What are DAOs and Can They Run Cities?
How decentralized autonomous organizations can improve or replace local governance
Urban bureaucracies face lots of issues. They are complex, lack transparency, and are subject to misappropriation and corruption. The infrequency of elections and low voter turnout prevents true correction of the problems. The same people remain elected or secured within administrative positions and utilize the same flawed processes that benefit them but keep the city running poorly.
There’s a possible solution: cities could run on a “Web 3” technology backend by using decentralized autonomous organizations, or DAOs. DAOs are a computerized setup that allows information to run on the blockchain, and certain functions to trigger automatically through smart contracts. DAOs allow groups of people to work together void of the trust that is normally needed between parties. They do this, for example, by reaching decisions through voting and requiring group approval to access treasuries. The rules around spending are written into the DAO via its code, while actions are transparent (because of the blockchain).
Right now DAOs are being used on a smaller scale, such as to organize businesses or non-profits. One nascent example is YIMBYDAO.
David Gudeman and Michael Graczyk, two software engineers in San Francisco, hope to bolster the movement by building this DAO. They noticed a lot of energy in the YIMBY movement, but it wasn’t very organized.
With YIMBYDAO, they explained by Zoom, “you can host much larger communities on the orders of thousands of people and you can administer them in a way that’s transparent,” says Gudeman. “It’s decentralized. People can put forth ideas. People can vote on ideas. You can take donations in a transparent way. You can allocate funds in a transparent way.”
This is distinct from other non-profits, where donors put their money into an organization without seeing how it’s used, much less having any say.
The two also think DAOs are broadly applicable to other societal functions—including generating YIMBY outcomes in cities.
“I want to harness blockchain to solve problems that cities are facing right now,” says Gudeman.
He points to Wyoming, where DAOs have legal status. One project is CityDAO, where a group of people got together and put a piece of land in rural Wyoming in the blockchain. The DAO allows the community to manage the land. One benefit is that the DAO allows instant land transfers, which reduces legal complexity. It also democratizes ownership through crowdfunding, although currently, land is only available to large investors who can afford an entire parcel.
But most people aren’t going to move and start a new city in the middle of nowhere.
“These are really cool proof of concepts for how governance can be done,” says Graczyk. “I’m concerned that they’re not going to translate well into larger population centers where people are likely to live.”
A more practical solution is to integrate this technology into existing cities. One example is CityCoin, a grassroots initiative active in Miami, New York City, and Austin. Users who mine the coins are rewarded with currency. They keep 70%, and the other 30% is automatically allocated to a wallet held by the city.
“Unlike property values, where you’re mainly incentivized to increase the value of your own property, a city coin would align the owner of the coin with the entire city,” Graczyk explains.
People would be motivated to get the coin and make the city a better place because that would increase the value of the coin. They could petition to remove parking minimums and to build more housing in other neighborhoods. That would increase property values and help the city collect larger tax revenues—thereby shifting the entire incentive structure away from NIMBYism.
DAOs use smart contracts, which can also help govern cities. A smart contract is a program stored on a blockchain that runs when predetermined conditions are met. Smart contracts are automated, so there’s no need for third parties to get involved. It’s recorded into the blockchain, so it cannot be changed.
One-way smart contracts could be used in city governance is through distribution of funds. For example, if someone pays their $5,000 property tax bill, the contract would distribute that money automatically based on which departments get what percentage of the budget. There would be no need for a treasurer, who might skim off part of the funds for himself.
Public records could also improve with Web 3 technology. City councilors and managers (should they even exist) would have all their statements, votes, and funding decisions tracked on a ledger. This would make it harder to bury records or misuse funds.
And public voting would see perhaps the most improvement. If people could vote online via blockchain, that would increase voter participation, since blockchain voting is secure and there is a ledger showing the vote has been counted. Another possible innovation from DAOs is having the amount of money someone puts into the system determine their voting power. This concept is alien to municipal governments, which are often mini welfare states where people who pay little taxes vote for outsized benefits for themselves.
DAOs offer interesting solutions to problems that many cities face. While most are in the exploratory phase, in the future we could see governments take advantage of this technology to make cities more livable, efficient, and transparent.
This article featured additional reporting from Market Urbanism Report content staffer Rebecca Lau.