【The Majority Don't Vote!】Thinking about DAO turnout and governance
Was the DAO early?
Good morning.
Mitsui from web3 researcher.
Today's research article will be on "DAO Voter Turnout and Governance".
First, we will introduce the recently discussed governance attack against Compound, and then we will present a report on DAO voting rates, which was also recently published.I will then discuss the possible limitations of governance in DAOs based on these facts.
💥Compound under governance attack
🗳DAO practically non-functional?
💬Was DAO too early for mankind
💥Compound under governance attack
In July 2024, Compound, a leading DeFi lending protocol, was the subject of a governance attack.
A governance attack is an act, like the 51% attack in blockchain, in which a large portion of the voting power of the protocol is seized, in effect allowing centralized decision-making.
Many of the protocols that are described as operating in a decentralized fashion issue governance tokens, and the token holders have the right to vote on the direction of the protocol and how the DAO treasury funds will be used.
However, if the turnout is low, or if the tokens are bought up by one person or a team, it is possible for someone to pass a proposal that suits his or her needs.
Such an event is reported to have occurred at Compound.
The proposal in question was Proposal-289.
This proposal proposes to invest 499,000 COMP (approximately $24 million) from Compound funds in the goldCOMP DeFi vault of "The Golden Boys" team.Simply put, the proposal is to invest in a new vault (investment strategy) created by the Goldenboy team.
At first glance, this may seem like a normal proposal, but in fact there are two previous failed proposals to allocate Compound funds to goldCOMP before this proposal was passed.
And The Golden Boys is a team led by Humpy, a controversial whale who has been accused of purchasing governance tokens for various DeFi protocols and voting for measures that serve their personal financial interests at the expense of token issuance projectsThe team will be
Michael Lewellen of web3 security firm OpenZeppelin warned that "The Golden Boys and Humpy are operating in bad faith and are trying to push through a proposal that would take a large chunk of Compound's funding.
Despite these alarm bells, the third proposal, Proposal-289, passed just barely, with 51.84% in favor and 48.16% opposed.
The Golden Boys team, combined with the delegate's own tokens, reportedly controlled more than 81% of the 400,000 COMP required for the governance proposal to meet quorum.
→For more informationhereis the reference.
🗳Is DAO practically non-functional?
Now, let me show you another example.
In May 2024, a study by two scholars at the Universidad Complutense de Madrid was published.The title is Concentration of Power and Participation in Online Governance: the Ecosystem ofDecentralized Autonomous Organizations.
The results of the study here read very interesting suggestions.
Here are some excerpts and their results.
Approximately 50% of DAOs are small DAOs with 10 or fewer voters
Snapshot hosts over 8,000 DAOs (over 80% of the total)
Approximately 300 DAOs with 1,000+ voters
4 DAOs with more than 100,000 voters
Approximately 53% of DAOs were active at the time of analysis (with a proposal within the past 6 months)
Percentage of activity tends to decrease as DAO size increases
DAOs with 1,000-10,000 voters have a median number of proposals of 20
The larger the DAO, the lower the voter participation rate
Even DAOs with 2-10 voters have a median voter participation rate of 33.33
In large DAOs, many voters have little or no participation
Conclusion.
As the size of a DAO increases, its voting power and the number of proposals in which its voters participate decrease significantly
High levels of inequality are observed in the distribution of voting power, particularly a statistically significant correlation between larger DAOs and greater inequality
In the majority of DAOs with more than 1,000 voters, more than 50% of the voting power is controlled by an oligarchy of about 1% or fewer voters.
The data sources and scope of this report are as follows.(Please refer to the original report for details.)
Scope of data
Covers all DAOs deployed on major DAO platforms
Data collection period: July 20 to August 8, 2023
Primary Data Sources:.
