DAOs use 6 main voting systems in 2024:
Here's a quick comparison:
| Mechanism | Key Feature | Main Benefit | Top Challenge |
|---|---|---|---|
| Token-Based | Votes based on token holdings | Simple to implement | Can lead to plutocracy |
| Quadratic | Cost increases quadratically | Balances large/small holders | Complex to set up |
| Conviction | Votes gain strength over time | Rewards long-term thinking | Slow for urgent decisions |
| Holographic | Combines prediction markets | Filters proposals efficiently | Requires financial stakes |
| Liquid | Allows vote delegation | Enhances participation | Risk of delegate concentration |
| Multisig | Requires multiple approvals | Adds security layer | Can slow down processes |
Each system aims to balance fairness, efficiency and security. DAOs often experiment with different mechanisms as they grow and evolve. The best choice depends on a DAO's specific needs, goals and community dynamics.
Token-based quorum voting is a basic yet widely used decision-making system in DAOs. Here's how it works:
This system aims to ensure that decisions reflect the will of active participants. However, it comes with its own set of challenges.
Quorum Challenges
Setting the right quorum level is tricky:
For example, popular DAO platforms like DAOStack and Aragon often see less than 10% voter turnout. This low participation can lead to governance issues.
Real-World Application
Uniswap, a major decentralized finance protocol, uses a form of token-based quorum voting. Their system allows token holders to:
This flexibility helps address some participation issues, but challenges remain.
Potential Pitfalls
Token-based systems can lead to power concentration. In October 2020, BProtocol demonstrated this vulnerability on MakerDAO:
This incident highlighted how wealthy actors can manipulate token-based voting systems.
Evolving Solutions
To address these issues, some DAOs are exploring new approaches:
While token-based quorum voting remains common, DAOs are actively working to refine their governance mechanisms for fairer, more effective decision-making.
Quadratic voting (QV) is a system that lets voters express not just their preferences, but how strongly they feel about them. It's like giving voters a megaphone, but with a catch: the louder you shout, the more it costs you.
Here's how it works:
This setup leads to some interesting outcomes:
1. Intensity matters
In QV, voters can put more weight behind issues they really care about. For example, in Colorado's Democratic Caucus, QV was used to prioritize bills. Voters could allocate more credits to their top priorities, giving a clearer signal about what mattered most.
2. Minority voices get heard
QV helps prevent the "tyranny of the majority". A passionate minority can focus their credits on key issues, potentially swaying outcomes.
3. Gaming the system is harder
The quadratic cost increase makes it expensive to dominate multiple issues. This encourages voters to pick their battles.
Let's look at a real-world example:
| Entity | Votes Cast | Credits Spent |
|---|---|---|
| Alice | 3 | 9 |
| Bob | 2 | 4 |
| Carol | 1 | 1 |
In this scenario, Alice feels strongly about an issue and spends 9 credits for 3 votes. Bob moderately supports it with 2 votes, while Carol casts a single vote. This shows how QV allows for nuanced expression of preferences.
QV is gaining traction in the DAO world. For instance:
Why DAOs like QV:
However, QV isn't perfect. Setting the right credit budget and ensuring fair distribution can be tricky. Plus, it's more complex than simple majority voting, which might deter some participants.
Despite these challenges, QV represents a step forward in DAO governance. It offers a way to make decisions that better reflect the true will of the community, not just the loudest voices or biggest wallets.
Conviction Voting (CV) brings a new twist to DAO decision-making. It's a system where votes gain strength over time, rewarding long-term commitment to proposals.
Here's how it works:
This approach tackles several issues:
Prevents snap decisions: Unlike one-time votes, CV encourages careful thought over time.
Balances influence: Both large and small token holders can impact outcomes through sustained support.
Allows flexibility: Members can change their votes anytime, with conviction decaying gradually.
Let's look at a real-world example:
| DAO | Implementation | Key Feature |
|---|---|---|
| 1Hive | Honey Pot | Funds allocated based on community conviction |
| Commons Stack | Token Engineering Commons | Governs grant distribution |
These DAOs use CV to manage shared resources and fund projects. The formula they use is:
conviction = tokens * (1 - e^(-time/decay))
Where:
CV isn't perfect. It can be slow for urgent decisions. But for DAOs focused on long-term alignment, it's a powerful tool.
