In A DAO, Who Gets to Vote?

How to Vote and How to Govern

Summary:

• In this post we discuss the importance of establishing governing and voting structures
• We provide a framework for establishing the appropriate structure
• Questions DAO founders should ask when establishing DAO governance and voting
• Differing voting structures — recognition that there is no perfect system
• Proposing a multi-layered approach to voting starts approaching more traditional notions of fair voting

Part 1: How it Went Down

Identifying the appropriate Governance Structure for Your DAO:

Once you establish your DAO’s mission and purpose, the governance and voting structure will be the driving force that helps your DAO achieve its mission.

Choosing your voting structure, or combination of structures, should be done with great care because they will set you up for future success. Keep in mind that if the initial voting structure you establish isn’t working, as a DAO, you can adjust the voting structure to align it closer to the DAO’s mission and purpose.

Here’s a three step process to help you determine your DAO’s governance and voting structure:

1.Outline your desired outcome and possible setbacks

What outcomes should be supported by the governance and voting structure?

• Will members be able to vote on every proposal for the DAO?
• Or will voting be limited to proposals that are greater or lesser than a given threshold .

Does your voting structure allow you to scale?

• If your treasury is $100 or $100 Million, would your governance structure change your approach to voting?
• If you have 10 members or 100,000 members, would your voting structure change?

What is the frequency and impact of the votes / participation you want your members to have

• Will everyone have the same amount of voting power?
• Or will a DAO council have a greater say?

What are some of the drawbacks you can experience as a DAO founder?

• It may be he helpful to create list of questions that you think your DAO members would ask you
• It will also be beneficial to take an honest inventory of your strengths and weaknesses in order to plan accordingly

2.Outline your governance and voting structure

Governance — how you organize, manage, and implement decisions within your DAO, ensuring smooth operations and effective execution of changes.

• How can you design a governance structure that encourages transparency, inclusivity, and accountability among DAO participants?

Democracy — the method by which voting and decision-making take place within the DAO, allowing stakeholders to express their opinions and collectively determine the course of action.

• What mechanisms can you implement to ensure fair representation and prevent the dominance of certain individuals or groups within the democratic process?

Who holds the power? Understanding the different forms of power within a DAO can help identify key stakeholders and their influence:

• Soft power refers to the ability to influence decisions through persuasion, knowledge, or reputation.
• Hard power involves the ability to enforce decisions through mechanisms like token ownership, voting power, or veto rights.
• Social power is derived from social connections, networks, and the influence individuals hold within the DAO community.

Token emission — refers to the creation and distribution of tokens within the DAO, which can affect governance dynamics and stakeholder incentives.

• Which token emission model aligns with the DAO’s goals and values while promoting long-term sustainability and preventing concentration of power

Forethought — Setting up your democracy structure early helps establish clear guidelines, roles, and processes, reducing confusion and enabling the DAO to operate smoothly from the beginning.

• How can you design a flexible and adaptable governance structure that can accommodate evolving needs and changes within the DAO over time?

3.Document your governance and voting structure

• Transparency plays a crucial role in DAOs! Thoroughly document your DAO’s governance and voting structure. This is essential to provide community members with the ability to access, review, and assess the voting processes and decisions. Early members of the DAO will be able to keep track of the DAOs evolution, while future joiners can come up to speed absent additional context.

How We Went About It

My First DAO

My First DAO’s mission is to provide essential knowledge for people who want to participate in, and start, DAOs. We achieve this through a 24 week membership program.

During the 24 weeks of educational events, the Upstream team will serve as the signers on the DAO’s multi-sig wallet in order to execute proposals passed by the community. After the program’s conclusion, the NFT Project’s IP and DAO treasury will be transitioned to the DAO and the members will lead the next phase of the DAO’s growth.

To simplify the implementation of My First DAO simple and effective, we decided to use the ERC-1155 DAOphin NFTs as the mechanism that grants members a right to vote on governance.

# DAOphins = # votes

E.g. 1 DAOphin = 1 vote, 3 DAOphins = 3 votes, etc.

We decided to move forward with the 1 token 1 vote model because for the 24 weeks of our program, proposal creation and voting is meant to support our mission of creating a hands-on learning experience for members. We also do not plan to make proposals focused on investing, or anything that can monetarily affect the DAO.

Additionally, The DAO Council (currently The Upstream Team) is responsible for the initial screening of all new proposals to ensure that they are feasible, legal, and of value to the mission of the DAO.

We also made sure to include the following criteria in our DAO’s bylaws:

• The House of Members consists of all active DAO members and this group will vote on all proposals that have successfully been screened by the DAO Council.
• In order to pass a proposal in the House of Members, the following criteria must be met: Quorum: 25% of all active members Voting threshold: a majority of >50% of the House of Members must approve before a proposal is fully passed
• If quorum is not reached, the proposal will remain active until participation reaches quorum.
• If a proposal fails to be approved, it will be sent back to the owner of the proposal for edits before it can be submitted again to the DAO Council.