Major DAO governance platforms listed in DeepDAO
Specifically, the following platforms (Aragon, DAOHaus, DAOstack
Realms, Snapshot, Tally)
Data Acquisition Method
Use the API of each platform
If no official API is available, use private APIs supporting public websites or The Graph (blockchain data indexing and query protocol)
Data Scale
Initial: 30,250 DAO deployments, 207,131 proposals, 21,619,733 votes
After cleaning: 10,541 DAO deployments, 186,228 proposals, 21,606,463 votes
Data Cleaning: Votes with negative or zero weights (0.0 of the total)
Exclude votes with negative or 0 weights (less than 0.015% of the total)
Exclude DAO deployments with no proposals
Excluded DAOs with only one or fewer different voters
I don't think the results of this study are that controversial, but they are shocking.However, I also felt that the DAO vote was not working very nicely as far as skin feel, so the numbers make sense.
The larger the DAO, the lower the turnout and the higher the oligopoly, a situation that raises questions about the decentralized operation of scaled protocols.
💬Was DAO too early for humans
Well, how was it?
The cases and studies discussed in this report are only examples, and there may be other DAOs that are working beautifully besides this one.However, considering that even the major DeFi Compound is subject to governance attacks, it must be said that there are still issues to be addressed in DAO-like operations.
In the NFT world, the Nouns DAO fork was also a hot topic, but it was only in the form of a DAO, and the fork proposal was implemented and passed in accordance with the rules.The same is true for Compound this time.
With that in mind, I must say that there is a structural flaw in the DAO here.
This article concludes that the most significant flaw in DAOs is the lack of voting incentives.
Low voter turnout makes it easier to rule and more vulnerable to governance attacks.However, since there is no designed incentive for each token holder to vote, it is difficult to increase the voting rate.
Basically, a blockchain system should be designed to work cleanly as a whole, with each party pursuing its own interests, rather than relying on the goodwill of others.Consensus algorithms are a perfect example of this.
In this context, the current system with regard to the act of voting is dependent on good intentions or preferences (like to vote and discuss, and have a desire to develop the industry and protocols).
To address this issue, Uniswap, for example, has proposed "distributing protocol fees to users who staked $UNI and delegated voting rights," which was posted on the forum in February 2024 and passed with 100% approval in the March Snapshot proposal.
It was then scheduled to be put to a final governance vote, but it was announced that the vote would be postponed, citing regulatory concerns with the distribution of token rewards.
However, this move will indeed "increase turnout by improving voting incentives" and will inevitably "strengthen the defense against governance attacks".
Personally, I expect this movement to accelerate for all protocols.In the case of protocol fee distribution, there may be regulatory restrictions, so the move is to provide some incentive, such as including voting as a condition for airdrop, to raise and decentralize the voting rate.As I recall, Optimism included the act of voting as a condition for airdrop.
However, airdrops are a transient movement, so they are not permanent, and the fundamental problem has not been solved.
I think that the future of airdrops will be interpreted in such a way that protocol revenue sharing will not be subject to regulation, such as Uniswap, and a Vote to Earn protocol will emerge as a third-party.
Personally, I think that a "Vote to Earn" protocol would make a lot of sense to create now: a voting aggregation protocol in which tokens are accumulated by participating in discussions and voting on governance issues such as Uniswap and Compound.
Also, I think that we will see an acceleration of forms that lower the threshold for voting, such as Warpcast, which allows voting on a timeline.However, this move alone is still a weak incentive to vote, and since we do not want to just increase the number of votes without thinking, I think it is important to design incentives that provide a return on the effort invested.
In general, DAO management is difficult.
The form in which there is no one in the center and everyone discusses, votes, and decides together seemed like an ideal organization, but when it started, it turned out that many people found it troublesome to discuss and vote, and in many cases, a few people with leadership skills were proceeding by impatiently discussing and voting.
My personal opinion is that that is true, and I still think DAOs are wonderful.I especially like the fact that the whole process is conducted in the open, so there is room for improvement and anyone can participate.
A clean DAO may not be "ready" for mankind yet, but I don't think that is a negative of DAOs by any means.
This is the report article on "DAO Voter Turnout and Governance"!
Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.
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mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.
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