rules that are in accordance with the laws of their local jurisdictions while automating many tedious aspects of administration.