Voting apathy is destroying the promise of DAO’s
Introduction
With $40.3B in total funds managed and more than 10M governance token holders, Decentralized Autonomous Organizations (DAOs) have sparked a lot of interest since their dawn. They offer a new way to run organizations, based on transparency and decentralization, as opposed to the classic top-down hierarchical management framework found in traditional companies.
The idea is that in DAOs, everyone gets a say in decisions, much like a democratic club. But there’s a problem: not many people are actually showing up to vote on these decisions.
Imagine a town hall meeting where only 3 of every 100 members show up to vote — it hardly feels democratic, nor inclusive.
Low voter participation means less decentralization, which is the central thesis for DAOs’. These types of organizations, which lead the Web3.0 (and DeFi in particular) are suffering from a crisis that sees skepticism surrounding the authenticity of their decision-making process.
By looking at this dashboard from DAOAnalyzer (which analyzed a dataset of 3000+ DAOs), we can see how less than 3% members vote in DAOs proposals. These digital-native entities are built on the principles of blockchain and Web3 technologies, embodying the spirit of democracy by giving each token holder a voice in crucial decisions. Yet, despite these lofty ambitions, DAOs are facing a critical challenge that threatens the core of what they aim to be: voter participation is alarmingly low.
Let’s take Uniswap — one of the biggest DAOs in the crypto space — as an example: the average voter turnout is 0.33%. No, we didn’t get the numbers wrong. It really is that low!
Taking up the previous metaphor of the town hall meeting, we could say that most DAOs are basically ghost towns, lacking the passionate debate they were set up for.
This scenario mirrors the current state of affairs in many DAOs, where the excitement surrounding the democratic potential of these organizations is dampened by the stark reality of voter apathy. The numbers paint a clear picture: a comprehensive study of 50 DAOs revealed that, on average, only about 1.77% of those eligible to vote actually do so.
To put this into perspective, it means that in a community of 1000 members, fewer than 20 typically decide to cast their vote.
This lack of engagement isn’t just disappointing for those who dreamed of a new era of organizational democracy; it also poses significant practical problems. The central promise of DAOs is to distribute power away from a concentrated few and return it into the hands of the many, restoring a democratic environment. However, with such low participation, decision-making power inevitably skews towards the largest token holders, echoing the very centralized structures DAOs were meant to dismantle.
In fact, current DAOs’ power dynamics are almost indistinguishable from traditional organizations. More than a democracy, most DAOs resemble plutocracies where only the richest participants (we could call them whales) are actually able to influence the outcome of collective proposals.
By analyzing the numbers, it’s painfully clear that it takes no more than the two top voters to secure 55% of all voting power.
By adding the third and the fourth, we reach as high as 66%.
With these statistics in mind, can we really say that DAOs’ decision-making processes are decentralized, or at the very least, evenly distributed? Probably not.
Additionally, the issue of voter participation in DAOs isn’t merely a matter of internal governance; it has substantial implications for how these organizations are viewed and regulated by external authorities, like the Securities and Exchange Commission (SEC) in the United States.
The SEC has been closely monitoring the crypto space in recent years, and their stance on DAO tokens is pretty clear: they’re likely to be treated as securities, which brings a whole host of regulatory requirements, i.e. registering tokens to adhering to ongoing public reporting obligations.
Now, navigating SEC regulations is definitely no small task, particularly for organizations that pride themselves on operating outside traditional frameworks, but luckily, there’s a catch: if a DAO can prove that its decision-making is genuinely decentralized, its tokens might avoid being classified as securities.
This regulatory nuance adds another layer of urgency to resolving the voter participation issue; without broad-based engagement, DAOs risk not only losing their democratic ethos but also facing tougher regulatory scrutiny.
The challenges facing DAOs are not insurmountable, but they require a concerted effort from all stakeholders. Boosting voter turnout is crucial, not just for the internal health and vibrancy of these organizations but also for their ability to navigate the regulatory environment.
Innovative solutions are needed, from technological fixes that make voting easier and more accessible, to incentive structures that motivate token holders to participate in governance.
Luckily, there might be a solution: QuickSnap, the governance participation booster.
