Setting up DAO Governance: A Guide to the Latest Strategies and Examples
Decentralized Autonomous Organizations (DAOs) are a powerful and exciting innovation in the world of blockchain and cryptocurrency. By leveraging smart contracts and other blockchain technologies, DAOs enable decentralized and transparent decision-making and governance without the need for central authority or intermediaries.
But setting up a DAO and implementing effective governance can be a complex and challenging task. In this guide, we’ll take a look at some of the latest strategies and best practices for setting up DAO governance, along with examples of successful DAOs that are using these strategies in the real world.
The Basics of DAO Governance
Before we dive into the latest strategies and examples of DAO governance, let’s first take a look at the basics of what DAO governance is and why it’s important.
DAO governance refers to the mechanisms, processes, and rules that are used to make decisions and manage a DAO. This can include things like voting systems, proposal submission and review processes, and dispute resolution mechanisms.
Effective DAO governance is crucial for the success and sustainability of a DAO. It enables members of the DAO to have a say in its direction and operations and ensures that the DAO operates in a transparent, accountable, and decentralized manner.
Strategy 1: Token-Weighted Voting
One of the most common and effective strategies for implementing DAO governance is token-weighted voting. In this system, each member of the DAO has a certain number of votes based on the amount of tokens they hold. This gives members with larger token holdings more influence and power in the governance process.
Token-weighted voting is used by many successful DAOs, including MakerDAO and Compound. In the case of MakerDAO, for example, MKR token holders can vote on proposals to change the DAO’s governance parameters, such as the stability fee for the DAI stablecoin.
Strategy 2: Delegated Voting
Another popular strategy for implementing DAO governance is delegated voting. In this system, members of the DAO can delegate their voting rights to other members or groups that they trust and believe will make decisions in the best interests of the DAO.
Delegated voting allows for greater scalability and participation in the governance process, as members don’t have to actively participate in every vote in order to have their say. It also enables more specialized and expert decision-making, as members can delegate their voting rights to individuals or groups with expertise in specific areas.
DAOs that use delegated voting include Aragon and MolochDAO. In the case of Aragon, members can delegate their voting rights to other members or to organizations known as “DAO curators” that specialize in specific topics or areas.
Strategy 3: Liquid Democracy
Liquid democracy is a more complex and sophisticated strategy for implementing DAO governance. It combines elements of both token-weighted voting and delegated voting, allowing for both direct participation and delegation of voting rights.
In a liquid democracy system, members of the DAO can either vote directly on proposals, or delegate their voting rights to other members or groups. Delegated votes can be further delegated, creating a hierarchical and flexible structure for decision-making.
Liquid democracy is used by DAOs such as Democracy Earth and the DAOstack. Liquid democracy allows for a more nuanced and fair representation of the community’s preferences and interests. By leveraging the power of liquid democracy, they are able to foster active participation and engagement from their members, while also enabling specialized and expert decision-making when necessary.
Strategy 4: Quadratic Voting
Quadratic voting is a relatively new and innovative strategy for implementing DAO governance. It is based on the idea that each individual’s influence in the governance process should be proportional to their willingness to pay for it, rather than simply their token holdings or delegated votes.
In a quadratic voting system, members of the DAO can submit multiple votes on proposals, but each additional vote comes at a higher cost. This means that members who are highly passionate or invested in a particular proposal will be willing to pay more for their additional votes, while those who are less passionate or invested will have less influence.
DAOs that use quadratic voting include the Metacartel DAO and the DAOstack. In the case of the Metacartel DAO, members can submit multiple votes on proposals, but the cost of each additional vote increases quadratically. This allows for a more nuanced and fair representation of the community’s preferences and interests.
Conclusion
In conclusion, setting up effective DAO governance is a crucial step in creating a successful and sustainable decentralized autonomous organization. There are a range of strategies and approaches that can be used, including token-weighted voting, delegated voting, liquid democracy, and quadratic voting. By carefully considering the unique needs and goals of your DAO, you can choose the right strategy and implement it in a way that promotes transparency, accountability, and decentralized decision-making. Examples of successful DAOs that are using these strategies in the real world can provide valuable insights and inspiration as you work to set up your own DAO governance system.
At MC² Ventures, we have extensive experience working with DAOs and helping clients set up their governance systems. We can provide guidance and support on choosing the right strategy and implementing it in a way that aligns with the unique needs and goals of your DAO. Whether you’re just starting out with your DAO or looking to improve your existing governance system, we can help you make informed decisions and avoid common pitfalls. Contact us today to learn more and get started on your journey to effective and sustainable DAO governance.
