While the rapid growth of Decentralized Autonomous Organizations (DAOs) is exciting, it also raises a key governance issue – the potential for dominance by a small number of stakeholders who own a large number of tokens. The possibility of such oligarchies, commonly called the "plutocratic" problem, is an aspect that deserves our attention.
The purpose of this paper is to explain ways to address this problem while strengthening the democratic integrity of the DAO.
1. Appropriation by proportional voting
A revolutionary way to overcome this problem is quadratic voting (QV). Unlike traditional linear voting, QV has additional costs associated with additional votes. In other words, each subsequent vote requires disproportionately more tokens. This mechanism levels the playing field by discouraging vote stacking and encouraging selective voting by focusing on issues that really matter to individual voters.
2. A model of delegated democracy
Delegated democracy or floating democracy is another way to protect the DAO from excessive concentration of power. Token holders have the ability to delegate voting rights to representatives they trust and ensure their voice is still heard without actively participating in every vote. This model combines elements of direct democracy and representative democracy to increase diversity and inclusion in decision-making.
3. Lifetime voting rights
Long-term commitment to the DAO can be encouraged and rewarded by tying up voting rights with the duration of token holding. The system prevents the rapid accumulation of tokens to manipulate decisions and promotes loyalty and accountability among participants.
4. Unique identity verification to ensure one vote per person
The concept of "one person, one vote" is at the heart of any democracy. To comply with this principle, DAOs can implement unique authentication systems that ensure that every member has equal voting rights. However, the challenges of maintaining decentralization and anonymity must be handled with care. New technological solutions, such as decentralized identity platforms or zero-knowledge proofs, may be the key to achieving this balance.
5. Include a tiered governance structure
To combat token-based dominance, DAOs can create multi-layered governance structures where specific decisions must pass multiple voting thresholds. Each layer can have a different distribution of voting rights, further ensuring that no one entity can dictate the outcome of the vote.
6. Restrictions on individual voting rights
Another way to prevent single member control is to set a maximum voting limit per address. This democratic provision ensures an even distribution of influence in the DAO.
7. hybrid governance model
A hybrid governance model helps strike a balance between token weighted voting and a one-person, one-vote system. These models can provide a dual governance mechanism where some decisions are made through token voting and others are made through a one-person, one-vote system. This balance ensures that both primary and secondary token holders participate in decision-making.
8. selection voting committee
Another approach is to create random voting committees for specific decisions. Committee members can be randomly selected from all token holders and decisions can be made based on a committee majority. This ensures fairness and prevents one entity from dominating the DAO's decision-making.
9. Vote on specific stakeholders
Creating separate voting rights for different stakeholders based on their level of participation and role in the DAO is also a useful approach.