"Conviction Voting allows participants to vote at their convenience and encourages consistency in preferences while allowing changes throughout the process", notes BlockScience, the team that first proposed CV.
For DAOs considering CV, here's what to keep in mind:
Holographic Consensus (HC) is a voting mechanism that combines prediction markets with traditional voting to create a scalable and efficient decision-making process for DAOs. It's designed to filter relevant proposals in large communities, allowing for quick decisions without sacrificing decentralization.
Here's how HC works:
This system has been implemented in all DAOs on the DAOstack platform, impacting over 6000 users across 22 communities.
Let's break down the stages:
| Stage | Description | Voting Requirement |
|---|---|---|
| In Queue | Initial proposal state | 50%+ majority |
| Pre-boosted | Countdown before boosting | 50%+ majority |
| Boosted | Lower passing threshold | Passes if votes aren't negative |
| Executed | Proposal concluded | Staked tokens can be redeemed |
HC aims to solve the scalability issue in DAO governance. By allowing decisions to be made locally with limited attention, it ensures alignment with the global opinion of the DAO.
"Holographic Consensus resolves the tension between resilience and scalability of governance systems", explains DAOstack, the platform pioneering this approach.
For DAOs considering HC, keep these points in mind:
While HC shows promise, it's not without challenges. DAOs must carefully consider their specific needs and community dynamics before implementing this system.
Liquid democracy offers DAOs a flexible voting system that blends direct and representative democracy. It allows members to either vote on proposals directly or delegate their voting power to trusted individuals.
Here's how it works:
This system aims to boost participation and leverage expertise within the DAO community.
| Feature | Description |
|---|---|
| Direct Voting | Members vote on issues themselves |
| Delegation | Members can assign their voting power to others |
| Flexibility | Delegations can be changed or revoked anytime |
| Transitive Delegation | Delegates can further delegate votes |
Several DAOs have adopted liquid democracy:
Liquid democracy can help DAOs tackle low voter turnout. By allowing delegation, it lets less active members still influence decisions through trusted representatives.
However, DAOs should be aware of potential drawbacks:
To implement liquid democracy effectively, DAOs should:
1. Ensure transparent, publicly available voting code
2. Set up checks to prevent governance attacks
3. Align the voting process with the DAO's goals
4. Educate members on responsible delegation
Liquid democracy offers DAOs a middle ground between direct participation and representation. While it's not perfect, it can lead to more informed decision-making and increased member engagement when implemented thoughtfully.
Multisig voting is a DAO governance mechanism that requires multiple signatures to approve and execute transactions or decisions. This approach adds a layer of security and consensus to the decision-making process.
Here's how multisig voting works in DAOs:
Multisig voting has gained traction in the DAO space. In 2024, over 20% of Bitcoin wallets use multisig, up from 15% in 2022. This trend extends to DAOs, with many adopting multisig for enhanced security.
| Multisig Setup | Description | Use Case |
|---|---|---|
| 2-of-3 | Requires 2 out of 3 keys | Small DAOs, project teams |
| 3-of-5 | Requires 3 out of 5 keys | Medium-sized DAOs, companies |
| Custom | Flexible key requirements | Large DAOs, complex organizations |
Several DAOs have implemented multisig voting:
While multisig voting offers benefits, it's not without drawbacks:
Pros:
Cons:
To implement multisig voting effectively, DAOs should:
1. Carefully select key holders to ensure diverse representation
2. Set clear guidelines for the approval process
3. Regularly rotate signers to prevent power consolidation
4. Use tools like Gnosis Safe for secure multisig management
Multisig voting can be a powerful tool for DAOs seeking to balance security with efficient governance. By requiring multiple approvals, it helps safeguard assets and ensures collective decision-making in decentralized organizations.
