Enabled by blockchain-powered smart contracts, DAOs are decentralized, member-controlled organizations governed by computer encoded rules. Currently, there are two DAO membership models – token-based membership and share-based membership. While tokens and shares were originally the main forms of voting rights, today a number of DAO voting mechanisms have been proposed to ensure that voting and governance remain decentralized and to encourage more community members to take part in the decision making process.
Token-Based Quorum Voting
The token-based quorum is among the most basic DAO voting mechanisms. For a proposal to pass, a certain number of DAO members must participate in the voting process. If the threshold has been met, the decision that has received the most votes wins. Failing to reach the threshold means that the proposal fails.
Although token-based quorum voting tries to encourage active member participation and consider the mass opinion, there are some challenges. It’s often a challenge to pinpoint the appropriate quorum. Requiring more members to vote may mean that the majority of proposals fail due to poor participation levels. However, setting a low quorum poses risks of bad practices and makes passing a proposal extremely easy, which could lead to the DAO developing in the wrong direction.
Regardless of the set quorum, encouraging members to participate is a time-consuming and expensive challenge for most DAOs. Some may prefer to remain inactive to sabotage a proposal being passed or they could simply not be interested in the decision-making process. Furthermore, as a token-based voting model, this mechanism ties in financial stability with voting power, as members with more tokens could manipulate and bribe others, potentially turning DAO voting into political activity.
Permissioned Relative Majority
In a permissioned relative majority DAO voting mechanism, the key factor is how many voters have voted ‘for’ and ‘against’ a proposal. There is no minimum voting requirement, and even one member can be the sole participator in the decision-making. The voting process is easy and straightforward, making it less expensive and less demanding. However, the mechanism allows a single DAO member to gain too much power and choose how to manage DAO funds. Additionally, the mechanism makes proposal passing a risky endeavour as it is a very easy process that doesn’t require too much attention from other members.
One way to overcome these challenges is to require proposal sponsorship from DAO members. This option has already been explored by Moloch DAOs.
The rage quitting voting mechanism is one example of how sponsorship has been utilized to increase security in the DAO voting process. The mechanisms could potentially offer a solution to the relative majority challenges. Before a proposal can be voted on, it must be sponsored by members. If the majority approves the proposal, it enters a grace period, where voters can reconsider and withdraw their support from the vote or from the DAO. If the proposal no longer receives enough support after this stage, it is discarded.
The main advantage of this voting mechanism is that it tackles the risk of majority voters gaining an advantage over minority voters. However, the voting process is extremely long, which may not be a viable option for all DAOs.
Under the quadratic DAO voting mechanism, voting power is directly linked to financial power. Every member has the right to repeatedly vote on a proposal, where the cost of the vote is the square of the number of votes a member wishes to acquire. For example, if a single vote costs one token, two votes will cost four tokens, and three votes will cost nine tokens. This enables members to show how strongly they believe in a proposal, especially on decisions that they’re strongly passionate about.
This model of voting offers a solution to the risks of relative majority votes and clearly shows how strongly opinionated the DAO community is on certain topics. However, participation of a fake identity in the voting process could lead to unfair results, which is why proof of identity is a key necessity with quadratic voting.
As one of the newer DAO voting mechanisms that is still experimented with, conviction voting is based on the community’s aggregated preference and uses time as a utility. Members can vote on different in-progress proposals and the longer their vote remains the same, the stronger the power of the vote becomes. The increase of the voting utility slows down gradually as it inches ever closer to a set maximum point. Voters can make changes to their vote at any time, in which case the voting utility of their previous vote will eventually diminish.
This mechanism is a great way to display how interested voters are in a proposal and perhaps how their opinions are influenced by internal or external factors. There is no need for a majority vote in order to pass a proposal, but rather the community’s beliefs are at the core of decision making. It’s also an efficient way to eliminate the risks of new DAO members gaining too much power in the DAO protocol.
On the downside, the mechanism requires significant time for a verdict to be reached, making it inappropriate for DAOs in need of time-sensitive decisions. It is likely that if conviction voting is adopted by more DAOs it could be used in combination with another, quicker mechanism.
The holographic consensus DAO voting mechanism is designed to screen out and focus attention on proposals that are most likely to be passed in a DAO. This model of voting aims to solve the governance scalability-resilience problem in decentralized organizations. Under the mechanism, members can predict whether a proposal will pass or fail and bet on the ones they believe will be successful using tokens. If the prediction is correct, the predictor receives a reward in the form of tokens and if it fails – they lose tokens.
This ultimately allows for a small group of DAO members to help present the beliefs of the majority. And although the mechanism can be successful in expanding scalability and reducing the chances of attacks as foul proposals need to be funded, a voting protocol of this kind can be financially demanding and difficult to adapt and maintain in the long-term.
Multisig voting is a DAO voting mechanism aimed at creating a balance between central authority and decentralization in an organization. Under this model, DAO members have the power to signal on proposals, while a centralized and predetermined committee executes the vote on the suggested proposal. This model is one of the fastest voting mechanisms and could be appropriate in cases, where urgent action is key to the survival of the DAO. However, there are risks of the centralized authority taking advantage of their position and voting in a way that is now in the best interest of the larger portion of the DAO community.
Liquid democracy or vote delegation shares the core principles of political democracy. In this case, a DAO assigns specialists to participate in an electorate that has the power to make decisions on behalf of DAO members. Members delegate their votes to trusted experts of their choice, who are better prepared to make the right decisions regarding the DAO’s future. This approach is more centralized than some of the other methods, but to counter that, DAO members have the power to transfer delegation at any time and assign new participants to the electorate.
The benefits of this form of DAO voting mechanism are that it is likely that better and more informed decisions will be made in the best interest of the DAO. However, as with the political democracies that we are familiar with in our world, bribery and corruption could manipulate decision-making.
A state of trial and error
DAOs are still a relatively new form of entity and as such, no voting mechanism has yet proved to be fully efficient. While each voting model has its advantages for certain types of DAOs, there are still a number of key challenges that call for attention. As blockchain technology continues developing and decentralized autonomous organizations become more popular, it is likely that we’ll see new forms of DAO voting mechanisms arise or perhaps different voting models combined to offer a successful solution.
With vast experience in the blockchain space, Limechain is a DAO contributor to a number of projects like LeagueDAO, MANTRA DAO and others. If you’re ready to take your DAO project to the next level, get in touch and let’s talk about how our team can be of help.