Katherine Wu | katherine.eth@katherinewu
There has been a lot of misinformation about ENS and the ENS DAO out there, so I wanted to clear some things up.
The biggest issue with how DAOs were designed and launched in 2021 has always been the token-weight / delegated token weighting design. Under this kind of design, governance was decentralization theatre then, and it's the same now. This is not a novel insight. What's changed most though is how zero-sum this design has twisted incentives over the last couple of years. I'm not surprised so many DAOs have changed up their structures this past year (noting that every DAO has its own nuances and terms and structures), but the overwhelming sentiment I've heard from practical operators and people who have fully dedicated their careers to righting the very messy ship that is leading Governance at various Foundations / DAO entities is that this simply is not the right structure for operating, for grant management, for capital allocation, and especially not all these things at once. There is a reason no serious company operates this way.
ENS never did an ICO. ENS did an airdrop in 2021, there was never an institutional sale from the team, there was never any kind of venture funding taken on, no insiders that got preferential pricing. It was a token launched for the core purpose of governing and safeguarding the protocol itself. ENS has always had positive revenue (ie, profitable) from its core product, .eth registrations. This revenue never went to tokenholders (and couldn't even be considered given existing securities laws at the time) because that was not the point of the token. The ENS 'treasury' refers to the revenue (denominated in ETH, some of which gets converted to stables to fund operations) made from .eth registrations, which is what funded both the core team and the many, many grant and public goods recipients over the years. As was common practice in 2021, half of the actual tokens were locked up at the time of airdrop and also placed in the treasury. To date, that supply is still in the treasury.
So to be super clear on two things: 1) what funded the core team and the many grant recipients / builders over the years came directly from the revenue ENS generated from .eth registrations 2) ENS didn't do an ICO to raise funds. It did an airdrop to distribute governance power. Having product market fit and being profitable from day 1 (therefore having runway for operations beyond the token) actually means the token literally serves one single purpose: governing the protocol.
IMO, the mistake of the DAO design (again, this isn't unique to ENS, this was prevalent in many DAOs from that era) was from a more optimistic time: thinking that a 'DAO' can manage resources and also operate efficiently and organize via majority / popular vote every time. But over time that just leads to this model being politically expensive, too slow, too hard to evaluate, and too vulnerable to circular funding influence.
The biggest detriment to this design, aside from the reasons above, is that it's simply a waste of resources due to the inherent design of a DAO. When grants flow too freely and are based on decisions coming from a token weight model (and where the core team members refrained out of principle from using their own earned tokens), it becomes a zero sum race with no clear direction, and fosters toxicity and hostilities in a game where if one can punch down to look better, they are rewarded financially.
There is a proposal in the ENS DAO right now addressing all of this. It's not perfect, and perhaps will be slightly disappointing to people who still believe in the more expansive 2021 vision of DAO governance. I was there for that optimism, and I do not think it came from a bad place. But the lesson of the last several years is that decentralization is not a substitute for operational design. Delegating budget authority over the money ENS makes from its core product (.eth registrations) over to an independent body such as the ENS Foundation imo is the most normal (and most boring?) thing. In fact, I'd go one step further and say that the decision to delegate treasury management (again, the treasury contains both profits / revenue made over time from the product as well as the locked token supply) is long overdue.
There is another side point I want to make. There are people who are surprised that after so many years, the founding team at ENS has still retained its tokens without selling off. In an industry where I have seen so many founders vest tokens only to dump immediately to cash out, this is an anomaly. There are a lot of critics today crying in outrage at the disproportionate token voting power, but that's because since 2021, many have sold their own entire token holdings. In any case, this is more a point about the token weighted DAO voting model. Your token is yours to decide what to do with: sell, vote, delegate, etc. Any of those purposes are all legitimate. 5 years later, how much voting power is left is directly related to the actions taken over these years. Citing something that @JamesJohnBeck wrote today: “The irony is that when he [Nick] finally did self-delegate, the howls of "centralization" came loudest from delegates whose only credential is holding tokens. In my opinion, the people crying power grab are the ones benefiting most from the broken status quo."
I know the proposal is long. But it clearly states what's changing, and what's not moving. There is a lot of attention on the proposed change to delegate financial resource management responsibility and permissions to a smaller body (ie the Foundation), and you can either read the proposal and take the words at face value, or let your imagination run wild. But tighter controls on capital and resourcing for a company is a good (bullish!) thing. I also want to be super clear on something: everything we do at ENS is to ensure the integrity of the protocol, from how the address gets resolved, to making sure that so as long as you are an ENS name owner, no one (including the core team) can infringe on your name ownership rights. To read this proposal as anything that is contrary to our own core values and goals is deeply unfortunate and incorrect.
The proposal is not perfect, but I see it as part of ENS maturing into a structure that can better protect the protocol, preserve the guarantees that make ENS valuable, and allocate resources responsibly for the long term. I am personally really proud to be part of the ENS team. There are a lot of great and hardworking people on the core team, and also in the ecosystem that I've come to know and befriend over the years. And I look forward to continuing to work with everyone for many, many years to come.
