Verisoul - Henry LeGard, CEO
Introduction
Many are familiar with the governance crisis DAOs face: the vast majority of today’s DAOs are governed by a plutocracy in which each blockchain governance token represents 1 voting power (Token-Weighted Voting). Although governance tokens can be distributed based on merit - such as for contributions to the DAO or its community - each token can be transacted for currency, giving each one a monetary value. Therefore, the governance is fundamentally based on wealth, unlike most democratic governments today.
But many may not realize how challenged the current Plutocratic voting systems are, why they are core issues that need to be solved, and why DAOs haven't adopted different governance models. In this first of a two-part blog post, I will explore the problem and its impact on centralization, user engagement, and the longevity of DAOs. In part 2, I will explore possible solutions to this crisis, and will explain why other governance models haven't been widely implemented.
🪙 Token-weighted voting is widely adopted due to simplicity and incentive alignment
Token-weighted voting is the most common method of DAO governance, because it is simple to implement, easy to understand, and creates clear early-stage incentives for investors, founders, and contributors.
i) Easy to understand
ii) Simple to implement
iii) Aligns incentives
👤 Token-weighted voting leads to high centralization and low participation
However, this model has several long-term drawbacks. For example, because governance tokens have currency value, new members must buy tokens to garner voting power - creating a Plutocracy in which the wealthiest members control the governance of the DAO. Invariably, this results in highly centralized bodies of a few members with outsized sway. And over time, lack of voice for the average member discourages their participation and drives user churn.
🏦 DAO voting power is more concentrated than wealth in the US
📞 DAO voter participation is less than a cold call conversion
⚠️ Centralization and apathy threaten the longevity of DAOs
The current token-weighted governance model, although attractive at setup, threaten the longevity and livelihood of DAOs. Centralization and voter apathy increase the likelihood of governance attacks, create a vicious cycle that leads to user churn, and threaten the long-term success of DAOs.
i) Governance attacks
ii) Vicious cycle
…Coming in Part 2