A decentralized autonomous organization (DAO) is a concept that has gained significant attention and traction in the world of cryptocurrencies and blockchain technology. However, ask 10 different people to define a DAO, and you’ll likely get 10 different answers. With that being said, there is a widespread agreement that DAO governance is currently a mess.
According to DeepDAO, DAOs today handle a staggering $17.2 billion in value. Despite this enormous value, many DAOs have proven to be ineffective at implementing basic principles of business management. There have been several high-profile cases of DAO failures that highlight the inherent challenges of decentralized governance.
One such example is the Wonderland DAO, an Olympus fork that experienced a major scandal. At its peak, Wonderland had nearly $2 billion in total value locked. However, it all came crashing down when it was revealed that the treasury manager, known as 0xSifu, was actually Michael Patryn, a convicted criminal for financial fraud and co-founder of the failed crypto exchange QuadrigaCX.
Another recent exploit involved the Solana-based trading protocol Mango Markets. Attackers took advantage of the DAO’s loosely governed parameters to acquire a large portion of the DAO’s MNGO tokens. In a bizarre twist, the attacker proposed on governance forums to return half of the stolen tokens in exchange for the DAO not pursuing legal action. While the proposal ultimately failed, Mango Markets still ended up paying $47 million to the attacker.
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These examples are not isolated incidents. Many DAOs that kept their funds on centralized exchanges also saw their treasuries implode during the market turmoil of 2022. The truth is that DAO governance is not easy. Founders have to navigate a multitude of priorities, including addressing voter apathy, achieving decentralization, and finding product-market fit. There is no widely accepted “best practices” manual for DAO governance.
However, there is some good news. There are passionate individuals and projects working to address the challenges of DAO governance, one experiment at a time.
One of the most widespread problems in DAO governance is voter apathy. Token holders have the responsibility to vote in order to ensure the resilience of the protocols they are invested in. However, many token holders do not vote due to the time and effort required. Additionally, even when voters do participate, they often lack the necessary expertise or context to make informed decisions. Furthermore, voters may not even be aware of ongoing votes until it’s too late to participate.
To combat voter apathy, various tools and platforms have emerged to streamline DAO voting processes. Platforms like Senate and Goverland aim to aggregate governance proposals from multiple DAOs and provide a one-stop platform for voting. These tools integrate with popular voting platforms like Snapshot and Tally, making it easier for token holders to access and participate in governance.
Some believe that DAO governance needs to go beyond token-based voting to improve participation. JokeRace, for example, is a voting protocol that aims to make governance “fun” by incentivizing participation through contests. This approach allows DAOs to give non-financial utility to their tokens and engage token holders in a more interactive and enjoyable way.
Another approach to address low voter turnout is delegation voting. This method allows token holders to delegate their voting rights to trusted individuals or entities. Delegation voting has gained popularity in many major DAOs, as it allows for faster decision-making and can help increase participation. However, it also comes with its own set of challenges, such as the potential for popularity contests and collusion among delegates.
Builders in the DAO ecosystem are actively working to improve delegate accountability and transparency. Tools like Karma enable better visibility into delegates’ voting history, forum activity, and overall performance. Additionally, projects like StableLab’s DAOmeter dashboard provide a framework for assessing the decentralization journey of DAOs and promoting organizational maturity.
In conclusion, DAO governance is a complex and evolving field. While many challenges remain, there are promising initiatives and tools being developed to address them. By addressing issues like voter apathy, enhancing participation through novel approaches, and improving delegate accountability, DAOs have the potential to become more effective and resilient governance structures in the future.
