Angry exit: DAO correction mechanism, minority interest protection measures

"Rage quit", known simply as "angry exit" in the DAO field, was once a relatively niche concept. With the development of DAOs, more and more DAOs began to face forks, founders leaving, and even liquidation, so that the term "angry exit" gradually appeared frequently in various reports.

However, it is worth noting that there is a big misunderstanding of "angry exit", and even some foreign professional media often misuse it.

Origin

At Ethereum Denver 2019, Ameen Soleimani and his colleagues released Moloch v1 – a protocol for creating a donation-based DAO. Compared to complex DAO operating systems such as Aragon, the core of the Moloch v1 protocol is just over 400 lines of code. It is concise, elegant, easy to understand and use, and makes it very easy for people to pool funds together and collectively manage and coordinate the use of funds.

In the governance of the DAO, minority opinions are always inevitable. In general, decisions and transaction execution follow the principle of "minority obeys majority". But it also carries the risk that when the majority holds decision-making power, it may abuse its advantage and infringe on the interests of the minority. To prevent this risk, the Moloch protocol introduced the concept of "Rage Quit."

How to "Exit in Anger"?

When a member opposes a proposal, it is possible to pass the proposal even if they vote against it. In the Moloch agreement, there is a 7-day grace period between when a proposal is voted on and when it is actually implemented. During the grace period, members who voted against it can opt out in anger if they do not want their funds to be used for the project. In order to get back their remaining interests in the contract before the proposal is executed.

"Angry exit" doesn't happen all the time, and here are a few key characteristics:

• "Angry exit" is forcibly constrained by smart contract code.
• Only members who voted against the previous proposal are eligible to perform the "angry exit".
• "Angry exit" can only be done during the grace period when the proposal has been adopted but has not yet been implemented.
• When a member withdraws, only the remaining share of the contract can be recovered.

(For example, if 100 ETH were initially invested and 30% of the treasury was already used, the member would only get 70 ETH back.) )

There is also an implicit premise that members need to have a direct, traceable historical commitment to the DAO's treasury. Only in this way can the remaining rights and interests be fairly confirmed from the contract code level and members can achieve withdrawal. In other words, if a member doesn't put money into the DAO treasury at all, there is no such thing as an "angry exit", and even if the code is written, it cannot be executed.

An interesting trivia is that in the Moloch V1 protocol, in order to pursue the simplicity and security of the protocol, "rage" is the only way to extract funds from the protocol. That is to say, in order to get the funded funds, the funded project parties can only withdraw funds by executing "angry exit", even if they are not angry and do not want to withdraw.

Evolution

The Moloch v1 protocol has been a notable success, but its function is limited to coordinating donations and its use is narrow. Therefore, many teams iterated on the basis of Moloch v1 and launched Moloch v2. This new version mainly adds a series of features that enable it to support co-investment, which in turn opens up a wider range of business areas.

With the improvement of the contract function and the completion of the compliance framework, Moloch V2 has triggered a boom in investment DAOs, among which The LAO, Flamingo, MetaCartel are the best, and later even formed an Investment DAO specializing in investment DAOs. Up to now, Investment DAO has become a force that cannot be ignored in the Web3 investment market, and many Investment DAO tentacles have entered the traditional investment field and invested in excellent projects such as Stability AI.

Pulling away, back to Rage Quit. Such investment DAOs based on the Moloch V2 framework and variants are naturally supported by "angry retreat", but the situation is much more complicated than before. V1 is a donation agreement, what has been donated is scattered, even if the withdrawal member cannot do anything about the money that has been donated, so "angry withdrawal" can be very simple to get back the part that has not been donated. However, v2 is an investment agreement, and the money that has been invested is exchanged for equity or token equity, which is waiting for a return, and this part of the equity must not be voided because of "angry withdrawal". This brings us to the recognition and division of historical interests. Therefore, we can see that the "retreat" from v2 onwards, both the code and the details, are much more complex than v1, and there are some changes. The specific details will not be detailed, in different protocols and variants, there are many differences, everyone has this concept in mind.

In summary, the primary use of "angry exit" is to protect members as a weapon for pan-donation/investment type DAOs. Its core function is to allow members to retrieve their remaining funds in the treasury by destroying their share in the DAO.

Withdrawal due to anger happens every day, but it is not "anger exit"

For the vast majority of DAOs, their structure and operation do not meet the basic conditions for "angry exit". Many DAO members do not directly inject funds into their treasury, so DAO membership is not directly linked to the treasury balance, so the "angry exit" scenario is quite limited.

It's easy to understand that considering a company, if an employee resigns due to dissatisfaction, even if he has been granted stock options or held shares in the company, he is not eligible to withdraw the company's funds when he leaves. Similarly, after a shareholder buys Moutai's shares and discovers that Moutai has begun to produce wine heart chocolate, he is angry and decides to withdraw, at which point he can choose to sell the shares on the stock market, but cannot ask for the stock to be returned to Moutai and receive the company's cash in proportion.

We did see in DAOs where founders themselves proposed "angry exits." However, this "angry retreat" is more formal, just a name, and is actually the result of consultations between all parties. Unless the founder's equity has a clear correspondence or agreement with the funds in the DAO's treasury, he is also not eligible to withdraw funds when he exits.

A special case is Nouns DAO, which has undergone a fork where new contracts support the "angry exit" feature. Its mode of operation is roughly in line with the original "angry exit" concept, but the specific implementation details have been adjusted. Nouns DAOs can do this mainly because Nouns is essentially more like a donor-based DAO: whenever a Nouns is sold at auction, it brings direct and traceable funds to the treasury. The funds that have been used in the treasury are equivalent to supporting ecological construction, which is regarded as a donation, and does not correspond to the specific rights and interests of a member's individual, which also provides convenient conditions for the implementation of "angry exit".

is written at the end

Since both "anger" and "exit" are commonly used words in everyday contexts, when combined, it is easy to understand their meaning only literally. The Moloch Protocol, although pioneering the concept, does not define it as a proper noun. This has led to the gradual development of "angry exit" and the public's multiple, and sometimes misunderstood, interpretations of it. This evolution also allows us to see the integration and evolution of technology and culture. Every innovation, every misunderstanding drives thinking and improvement in the DAO field. Today, the "angry exit" we are talking about is no longer its initial appearance, but a kind of institutional innovation that keeps pace with the times and is constantly evolving.

As a decentralized organizational model, DAO is in the early stages of its development, and every problem it faces will lead us to explore and define the operation mechanism of the future digital society. The "angry exit" is a key node in this long journey, which is not only a few lines of code, a function, but also represents the exploration and pursuit of freedom, justice and community rights.