Sample DAO Use Case for Government: “The Participatory Budgeting DAO”

Sample DAO Use Case for Government: “The Participatory Budgeting DAO”

1. The Problem:
A city council has an annual budget of $5 million dedicated to public works projects (parks, libraries, road repairs, community centers). The current process is:

  • Lobbyists and special interest groups influence politicians.
  • Decisions are made behind closed doors.
  • Citizens feel disconnected from the process and don’t know how money is spent until it’s already allocated.

2. The DAO Solution: “CivicFund DAO”
The city creates a DAO to manage the $5 million participatory budgeting fund.

How It Works:

  • Membership & Identity:
    • Instead of a open, anonymous token, the DAO uses soulbound tokens (SBTs) or verified credentials.
    • These are non-transferable NFTs that prove you are a verified resident of the city. One person, one token, one vote.
  • The Proposal Process:
    • Phase 1 (Idea Submission): Any verified resident can submit a proposal for a project (e.g., “Renovate the playground in Central Park,” “Install new bike lanes on Main St.”). Proposals include a cost estimate and a plan.
    • Phase 2 (Feasibility Check): City engineers and planners review the top-voted ideas for technical and legal feasibility. This prevents proposals for impossible or illegal projects from moving forward.
    • Phase 3 (Final Voting): The vetted proposals are put to a final vote. Residents use their SBTs to vote on which projects get funded.
  • The Treasury & Execution:
    • The $5 million budget is held in the DAO’s transparent, on-chain treasury.
    • When a project wins the vote, the smart contract does not release all the funds at once. Instead, it is programmed for streaming funds or milestone-based payouts.
    • Example: The “Playground Renovation” wins $200,000. The smart contract is set to release $50,000 upon signing the contractor, another $100,000 when the foundation is complete (verified by a city inspector who confirms on-chain), and the final $50,000 upon project completion and final inspection.

Analogy: The Public Park Committee vs. The Park DAO

  • Traditional Committee (The “Old Way”):
    • A committee of 10 appointed members meets quarterly.
    • They hear from a few loud voices.
    • They decide to allocate $200,000 for a new fountain. The money is sent to the parks department.
    • Six months later: Residents see construction start but have no idea why the fountain was chosen over new soccer goals. There are rumors of cost overruns, but the records are hard to find.
  • The Park DAO (The “New Way”):
    • Every park user who downloads the city app gets a “Park Lover” token.
    • Proposals for fountains, soccer goals, and picnic tables are posted.
    • Everyone votes. Soccer goals win.
    • The funds are locked in a transparent account. The city hires a contractor, and funds are automatically released as the contractor hits verifiable milestones (e.g., posts pictures of the installed goalposts on-chain).
    • Result: Every resident sees the entire process, from idea to completion, knows exactly how money is spent, and feels true ownership of the new soccer goals.

Real-World Examples & Pilots

  1. City of Miami & CityCoins:
    • While not a full DAO, Miami experimented with CityCoins. Residents could “mine” $MIA coins, and a portion of the mined coins was sent to a city treasury wallet. The city could then use these crypto funds, and the coin holders could govern protocols built on top of it. It was an early experiment in crypto-native municipal finance.
  2. Venezuelan Refugee DAO (Hello0):
    • A pilot project by the NGO Hello0 used a DAO to distribute aid directly to Venezuelan refugees. This removed intermediaries, reduced administrative overhead, and ensured aid reached the intended recipients transparently and efficiently. Donors could see exactly how their funds were used.
  3. Wyoming’s DAO Law:
    • The state of Wyoming, USA, passed a law allowing DAOs to incorporate as Limited Liability Companies (LLCs). This gives DAOs a legal status, allowing them to open bank accounts, sign contracts, and pay taxes. This is a crucial step for formal adoption, bridging the gap between decentralized code and traditional law.
  4. The European Union’s Blockchain Initiatives:
    • The EU is exploring blockchain for public services. A DAO structure could be applied to manage EU-wide innovation funds, where grant recipients are voted on by a committee of verified experts from different member states, with all votes and fund flows being immutable and transparent.

Benefits for Government & Formal Organizations

  • Unprecedented Transparency: Every transaction is on a public ledger, drastically reducing corruption and increasing public trust.
  • Enhanced Citizen Engagement: Moves democracy from a once-every-few-years event to a continuous, participatory process.
  • Efficiency and Automation: Reduces bureaucracy by automating payments based on verifiable outcomes (like milestone completion).
  • Reduced Intermediary Costs: Cuts down on the administrative layers needed to manage funds and projects.

Challenges and Considerations

  • The Digital Divide: Not all citizens have the tech literacy or access to participate, potentially excluding vulnerable populations.
  • Legal and Regulatory Hurdles: How does a DAO fit into existing constitutional and legal frameworks? (This is what Wyoming is trying to solve).
  • Identity Verification: Creating a secure, private, and non-transferable digital identity (like SBTs) is a complex but solvable challenge.
  • Irreversibility: A bug in a smart contract or a poorly worded proposal could have serious real-world consequences, as on-chain actions are very hard to reverse.

In conclusion, while we are not yet seeing “DAO-states,” the model is being actively piloted for specific, manageable government functions. The core value proposition transparent, efficient, and participatory governance is too powerful for the public sector to ignore. The next decade will likely see a significant expansion of these experiments.