#7 Governance Series
In our previous governance series blog, we discussed some of the shortcomings of token-voting and its potential to increase bribery by enabling behaviors that allow users to “borrow or loan voting power if they’re willing to pay the highest price.”
Contemporary democracies have generally used the one person, one vote in their legislative processes, with this trend now being carried over to blockchain. For example, the “Tyranny of the majority” (when a majority pursues its goals and agendas at the expense of minority groups) is a common problem encountered in DAOs when a small group of large token holders (whales) use their voting power to fulfil their agendas rather than the DAO.
While it is never easy to determine what the “right” type of voting mechanism is for your DAO from the start, the good news is that token voting is not the only option we have when it comes to decision-making in DAOs. Here, we examine alternative voting mechanisms to token voting and discuss some of their pros and cons.
Rage quitting is a valuable mechanism for combatting the majority of the challenges that come with voting. When a proposal is placed forward by a member, it must be sponsored by members, and if approved by the majority of the community, the proposal enters a grace period that allows voters to withdraw their support from the vote. If the proposal fails to receive enough support during this latter stage, it is discarded.
Rage quitting is a strategy implemented initially by Moloch DAO and is actively being used by many Moloch framework DAOs, including DAOhaus.
Time Wonderland has also implemented this mechanism successfully, allowing token holders to recover their assets by rage quitting.
Pros: Rage quitting tackles the risk of majority voters gaining advantage over minority voters.
Cons: Voting process is long and not a viable options for all DAOs
“Quadratic voting” was coined by Microsoft researcher Glen Weyl, and is a reiteration of a previous concept known as “Vickery Clarke Groves” mechanism. In the simplest terms, this mechanism enables individuals to allocate votes to express the degree of their preferences. The way it works is that voters are assigned a total voting budget, and they can allocate the votes as they wish and can pay for additional votes on a proposal to emphasize their preferences.
Indeed, with quadratic voting, members can repeatedly vote for the same option with the marginal cost of each subsequent vote increasing more than the last by its square root (for example, if one vote costs one token, then two votes will cost four tokens, and so on, three votes will cost nine tokens, etc.). This method ensures that large token holders don’t monopolize the votes, as it enables minorities to purchase additional votes as one way of levelling the playing field and disincentivizes people from casting votes on proposals and issues they care less about.
Quadratic voting has been successfully put into action by Gitcoin for deciding which projects to fund in the ecosystem.
If you’re interested in understanding the specifics of this voting mechanism, you can learn more about it here.
Pros: Allows members to demonstrate how strongly they believe in a proposal and protects the interests of minority groups that care about a particular issue
Cons: not resistant to sybil attacks, meaning malicious actors can utilize fake and/or duplicate identities to influence the outcomes. An identity verification system is needed for this mechanism to operate successfully.
Jeff Emmet of Common Stack defines conviction voting as:
a novel decision-making process that funds proposals based on the aggregated preference of community members expressed continuously.
What this means is that voters can indicate their preferences by assigning their votes to proposals they like the most. The longer a member stakes their vote on a proposal, the greater their “conviction” becomes. When enough conviction accrues for a proposal, it is then passed.
Conviction voting is particularly suitable for specific scenarios, such as budget-related decision-making, as it allows DAOs to gauge community preferences and respond sensitively to very specific community matters.
Projects that have implemented conviction voting include 1Hive, Panvala, and Commons Stack.
Pros: does not require a majority vote to pass a proposal, preventing people with large stakes and strong opinions from suppressing minority preferences. Also, achieving consensus on a particular proposal is not necessary since token holders can focus on the proposal that they deem to be most important to them.
Cons: Less effective for time-sensitive decisions since the mechanism sometimes requires a prolonged time period for a verdict to be reached.
Holographic consensus is a voting mechanism that is more on the complex side partly because the mechanism associates a prediction market with each proposal. Spearheaded by DAOstack, Holographic Consensus is designed to filter out and focus attention on proposals that are most likely to be passed in a DAO.
This mechanism allows members to predict whether a proposal will pass or fail by letting individuals stake funds against or for a specific proposal. Proposals that are predicted to “pass” are then boosted and the voting switches from 50% quorum to relative majority, making it easier to pass these proposals relative to the ones with much lower funds staked on them. If the prediction is correct, the individual receives tokens as a reward, and if it fails, they lose the tokens.
Projects that have effectively implemented this voting mechanism include DXdao and Prime DAO.
Pro: works well for projects that have many proposals and ensures that quality proposals are taken into account
Con: Although it optimizes scalability, participation can get quite expensive for some members and it still allows for a small group of members to present the beliefs of the majority
Liquid democracy is a form of delegative democracy, whereby a DAO assigns a particular person to participate in a voting that has the power to make decisions on behalf of other members in the DAO. This means that members can delegate their votes to trusted individuals who they believe are more informed to make the right decisions on behalf of the community. Although this process tends to be more on the centralized side, what is good about it is that members have the ability to transfer delegation and assign new participants if they are not satisfied with their current delegates. Moreover, elected individuals can also delegate votes to other representatives.
Liquid democracy was first adopted in Aragon and has been successfully implemented by Gitcoin at the initiation of the DAO — had token holders select a delegate as part of the airdrop claim process.
Pro: Ideally, this should lead to more informed decision-making and increased participation.
Con: Can create centralization and does not prevent bribery and collusion.
Reputation-based voting takes account of the contributors of a voter, giving highly engaged voters a reputation that they can transfer to other platforms. A DAO would have to adopt a reputation system that would enable members to rate other members based on their contributions, and those with higher reputation value would have more influence in the DAO and decision-making power. Snapshot is spearheading this initiative with Orange to create reputation systems across all DAOs.
Pro: Ensures that highly-engaged voters are incentivized to continue participating
Con: Does not prevent bribery and some people’s contributions/participation might still go unnoticed by others in the community
Part of the reason why token-based voting continues to be the most popular mechanism is due to its simplicity. Therefore, if you feel that token voting has effectively worked for your DAO, then there is no reason to resort to these mechanisms. For instance, if you have experienced voter apathy with token voting, resorting to more complex mechanisms might present additional barriers and complications for governance.
While each voting model has its advantages and disadvantages, when picking a mechanism, it is first essential to identify the specific needs of your DAO and the outcomes you wish to manifest. Just because a certain voting mechanism seems more “advanced” doesn’t necessarily make it more effective. In fact, some of the voting mechanisms listed here are still in their experimental stages, have confusing UX, and have not been sufficiently placed into practice.
Nonetheless, choosing the proper voting mechanisms could play a significant role in the long-term success of the project.
At StableLab, we support DAOs in building their governance framework and customizing the voting mechanism to suit particular circumstances. Let us know below if you need support or have implemented any voting mechanisms outlined here. Tell us which one you found to be most effective for your DAO.
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