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public/articles/common-treasuries-governance.md

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+---
+title: "Common Treasuries and their Governance"
+author: "Zahnentferner"
+date: "2025-10-24"
+image: "/images/governance.jpg"
+excerpt: "A surgical reflection on how shared treasuries and governance systems inevitably enable power imbalances, deception, and political extraction."
+---
+
+# Common Treasuries and their Governance
+
+Imagine that Alice, Bob and Charlie have, respectively, $33, $33 and $34. Suppose that, instead of spending their money individually, according to their own wishes, they decide to deposit their money in a common treasury. So, now they have a common treasury of $100 and they must collectively decide what to do with it. And, even before that, they must agree on the governance processes that will be followed to reach these decisions.
+
+![governance in action](/images/governance.jpg)
+
+This intentionally simplified example is at the core of a wide range of real world situations in which we often find ourselves in. For example:
+
+- Alice, Bob and Charlie could be shareholders of a company, the "common treasury" could be the bank account of the company, and the governance process could be to execute whatever the founder/director/CEO decides.
+
+- Alice, Bob and Charlie could be citizens of a country who duly pay their taxes to a common treasury of their country's government. The governance process in this case would typically involve electing politicians who will participate in the government's budget process.
+
+- Alice, Bob and Charlie could be apartment owners in a condominium, who pay a monthly fee to a common account of the condominium. The governance process to approve an expense from the common account could require approval by just 50% of the apartment owners present in a general meeting.
+
+- Alice, Bob and Charlie could be members of "DAO" that has a token and a portion of the token's total supply has been allocated to a common treasury. The governance process could mean applying for grants from the common treasury and the voting power could be proportional to one's token balance.
+
+One advantage of a common treasury is obvious: when people pool their resources together and manage the common treasury's resources well, they can achieve more. Some goals are too big to be pursued with the resources of just one person. And the returns, for everyone, of investing the common treasury on the pursuit of such bigger goals can be greater than the combined returns of individual investments on smaller goals.
+
+The problem is that, often, the governance processes are inadequate and the common resources are not well-managed. Even governance processes that, superficially, seem fair can be problematic.
+
+Consider, for example, the case where, proportionally to their deposits in the common treasury, Alice, Bob and Charlie have voting powers of 33%, 33% and 34%, respectively, to vote on proposals to use the funds of the common treasury. Now, imagine that Charlie and Bob collude and submit a proposal to withdraw $100 from the common treasury and distribute $50 to Charlie and $50 to Bob. They both vote to approve this proposal. With a total voting power of 67% approving, the proposal is accepted. Alice just lost her $33 contribution to the common treasury.
+
+It is easy to see that, for any governance procedure for managing a truly common treasury, it will always be possible for a subset of participants to extract more from it than what they contributed to it. The only way to avoid this problem is to allow each participant to fully control exactly the amount that they contributed. But this is effectively equivalent to not having a common treasury at all.
+
+Common treasuries require governance. And the inherent and theoretically unsurmountable problems of governance typically lead to the degeneration of governance processes into inefficient political zero-sum fights to extract value from the common treasury.
+
+It is interesting to note that the fundamental problem is the mere existence of common treasuries and how they allow a subset of people to gain control of resources that belong to another subset of people.
+
+So, why do we continue to accept this? Perhaps for the following reasons, even if subconsciously:
+
+- Lack of choice, as in the case of taxation by a government.
+
+- Lack of attractive alternatives. For example, we may know that we are losing control of our resources when investing in a company, but keeping money in a deposit account means losing value over time due to inflation.
+
+- Generalized deception. Once we understand the basic simplified examples above, we start to realize that most governance processes in society (from governments to different forms of incorporation) exist to deceive us into believing into some form of proportional control of our pooled resources while, in fact, they are deliberately doing just the opposite: legalizing the transfer of control of resources from one subset of people to another. But most of us never see through this deception.
+
+- The reverse of the golden rule. Many who eventually do see through the deception and understand the game, decide to play the game for their own benefit, instead of resisting the game. For example, a businessperson whose business lost resources to a government might eventually become a corrupt politician or bribe corrupt politicians. An employee who got tricked on a disproportional distribution of equity in relation to effort might decide to become a founder and play the same trick against others. In summary, it is a "do to others the bad things that have been done to you" kind of world.
+
+The problem of governance of common treasuries is a key source of instability in the world. We should stop pooling our resources into common treasuries with undefined goals that will only become defined through governance, and then wasting our time with the politics of extraction. The direction of a general solution is sufficiently clear: we need to build the mindset, the frameworks and the tools to allow us to pool our resources into well-defined goals that do not require governance and spend our time pursuing these goals.