Why the Reputation Voting Governance Model is essential — Metopia
What is a DAO?
DAOs (Decentralized Autonomous Organizations) are internet-native organizations that are community run through transparent decision-making processes via computer encoded rules. Unlike a traditional organization, DAOs, through the use of the blockchain, allow members to have input in governance and resource management decisions through the community treasury.
Although the definition of a DAO varies from person to person, there is a general consensus that they are a bottom-up structure unlike a traditional company, and anyone from anywhere is able to contribute to the decisions of the DAO.
There are currently two DAO membership models- a token-based membership and share-based membership. Although tokens and shares were originally the main forms of voting rights, there has been a rise in the different types of voting mechanisms to ensure the decentralization of the organizations during the decision making process.
DAO Participation
Throughout the course of history, voter participation has been the defining factor in defining elections. In U.S politics, Democrats Jon Ossoff and Raphael Warnock won the race in Georgian Senate elections in 2021 to give the Democratic party the control of the Senate, allowing Joe Biden to pass legislation with ease. The defining demographic was the high voter turn-out (voter participation) from Asian Americans voters, propelling the two Democrats to win the elections.
Now how does this relate to DAOS? Voter participation is vital for any election, as the margin of error can define the future of an organisation/country. In Web3, elections are done in the DAO, and despite the downturn in the market, DAO participation remains low, suggesting that it has reached it ceiling at a rate of 0.64%. We have to ask ourselves- should an organisation with a <1% participation rate dictate how it should run? Is it a true reflection of the community goals and values?
In this research piece we will be introducing a few voting mechanisms and explaining not only how to create a fairer, democratized representation of the community, but how to increase voter turnout.
Token-based quorum voting
The Token-based quorum is the most popular voting mechanism as it is the most basic voting at its purest form. A minimum threshold is usually set by the DAO and requires a number of members to participate in the voting process. If the threshold has been met, the most popular decision wins, a failure to reach the threshold means the proposal fails.
However, there are several disadvantages to token-based quorum voting, although it attempts to encourage active member participation and to side with the majority- it fails to identify the appropriate quorum. By setting a minimum threshold for a proposal to pass, it requires a minimum level of participation amongst DAO members, and a large majority of proposals fail due to poor participation levels. It also puts pressure on DAOs to sustain a certain level of activity in their community and it’s already proven to be a time consuming and expensive challenge for DAOs.
An alternative is to set a low quorum, however this poses risks of bad practices as it makes passing a proposal extremely easy as large token holders are able to sway the decisions of the DAO due to the already low participation rates. Despite being the leading governance model of choice today, it still leaves an unbalanced favor for those who have greater purchasing power than other community members.
Quadratic voting
The quadratic DAO voting mechanism aims to solve the “one-token one-vote” dilemma, which gives those with the most tokens/NFTs the most influence in DAO governance. Under the quadratic voting system, every member has the right to vote on a proposal, however the cost of the vote is the square of the number of votes a member wishes. Here’s a quick breakdown of how it works.
1 vote = 1 token
2 votes = 4 tokens
3 votes = 9 tokens
10 votes = 100 tokens
This voting mechanism provides an alternative to a one-token one-vote system by “watering down” the voting power of larger token holders. However, quadratic voting has its flaws as members can distribute their tokens through a series of wallets and could override the system by acting pseudonymously. It also reduces voting power significantly of larger token holders, which could disincentivize the initial participation of the user.
Reputation voting
Reputation voting is a system where member’s voting powers are directly related to their on-chain and off-chain activities. A reputation score is essentially an aggregate score given to users, this is calculated by collating a multitude of factors, the score translate to a voting weight. Using holding durations of NFTs as an example, DAOs may create an incentive for their holders by rewarding additional voting power for long-term holders. Eg; Hold duration > 365 = 10% voting weight.
Examples of on-chain activities include
- Holding duration of tokens/NFTs
- Staking History
- Governance History
- Soul Bound Tokens, Proof of Attendance Protocol
- NFT Traits
Examples of off-chain activities include
- Twitter Space attendance
- Discord activity, engagement, roles
The aim of the reputation system is to take into account multiple factors and to allow teams to create perks and incentives. We believe that governance should not be purely based on the amount of tokens that Web3 users hold, but the quality of their members too. As we know, the community of any project is gold and by creating incentives to keep them around the ecosystem is necessary to sustain a healthy community.
Metopia is building an NFT membership system that tracks member participation in DAO events and creates credentials based on NFT metadata and enables governance right customizations.
Metadata is accessible in the Web3 space, with the integration of platforms such as Snapshot, Tally, Mask, RSS3, Moralis and Discord, Metopia is able to capture a wide range of references, allowing DAO teams and NFT communities a community management tool. NFT communities will also be able to see the credentials of their users, from holding periods to Twitter Space attendance, allowing them to create incentives along the way for their community.
Conclusion
There are thousands of DAOs in Web3 and they all differ in terms of governance systems. Each governance system serves a different purpose, however the main problem that DAOs face are the low participation rates already in the ecosystem. The question is, are there any governance systems aiming to incentivize instead of disincentivize?
We believe that the reputation system is essential as it aims to take into account a multitude of factors, enabling NFT communities and DAO teams to unleash the full potential of their members.
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