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By Vlad Shavlidze
Last year, decentralized autonomous organizations (DAOs) enjoyed an upsurge in popularity. Great success stories include the leading decentralized exchange Uniswap, governed via the votes of its DAO participants, and Ukraine DAO, which distributes donations in the assistance of those affected by the war in Ukraine, all based on community decisions.
In a troubled and iniquitous world, the promise of the DAO is monumental, a shining solution to more inclusive decision-making and the dissolution of centralized hierarchies. The DAO is seen by many as a spark of hope, the rebirth of democracy. Understandably, though, there are nevertheless growing pains in some quarters. But in the emerging dynamic web3 space, innovation often moves rapidly to the scene.
Growing Pains
SEC Commissioner Hester Peirce warned in 2021 against the prevalence of âshadow-centralizationâ in DeFi, where âopaque governance structures lead to a protocol having centralized control despite wearing the banner of decentralization in its marketing.â Shadow-centralization has also been an issue for many DAOs.
Many DAOs are actually controlled by a few large shareholders or developers. A Chainanalysis report from June 2022 analyzed the workings of 10 major DAO projects and found on average less than 1% of all holders have 90% of the voting power. The same report found that as few as 1 in 10,000 governance token holders had enough tokens to create a proposal.
Conversely, decision-making can sometimes involve too many people, making it ineffective and slow-moving, ultimately undermining participation, as impatience and disillusionment grows.
The Govern-to-Earn Solution
The act of voting for many DAO members can simply be uninteresting, an unwanted distraction, despite it being an input into the running of the very DAO of which they are a member. The concept of "Govern-to-Earn", however, is a solution directly addressing this issue via incentivization.
DEXDAO is an exchange in which DAO tokens are traded and Govern-to-Earn is a feature, facilitating collaboration between organizations and their communities. With such implementations of Govern-to-Earn as on the above mentioned DEX, decision-making and trading are combined. It becomes apparent how changes in an organization can influence the token, providing trading opportunities. Via this mechanism, participants become much more involved and invested with organization governance.
The exchange recently collaborated with PARQ UBUD, a $100 million mixed-use residential and commercial real estate project in Bali, enabling token holding city residents, via Govern-to-Earn, to shape the future of urban developments within the project. PARQ UBUD believes that the mechanism is also stimulating investor participation.
How is Govern-to-Earn implemented?
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Traders see a dashboard of projects and their tokens on the Govern-to-Earn platform within the exchange.
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The latest proposals of the organizationâs community can also be viewed on a trading pairs page.
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Token holders can create proposals on the platform and influence real-life changes in the organization, or perhaps shape changes to project tokenomics.
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All who create proposals and votes are eligible to claim financial reward.
DAO Voting Research
This year, researchers from Singapore also looked to address some of the governance and voting challenges of DAOs. The Singapore University of Social Sciences team assessed existing voting models and put forward a hybrid model as an improved mechanism. In its paper, Voting Schemes in DAO Governance, the team listed five voting mechanisms most used by DAOs:
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Token-based quorum voting, as used by lending protocol Aave. With this model, a set threshold must be exceeded to pass a proposal, e.g. 60% of the votes.
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Quadratic voting, as used by Gitcoin. Here, users can allocate multiple tokens to express the intensity of their voting preferences, circumventing monopoly issues from token whales.
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Weighted and reputation-based voting. With this mechanism, voter influence on an outcome depends on the votes assigned to them.
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Knowledge-extractable voting (KEV), in which the weight of a vote relies on the expertise a voter has on the proposal under the vote.
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Multi-sig voting, which requires multiple approvals before a proposal is executed.
Other models examined included conviction voting and holographic consensus. Conviction voting is one of the newer mechanisms. By this, members vote on in-progress proposals, and the longer their vote remains the same, the stronger the power of the vote. The holographic consensus mechanism is designed to focus attention on proposals that are most likely to be passed in a DAO. With this mechanism, members predict whether a proposal will pass or fail and bet on the ones they believe will be successful.
Holographic consensus received the best rating in the researchersâ appraisal. Token-based quorum voting and multi-sig voting were the lowest-ranked. The researchers concluded that conviction voting, with borrowed elements from holographic consensus would be the optimum solution. Under this hybrid mechanism, DAO members would place bets on any proposal with tokens. If the bid they voted for fails, they lose their tokens, distributed to those voting against.
Conclusion
The goal is to ensure that the networks over which DAOs preside evolve in a truly decentralized and community-driven manner. Naturally, incentivizing solves the problem of disinterest in participation and fosters a far deeper level of investment. In the above hybrid voting solution, the best proposals are incentivized to be submitted and the betting process incentivizes careful voting. Increased participation and decision-making efficiency are both a result.
The concept of Govern-to-Earn offers another hugely positive incentivizing solution, incorporating also a trading, rather than betting, element. By combining such real-life impact with financial rewards, DAOs can foster a truly decentralized and community-driven evolution. With ongoing research and innovation, DAOs are poised to shape the future of organizational governance, paving the way for a more inclusive and participatory society.
Author Bio
Vlad Shavlidze is the CEO of XDAO.app, a multichain DAO builder for jointly managing crypto assets and DeFi projects.
Disclaimer
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