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Another problem with evaluating collective welfare is membership in the collective: who do we add and who do we remove?

We consider criteria that are suitable for membership in a nation (in contrast with membership in the local chess club, or a student in a school, or a shareholder in a company).
Traditionally, for democracies, children of members are added, and members remain members until they die. In the United States, birth within the United States confers citizenship, although voting right are not conferred until some period of time thereafter. Voting rights can be lost following certain judicial proceedings.

We presumably initialize our system with the existing citizens of some jurisdiction or, alternatively, initialize the system with some set of volunteers. Seasteading comes to mind.

For a democracy, and presumably for many other situations, members of the system remain members until they die, at which point we must decide how to treat their death: in future years, what number between 0 and 1 should be used for them when the Collective Welfare is computed?

One answer is the lowest possible number on the scale: 0. This would make death a negative (undesired) event, which the DAO Democracy would then naturally seek to avoid.
A more correct answer to this question is to ask the person who died. Asking them after they have died would be difficult, but we can certainly ask before they die, and if we can’t ask every person, we can at least ask most people how they want their death to be recorded, and seek either an answer from an executor or heir, or at least seek a statistically plausible answer if no better answer is forthcoming. Most people will likely regard their death as negative and pick some value close to 0. Some will regard their death under any circumstances as negative, some might not. Some might even say their death is positive.  Regardless, in a democratic form of government the choice can reasonably be left to the individual.

We leave the policy with respect to new members, and to births, to our prediction market. There is already a mechanism for adopting policies (see below): we use this mechanism, asserting that the membership that will be used to decide this case will be the existing membership, and will not include new members.

In particular if the prediction market concludes that the collective welfare of existing
members will improve in the future by adopting a particular policy with respect to new members, then that policy will be adopted.

It is difficult to see how we could justify forcing the members of a DAO Democracy to adopt a policy with respect to new members, or to accept some new born child as a member, if the prediction market says the collective welfare of existing members would be made worse by adopting such a policy.

Contrariwise, it’s equally difficult to see how we could justify refusing to adopt a policy that accepts some person, or a new born child, as a member, if the prediction market says the collective welfare of existing members will be improved by adopting such a policy.

There is an additional possible policy with respect to new members. We might allow an existing member to “adopt” a new member by splitting their own, weighted membership in half and giving half to the adoptee. This would create two citizens, each with half the “weight” of a regular citizen. If continued, this practice could create a small community which, in its entirety, had a “weight” of only 1 citizen. Yet each step along the path was entirely voluntary by those involved.

Allowing some citizens to be “more equal” than others seems to defeat the purpose of a democracy. Yet this question, too, can be reviewed by the prediction market – and if the prediction market favors a policy that allows such a state of affairs to come into being, and if the citizen in question wants to do it, can one reasonably block its adoption? It seems more comfortable to ask: if the prediction market opposes it, how could one reasonably decide to adopt it?

This raises the delicate question of how far a DAO Democracy should be allowed to go in redefining its own purpose. If we provide too much flexibility in this area, then the DAO Democracy could destroy itself.

While it seems obvious that it should not be possible to take citizenship away, it’s less clear whether citizenship can be renounced. If a citizen of their own free will, without coercion, wished to renounce citizenship, and a policy was in place which allowed that particular citizen to renounce their citizenship, then it would seem tolerable. Such a policy would have to be adopted by the usual means, of course. And some might require additional safeguards before citizenship could be discarded, else it might happen for reasons that would not withstand closer inspection. Other than that, the answer would have to be: no, you cannot renounce your citizenship. If there is no policy in place that allows a citizen to renounce their citizenship, then there is no mutual agreement to dissolve the relationship. While it is entirely possible to conjecture what policy a DAO Democracy might adopt on this point, it seems rather clear that, absent a policy that enabled a citizen to renounce their citizenship, it would not be possible.