Article by Puncar

In a rapidly evolving digital landscape, DAOs are pioneering governance models for new types of organizations and communities. The recent Tally How To DAO conference in Istanbul contributed to this evolution, bringing together thought leaders to discuss the impact and potential of token voting.

Token voting is a flexible solution that enables a DAO to design the governance system that works best for its circumstances. There are several concepts to consider, such as "one token, one vote", whereby each community member's voting power is corresponds with their token holding, or "one person, one vote", which is similar to traditional national or state governance. Alternatively, these options can be combined with other strategies, such as limiting token issuance or requiring token holders to stake. In the NounsDAO, for example, members can purchase only one token per day, meaning there is no open market for governance tokens. With so many different combinations and permutations, several companies such as Bankless Consulting and Metagov specialize in governance research, design, and implementation to help DAOs discover the right governance system for them.

Embracing a New Governance Paradigm

The Tally How To DAO Istanbul conference emphasized token voting as a cornerstone of modern DAO governance. CoolHorseGirl from Tally — a market leading front-end solution for onchain governance — delivered a keynote with a comprehensive overview of token voting, exploring its various forms and underlying principles. She highlighted how token voting aligns the incentives of all stakeholders involved in a DAO, ensuring that governance decisions reflect the collective will and long-term interests of the community.

In terms of economic aspects, she pointed out a variety of methods to prevent governance from being economically influenced, such as using non-transferable tokens, as practiced by SafeDAO. Another approach involves vesting contracts that allow contributors to vote only with vested (locked) tokens, thus ensuring their long-term interest in the DAO's success. The adaptability of token voting is underscored by its compatibility with established token standards like ERC-20 and ERC-721, enhancing its scalability and integration into diverse blockchain infrastructures. Adoption of these standards ensures that the infrastructure is in place and we can innovate on top of it. This is similar to the way Amazon has been able to succeed by leveraging the existing infrastructure of internet and road networks to provide outstanding service.

The significance of a robust go-to-market strategy, especially in challenging market conditions, was another focal point. CoolHorseGirl believes token voting is a powerful tool to amplify project visibility and community engagement, and underpins the success of numerous well-known projects, such as ArbitrumDAO, Uniswap, and Gitcoin. However, she also highlighted the challenges inherent in token voting systems; such as susceptibility to economic attacks, similar to hostile takeovers, when one actor with deep pockets can buy enough voting power to become the sole decision maker for the whole DAO; and the need for equitable token distribution. Solutions like conviction voting were discussed as a means to mitigate these issues, ensuring that token voting remains a transparent and verifiable method for community engagement — but that's not the only solution. The development of governance is ongoing, and the industry is evolving daily.

Another pioneer in the voting space is DEXE DAO Studio. Recently, it launched a new product that enables any DAO to find the token-voting model that suits their needs. They address several aspects of the voting lifecycle: first, they remediate some fundamental problems such as the principal-agent dilemma and systemic inefficiencies such as delayed decision making, non-existent workstream coordination, and lack of stakeholder engagement. Then, they find the right incentive model to push the DAO forward.

To learn more about how they are solving some of the main DAO drawbacks you can listen to this recording featuring Dmitryi, the co-founder of DEXE.

During the subsequent panel discussions at the conference, experts like Disruption Joe, Joshua Tan, and Mashal Waqar delved deeper into the intricacies of token voting. They addressed the critical concern of voter apathy — a persistent problem in governance systems. One cause of apathy is the need for more incentives, which seems fairly straightforward. However a more nuanced view is that while there might be little voting onchain, there could be discussion on the social consensus layers which can generate sufficient engagement given the right incentives. Therefore, the key to success is figuring out how to reflect the community’s will onchain, in a user-friendly manner. Joshua also pointed out that the act of ‘not voting’ as a way to stay credibly neutral is a reasonable approach to avoid conflicts of interest, which are present everywhere.

Next, Disruption Joe proposed innovative solutions to distribute decision-making power more broadly, thereby diluting conflicts of interest and ensuring a more neutral and credible governance process. Examples like RetroPGF at Optimism were cited, where the widespread distribution of decision-making authority minimizes the impact of individuals’ conflict of interest.

The conference concluded with the notion that token voting is not just a governance mechanism but a gateway to a more inclusive, transparent, and agile form of community-driven decision making. The journey ahead for DAOs and token voting is filled with opportunities for innovation and growth, promising a better future for decentralized governance.