Having this statement in our DAO bylaws gives us the freedom to modify the governance and voting structure if necessary to secure the long-term success of our DAO.

Part II: Validation from an outside perspective

As discussed above, one of the most important elements for a DAO is voting. Unfortunately, since many people around the world have experience with voting in one way, shape, or form, the topic suffers from a lack of careful study and thought due to a cognitive bias that falls under the category of Self-Assessment: Illusion of explanatory depth. In short, this bias is where people tend to believe that they understand something better than they do, and this is often due to their perceived familiarity arising from personal experience.

We, however, have the opportunity to properly scope out a voting system that learns not only from history, but also from false starts explored at other DAOs with which we have been associated. So, how can we approach this topic?

One Person, One Vote

Starting from the premise that a democracy is associated with one person, one vote (1P1V), we must consider that this system, while familiar in most of our lives, is optimized for a situation where a person is verifiable and identifiable. This approach has the benefit that every DAO participant has a voice and sets everyone on an equal footing. In DAOs, organizations where participation is possible in an anonymous manner, however, we quickly run into a concept from computer science: a sybil attack. In its simplest form, this is when someone creates multiple personas and in this fashion, can artificially inflate their influence.

One Token, One Vote

Assuming that we are comfortable with this, because the DAO wants individuals with financial weight to be involved with a DAO, we then come across the voting structure of one token, one vote (1T1V). On the surface, this might seem logical, as rewarding higher token holdings, whether through governance tokens or governance NFTs, recognizes the individual’s commitment to the DAO. Unfortunately, this approach moves us away from democracy and firmly into the realm of plutocracy/oligopoly. This approach also has the added effect that participants with more limited financial means will be disadvantaged relative to those with more, and this persistent disenfranchisement will strain the relationships in the DAO, because a sense of futility might eventually lead to participant exits from DAOs.

If you tie the prior two concepts together into one wallet, one vote (1W1V), while permitting anonymity at the DAO, you do not actually solve for anything since a sybil attack is still possible by distributing token holdings across multiple wallets.

Quadratic Voting

Quadratic voting, however, is a novel approach that is designed to lead to more fair voting. In this approach, the cost to vote is exponentially more expensive based on the number of votes cast in favor of a proposal. To illustrate how this works, 1 vote “costs”, or requires, 1 token; 2 votes requires 4 tokens; 3 votes requires 9 tokens. A simplified formula is:

cost to the voter = (number of votes)²

While more fair, this approach still enables participants with more financial means, and hence ability to own more tokens, to have larger influence in DAO voting. Further, it also does not alleviate the risks associated with sybil attacks. This is due to the recognition that there is no penalty for voting 1 token for 1 vote, and the token owner can create multiple wallets thereby maximizing their outsized impact on the DAO.

Courses of Action

One DAO with which we have been associated, recognized that sybil attacks were a problem and that oligopolistic tendencies ran counter to their desired outcome and DAO North Stars (i.e. mission and vision). To address this, this DAO took a combination approach to voting. They combined token-based voting associated with 1T1V, with account verification in the form of assigning a role or rank in the DAO. This permitted individuals, anonymous and doxed, that were verified to qualify for a role, and to vote so long as they held tokens, thereby arriving again at the promise of democracy driven by 1P1V.

After solving for a fair approach to voting, other challenges require attention. Among them, how do you ensure that voters, who all have the same influence, are informed. The risk now becomes that uninformed opinions can have undue influence as not all individuals are high context nor are all individuals always involved with the day-to-day of the DAO. Circling back to our last post on the need for a DAO Council, having a team of high context individuals provides a way through. Delegating decisions that require high-context to an empowered team ensures that the necessary perspective is present when those decisions are taken.

This delegation, however, carries the risk that the team to which the authority is delegated could become unresponsive to the community or does not have the community’s perspective when critical. We will address the topic of how to handle this challenge, in our next post.

Conclusion:

As discussed above, DAO governance and voting is of paramount importance when establishing a DAO. The decisions taken when settling on an approach can either support or hinder the DAO’s ability to achieve its long-term objectives. As such, careful consideration is necessary and a thoughtful approach is required. There is no one structure that fits all DAOs and there are many structures and approaches when it comes to voting. Each approach has its own shortcomings, and there is no magic solution.

Other DAOs have already confronted this issue and some have settled on a combined approach in order to minimize the risks by having overlapping structures. Nevertheless, there are still drawbacks and it’s a matter of arriving at the combination that presents the lowest risk profile, supports the DAOs objectives, and that ultimately, the DAO and with which its members can live.

Disclaimer: The above represent the personal opinions of the authors and should not be ascribed to any affiliations thereof. Further, the above does not constitute a recommendation or solicitation to purchase or sell any assets that may be referenced herein. As of the time of this writing, the authors may or may not have positions in any above mentioned assets.