Ask 10 different people to define a decentralized autonomous organization (DAO), and you’ll likely get 10 different definitions. But there is at least one thing most agree on: DAO governance is a mess. At best, it’s an experiment in the works.
According to DeepDAO, DAOs today handle a whopping $17.2 billion in value. Yet many DAOs managing millions of dollars have proven hopeless at heeding even the most basic of lessons in business management 101. One does not have to look too far in the annals of crypto history to recall major DAO catastrophes.
Recall Wonderland DAO, an Olympus fork that birthed arguably one of the most notorious scandals in DAO history. At its peak, Wonderland enjoyed a near $2 billion in total value locked, which came to a skidding halt in January 2022 when its treasury manager — who went by the pseudonym 0xSifu — turned out to be none other than Michael Patryn, co-founder of the failed crypto exchange QuadrigaCX and a convicted criminal for financial fraud.
Or consider a more recent exploit with the Solana-based trading protocol Mango Markets. In October, attackers exploited the DAO’s loosely governed parameters to acquire a disproportionate chunk of the DAO’s MNGO tokens. In an absurd turn of events, the attacker proceeded to propose on governance forums an offer to return half their heist in exchange for the DAO not to prosecute him, then voted “Yes” on it with the stolen tokens. The vote eventually failed, but Mango still ended up paying off $47 million to the attacker.
Case studies of DAO failures are not exclusive to outrageous one-off spectacles like the ones above. Despite the Libertarian rhetoric of self-sovereignty and self-custody, dozens of DAOs that kept their monies on centralized exchanges also saw their treasuries implode during the carnage of 2022’s blow-ups like FTX.
The truth is, DAO governance isn’t easy. Founders have to balance a multitude of priorities, like solving voter apathy, committing to decentralization and product market fit. A “best practices” manual doesn’t exist, and where there is one, it’s not widely shared.
The good news? Die-hard DAOists are hard at work to rid these problems, one experiment at a time.
The problem of voter apathy
Take voter apathy, for instance, arguably DAO governance’s most widespread problem. As a “decentralized” community, tokenholders must vote if they desire resilient protocols. But token holders don’t vote because it takes time. When voters do turn up at the voting booth, or Snapshot, they lack the expertise or context to make an informed decision. Worse still, voters who care may not even be aware of a vote until it’s over.
To combat voter apathy, a burgeoning landscape of DAO infrastructure tools has been developing tools to streamline DAO voting into one-stop platforms. Products such as Senate and Goverland are trying to aggregate governance proposals across dozens of DAOs with direct integration on popular voting platforms, such as Snapshot and Tally.
Senate founder Paulo Fonseca tells Magazine, “At present, it’s cumbersome for most DAOs to see off-chain and on-chain voting separately on different platforms. One of our product’s key value-adds is simply for users to consume all the information on one page.”
Because governance proposals typically open to vote for a limited duration, Goverland, in turn, is putting a strong emphasis on mobile integration so voters are notified in time. “It all starts with an in-time notification. With mobile, it’s far more convenient to help boost voter participation,” Goverland founder Andrey Scherbovich tells Magazine.
Others believe that for DAO governance to improve, it needs to go beyond pure token-based voting based on duty. JokeRace, a voting protocol that aims to make governance “fun,” was designed with this goal in mind.
Instead of expecting thousands of tokenholders to vote, JokeRace is exploring the use of incentivized “contests” that allow governors to gate voting proposals in any way possible via a highly customizable allowlist, from a fully public forum to select DAO participants. Co-founder Sean McCaffery tells Magazine:
“Many DAO projects want to give non-financial utility to their token. What we are doing is opening a horizon on top of simple token voting and incentivizing people to hold tokens for more than just speculative reasons.”
“For a highly technical proposal that wants to draw on the wisdom of experts or loyal fans, a creator can gate…
cointelegraph.com