Challenges and Pathways to Improvement

Addressing the challenges associated with token voting was a critical aspect of the How To DAO conference. Many discussions revolved around navigating the risks of economic manipulations — such as vote buying — and the intricacies involved in token distribution and locking periods.

Experts at the conference, including Jana from the Rari Foundation, presented insights into their approaches to governance. RariDAO has adopted a delegate system where some community members act akin to politicians, creating their brand and presenting their vision and work to the community. The system allows delegates to earn more token allocation based on metrics of their success and reputation within the community, directly tying their decision-making power to community interests and their performance. This method creates a dynamic where delegates are incentivized to stay true to the community's values and interests. If they fail to align with the community or perform poorly, they risk losing delegated tokens and their influence within the DAO. According to Jana, this approach fosters a governance model that is responsive, accountable, and deeply rooted in community engagement.

On the other hand, Pocket Network, represented by Adz, has taken a different approach to reputation-based governance. Understanding the technical complexity of the project, Pocket Network limits token distribution to a select group of individuals who possess the necessary technical insight and understanding of the project. This strategy ensures that decision making is in the hands of those who are best qualified. While maintaining a sufficiently large group to keep the organization decentralized, Pocket Network accentuates the importance of informed and knowledgeable governance, ensuring that those with decision-making power are fully equipped to contribute effectively to the protocol's growth and success.

These two examples — the Rari Foundation and Pocket Network — highlight the diversity and adaptability of reputation-based governance models for DAOs. While different in their execution, both approaches underscore the importance of aligning governance mechanisms with the unique needs and challenges of each DAO. As these models are put into practice and continue to evolve, they provide valuable insights into the potential of tailored governance systems in fostering effective, responsive, and community-aligned decision making in DAOs.

Unfolding the Potential of Token Voting

As the How To DAO conference concluded, it left us optimistic about the future of decentralized governance — particularly through the lens of token voting. The unanimous sentiment was that there’s a need for continuous innovation and adaptation in the realm of token-voting practices. DAOs are venturing into new, uncharted territories, and the flexibility and diversity offered by token-based voting methods are essential in navigating the unique challenges and opportunities of decentralized governance. This journey forward is marked by a collective eagerness to explore, experiment, and refine governance models, pointing towards a vibrant and dynamic future for DAOs and their communities.

As the author of this piece, I firmly believe in the enduring relevance of token-based voting, primarily due to its inherent adaptability. It provides customized governance solutions that can adapt to the unique requirements of each entity. This flexibility is essential to meet the diverse needs of various organizations today, which range in type and size. Moreover, in the realm of internet-native organizations, there's an inherent quality of being borderless from inception and possessing the ability to scale swiftly. In this varied landscape, the nimbleness of token voting is indispensable.

Furthermore, token voting empowers individuals by giving them a choice to be involved: imagine working at a company like OpenAI and being asked for your preference on major company decisions. Engaging employees and contributors in the process, rather than enacting decisions from the top, transforms the way organizations operate. A great example is MakerDAO; despite the drama surrounding some recent proposals, the decisions reflected the will of token holders, which resulted in them being accepted and respected by all parties involved. This nonviolent approach to governance, where everyone gets to be involved in the decision-making process, can eliminate the need for drastic measures like strikes or petitions. It represents a more democratic way of steering an organization, where everyone's voice is heard and valued.

In a world that longs for openness and harmony, token voting emerges as a tool and a model pathway to more democratic, transparent, and harmonious organizational governance. It is an avenue that respects the opinions of its stakeholders, making governance a collective, participatory journey. As we continue to navigate the ever-changing landscape of DAOs and decentralized systems, the role of token voting in designing more engaged, peaceful, and inclusive systems cannot be overstated — it’s a beacon of hope and a testament to the power of collective decision making in shaping the future of organizations and communities alike.

Next Steps

If you want to learn more about token voting, DAOs, and the web3 ecosystem, check out our next How To DAO event in Denver on February 28, 2024. Happening during ETHDenver, it will be our biggest event so far, with four talk tracks and networking opportunities to accommodate anyone from crypto newcomers to seasoned experts. We hope to see you there!

Author Bio

Puncar is passionate about supporting the web3 ecosystem through designing the right incentives, tokenomics, and governance structures.

Editor and Designer Bio

trewkat is a writer, editor, and designer interested in learning about web3, with a particular focus communicating this knowledge to others via IndyPen CryptoMedia.

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