Each DAO voting mechanism has its strengths and weaknesses. Let's compare the main systems:
| Voting Mechanism | Pros | Cons |
|---|---|---|
| Token-Based Quorum | - Ensures broad participation - Simple to implement |
- Can lead to tactical voting - Potential for governance locks |
| Quadratic Voting | - Reduces whale influence - Allows nuanced preference expression |
- Complex to implement - Still experimental |
| Conviction Voting | - Focuses on resource allocation - Accumulates votes over time |
- May slow decision-making - Can be hard to understand |
| Holographic Consensus | - Combines prediction markets with voting - Filters proposals effectively |
- Requires financial stakes - Can be complex for users |
| Liquid Democracy | - Allows vote delegation - Enhances participation |
- May complicate decision-making - Potential for delegate concentration |
| Multisig Voting | - Adds security layer - Prevents unilateral decisions |
- Can slow down processes - Risk of power concentration |
Token-Based Quorum Voting, used by projects like Compound and Curve, ensures a minimum level of participation. However, it can lead to issues. Michael from Curve noted: "Voting does turn into a game of chasing whales though, which is annoying."
Quadratic Voting aims to address the whale problem. In a scenario with 100 participants, if one holds 100 tokens and others hold 1 each, Linear Voting allows the whale to cast 100 votes, while Quadratic Voting limits them to 10.
Conviction Voting, used by Aragon and 1Hive, allows proposals to gather support over time. This can lead to more thoughtful decision-making but may slow down urgent matters.
Holographic Consensus, implemented by DXdao and Prime DAO, combines voting with prediction markets. Sky from DXdao shared: "It's been interesting to participate in a system which uses non-transferrable REP for voting and a GEN-staking token for predicting on proposals."
Liquid Democracy offers flexibility but can lead to power concentration among delegates. It's a balance between direct participation and representation.
Multisig Voting, used by Synthetix and Yearn Finance, adds security but can slow down processes. In 2024, over 20% of Bitcoin wallets use multisig, showing its growing adoption.
When choosing a voting mechanism, DAOs must weigh these pros and cons against their specific needs and goals. Experimenting with different systems may help find the most effective governance structure.
As DAOs continue to evolve, the choice of voting mechanism remains a critical factor in their success. The landscape of DAO governance is shifting, with projects exploring new ways to balance efficiency, security, and community engagement.
Key takeaways from our comparison:
Quorum-based voting remains popular due to its simplicity, but it's not without challenges.
Innovative mechanisms like Quadratic Voting and Holographic Consensus are gaining traction.
Flexibility is key. DAOs should be open to experimenting with different voting systems as they grow.
Balancing power between large and small token holders is an ongoing challenge.
Security concerns are driving the adoption of multi-layered voting systems.
Looking ahead, we can expect:
More hybrid systems: Combining different voting mechanisms to address specific DAO needs.
Enhanced security measures: Particularly in light of incidents like the Beanstalk hack in 2022.
Increased use of AI: To improve proposal filtering and decision-making processes.
Greater emphasis on long-term alignment: Through mechanisms like vote-escrowed tokens.
| Trend | Example |
|---|---|
| Bicameral systems | Optimism's Token House and Citizen House |
| "Rage quit" options | Nouns DAO's forking procedure |
| Reputation-based voting | Colony's contribution-linked influence |
| Quadratic funding | Gitcoin's grant rounds |
As DAOs tackle more complex decisions, voting mechanisms will need to evolve. The goal is clear: create systems that are fair, efficient, and resistant to manipulation.
Eric Arsenault from DAOstack notes: "The voting mechanism used by your project influences everything from member participation to security and community culture."
This observation underscores the importance of choosing the right voting system for your DAO's specific needs and goals. As we move forward, the most successful DAOs will likely be those that remain adaptable, continuously refining their governance models to meet the changing demands of their communities and the broader blockchain ecosystem.
The governance structure of a DAO is fundamentally different from traditional corporate models. Here's what you need to know:
Flat structure: DAOs use a distributed power model where all members have a say, unlike hierarchical management in conventional organizations.
Smart contract-based: DAOs run on blockchain protocols, with rules encoded in smart contracts for automated decision-making.
Token-based voting: Members typically use tokens to propose and vote on decisions, such as fund allocation or contract modifications.
Transparency: All transactions and decisions are recorded on the blockchain, visible to all members.
| Traditional Organization | DAO |
|---|---|
| Hierarchical management | Flat structure |
| Centralized control | Distributed power |
| Closed decision-making | Open voting process |
| Manual governance | Smart contract automation |
DAOs aim to create a community-driven approach to decision-making. However, this structure comes with its own challenges:
As the DeFi sector grows, DAO governance continues to evolve, with projects exploring new ways to balance efficiency, security, and community engagement.