QuickSnap: Making Governance Great Again
Now that we have an overview of the current problems of the DAO landscape, let’s see why QuickSnap might solve most of them. QuickSnap it’s a permissionless governance marketplace based on Snapshot, which incentivizes the participation of individual voters in DAOs.
It operates through two main actors:
- Providers
- Voters
Providers are entities who aim to incentive a specific behavior, influencing therefore the outcome of a proposal.
They provide these incentives by depositing them on the platform, and voters will be able to perform the action and get the rewards.
On the other hand, Voters are the entities who are incentivized to vote, by having rewards directing their voting behavior. They can claim rewards without incurring any fee.
Rewards are calculated based on the voting type of the proposal. QuickSnap currently features 6 types of voting, based on Snapshot. This is the perfect partner for Quicksnap. By taking advantage of its network it can reach more than 60 chains and engage with over 56,000 token projects in voting, including DeFi giants such as AAVE and Lido, automatically gaining a deeper market penetration.
Now, QuickSnap infrastructure acts as a catalyst for governance participation, by introducing more incentivization strategies. For example, to raise the voting activity, providers can leverage QuickSnap’s marketplace to introduce bribes (remember how the Curve Wars increased the economic activity around its ecosystem?).
Thanks to a proper incentivization program, the enhanced activity would greatly contribute to solving the crisis of DAO Voters apathy, and QuickSnap can provide the framework to achieve it.
Also, while this mechanism overall improves the DAO ecosystem, it would enhance the whole industry as well, giving it more credibility. Furthermore, as we have seen above, this would also support and solve the SEC related concerns, because QuickSnap, by incentivizing voting activity, is increasing decentralization, and a sufficient level of decentralization justifies DAOs’ categorization as a new management paradigm. That means a distinction from traditional corporations would be certified, avoiding DAO tokens to be considered as securities.
Finally, following a16z recommendation in “Progressive decentralization: a high-level framework”, DAOs could start a progressive decentralization plan, implementing QuickSnap as a valid alternative paradigm to the common launch of DAOs.
These last ones in fact could meet milestones regarding decentralization and voter activity in less time, and in a more stable way, equalizing the so called MDUs (minimum decentralized units) between DAOs, making the bars progress more linearly.
Conclusion
“Show me the incentive and I will show you the outcome” — Charlie Munger
As one of the greatest investors of our generation, Munger’s words are not to be underestimated.
Many studies, such as the ones conducted by the Nobel-Prize winner economist Thaler, confirmed that humans are incentive-led creatures: therefore, giving them the right incentives is the best way to increase the likeliness of the desired outcome.
That’s why we like to say that QuickSnap is a “human-engineered” protocol: by mixing game theory and behavioral economics with the transparency and composability of Web3, we aim to create an environment in which every individual can get rewarded appropriately for its participation.
This way, the voting act itself becomes the source of reward.
New developments are coming as we continue to build the marketplace that empowers governance participation. More articles on how QuickSnap develops a more decentralized DAO ecosystem will come out soon.
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References:
- Xuan Liu, The Illusion of Democracy? An Empirical Study of DAO Governance and Voting Behavior, 2023.
- Securities and Exchange Commission, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Release №81207 (July 25, 2017), https://www.sec.gov/litigation/investreport/34-81207.pdf
- David Lowery, Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups, in The Oxford Handbook of Classics in Public Policy and Administration 205 (Steven J. Balla et al. eds., 2016)
- DAO-Analyzer: Exploring Activity and Participation in Blockchain Organizations https://dl.acm.org/di/abs/10.1145/3500868.3559707
- https://dao-analyzer.science/daohaus
- Brian Rudick, 2021, https://www.gsr.io/reports/chart-of-the-week-community-governance-with-decentralized-autonomous-organizations/
- Ben Schecter, 2021, https://a16zcrypto.com/posts/article/the-future-of-work-daos-crypto-networks/
- Nudge: Improving Decisions about Health, Wealth, and Happiness — Richard H. Thaler e Cass R. Sunstein
- https://mirror.xyz/jaqen.eth/kviiWkpDpN5wt0QVsdbNtcwZtzOtGdgPJyaY7yzU75w
- https://blog.shutter.network/shutter-brings-shielded-voting-to-snapshot/
- https://a16zcrypto.com/posts/article/progressive-decentralization-a-high-level-framework/
