Decentralized Autonomous Organizations (DAOs) are blockchain-based organizations that seek to revolutionize traditional communities by facilitating decentralized decision-making that isn’t reliant on any central authority. As a result, decision-making in a DAO is carried out via voting.
Typically, all members of a DAO usually have some “DAO tokens,” which are in proportion to their stake in the DAO; hence, the bigger your stake, the more DAO tokens you’ll get. Initially, DAO voting was in its simplest form, where one token counts for one vote; however, this method wasn’t effective for decentralization. DAOs with huge whales could easily tilt the votes to their favor since they have more tokens to spend. Hence, to counter this inefficiency, several DAO voting models were created, some of which are listed below:
1. Token-based Quorum Voting
This mechanism seeks to facilitate massive participation before proposal votes are considered valid. A quorum is a minimum threshold requirement for participant voters, without which the proposal won’t be considered valid. For example, if a DAO sets the quorum to 70%, it means that 70% of participant members must participate in the voting process before the result is accepted or rejected.
- This mechanism makes it difficult for whales to influence decision-making since a lot more participants in the voting process would likely neutralize the effect of the whale.
- Setting the perfect quorum could be challenging; if the threshold is too high, the proposal may never get passed, and the DAO could miss out on a potentially good improvement. Similarly, malicious or compromised members can infiltrate the DAO if the threshold is too low.
- This method doesn’t efficiently eliminate the actions of large whales, especially in a DAO with a small membership.
2. Quadratic Voting
Sponsored by Ethereum's founder, Vitalik Buterin, quadratic voting employs a better approach to eliminating whale manipulation by increasing the number of tokens required to vote after the first vote. For example, in a quadratic voting system, 1 vote will consume 1 token, 2 will consume 4 tokens, and 10 will consume 100 tokens… basically, each vote will consume its corresponding square in tokens.
- It largely discourages whale manipulation
- DAO members who don’t have a strong conviction about a proposal will not participate in voting at all
- DAO members could spend most of their tokens on a proposal they like and ignore other proposals; for example, “You can decide to spend 100 tokens to amass 10 votes on proposal A and totally ignore proposal B.”
3. Conviction Voting
Conviction voting is a mechanism that attributes more weight to a vote with passing time. For example, if there is a 2-week voting time window for “proposal A,” a DAO member who casts a vote on the first day will have more voting points than a member who votes on the last day. Similarly, a DAO member who changes their vote at any point during the voting period will lose the voting strength accumulated.
- Conviction voting incentivizes people to take a stand and not be swayed by whale influence at the last minute.
- Conviction voting helps to ensure that DAO members have faith in a proposal before casting votes.
- Conviction voting takes a lot of time before a proposal is passed; hence, it may not be the best approach in cases of urgency
4. Liquid Democracy
Liquid democracy allows DAO members to delegate their voting rights to another DAO member they trust. It is very helpful in cases where members aren’t sure how to vote on a proposal; rather than voiding their votes, they could simply delegate it. Interestingly, members can withdraw their delegation anytime and vote themselves or transfer these voting rights to others they trust; hence, the delegates are assigned to act honestly.
- Liquid voting helps to achieve informed decision-making, especially when some members don’t understand the proposal
- It bears the risk of centralization
- Liquid voting could lead to collusion and malicious actions.
5. Reputation-Based Voting
This mechanism was created out of the idea that anybody at any time can join a DAO with malicious intent; if a set of malicious attackers infiltrate any DAO, they may be attacked. However, to avoid this, reputation-based voting was created. Reputation-based voting wards voting points to members by how long they have held or locked their tokens. Members who have held tokens for a longer period have more voting strength than new members who only recently joined the DAO.
The good thing about reputation-based voting is that reputations can be reduced if you take actions that put the DAO in danger, so members are incentivized to act honestly.
- Helps to facilitate security in a DAO.
- Genuine members may be discouraged from joining the DAO.
- It isn’t very decentralized.
6. Knowledge-Based Voting
This mechanism ascribes voting points to a member based on their knowledge. For example, if Mr. A has more knowledge about crypto lending and poor knowledge of NFTs, his votes on a crypto lending proposal will carry a bigger weight than an NFT proposal.
Of course, Knowledge points can increase or reduce. If you vote in favor of a proposal that most people reject, then your points will be reduced; however, if your vote is among the majority, you will gain more points.
- Knowledge-based voting allows experts to vote on crucial subject matters
- It is better than delegating votes
- Centralization is a risk
(Reputation voting and Knowledge-based voting are categorized as “weighted voting mechanisms.”
7. Holographic Consensus
This voting mechanism spearheaded by DAOstack attaches a prediction market to each proposal. DAO members can stake funds to predict the success or failure of a proposal; if their prediction is correct, they earn financial rewards. As a result, the “relative majority” is considered, i.e. the votes of the people for a proposal versus those against the proposal, and not necessarily requiring a quorum (threshold) participation.
- Rewards will incentivize DAO members to act honestly; hence, improving the security of the DAO
- It helps to save time since DAOs can quickly pass proposals.
- Financial rewards increase administrative costs for the DAO
8. Permissioned Relative Majority
"Relative majority," as explained above poses a few security risks, because, in the absence of a quorum threshold, a few members can quickly pass a malicious proposal. Hence, Moloch DAO created the Permissioned Relative Majority that requires each proposal to be sponsored by several DAO members before it is voted on; hence, improving the security of the Relative Majority model.
- It reduces the risks present in Relative majority voting
- Many members need to sponsor the proposal; hence, the mechanism is slower.
9. MultiSig Voting
Multi-sig voting involves voting on proposals by appending signatures on a multi-signature wallet via private keys. Unlike other methods that involve spending DAO tokens to pass a proposal, a multi-sig wallet requires members to vote via signatures; hence, each member is only assigned to one vote, regardless of their stake in the DAO. All members of the DAO hold a private key to the multi-sig wallet, so in a DAO of 20 people requiring a 70% consensus, 14 signatures will pass the proposal.
- Voting is fast and precise
- Whales are eliminated
- Multisig voting requires a central committee to execute the vote result, defeating the purpose of absolute decentralization.
Many of these mechanisms were developed by individual DAOs before being adopted by the public; hence, each of them has shortcomings. However, the good thing is that some of these mechanisms can be combined with another, in order to address their individual deficiencies.
In all, remember that the perfect blockchain mechanism must fulfill the trilogy of security, decentralization, and scalability. However, if it is impossible for any mechanism to effectively satisfy all three, ensure you make an informed choice before compromising.