Governance has been around for millions of years, organising humans into small groups. As the groups grew larger in size, governance also evolved accordingly. Coordination is the sole factor that kept these groups together.

Coordination is the ability to work individuals for a collective purpose. It could be either ‘make or break’. A belief system is set up to keep the groups aligned and coordinated.

"Individual versus group" is surprisingly easy to handle. It's "group versus broader group" that presents the challenge- Vitalik Buterin

Modern governance system withholds large corporations, International organizations, NGOs, Countries, Union of countries, etc. Governance is at the crux of holding them together.

But, how good are these governance models?

Have they addressed Climate change, poverty, gender inequality and food security?

With adoption of blockchain, Decentralized Autonomous Organziations are considered to change the paradigm for Governance. Governance which, envisions an egalitarian society.

DAOs are self organized networks coordinated by crypto economic incentive and runs based on code based protocol, organized around a collective purpose. Unlike traditional companies, they don’t work on a top to bottom approach. Decisions are governed by proposals and voting, ensuring everyone is heard. Relate amazon as a DAO, run by its users. In that case users get to decide the search algorithms, proposals can be made to support local vendors and community by protecting them from major competition, investment policies of amazon can be focused on public goods, instead of buying and killing the competition in a particular market. The possibilities are endless and has its challenges.

DAOs works on balancing two principles:

Scale: In order to grow a DAO has to process numerous proposals in a given period of time. DAO should have the structural capability to process the proposals.

Resilience: DAOs should be able to resist bad actors from bringing in fraudulent or bad governance decisions.

A natural tension is created to balance scale and resilience. To be resilient every decision has to go with the approval of entire community, leading to slow the decision making process. To be scalable, decisions has to be delegated to a smaller community for fast decision making. This could lead to smaller groups taking control and biased decisions could be taken, that negatively affect the community.

Coin voting is a key mechanism through which all decisions and proposals are executed. Voting is the same mechanism used by democracies and corporations, that have thrived. Can DAOs be of anything different or eventually looks like a cover up of democracy and nothing revolutionary in it.

Let’s discuss some of the coin based voting problems before we start with the types of voting used in DAOs.

Tragedy of commons: Each small holder only has an insignificant influence on the outcome, they have a little incentive to participate. Hence, small group of wealthy participants are in a better position to execute decisions.

Vote buying: A coin in a protocol with coin voting has two bundled rights 1. Economic interest 2. Right to participate in governance. If these rights are unbundled, the decisions supported for wouldn’t align with the DAO.

Suppose a user borrows a token from a CDP and uses it for governance, where the user has no economic interest, could determent the DAOs as the voting by the user may not be in alignment with the DAOs proposal. Here, the economic right and governance right are unbundled and causes a possible risk for the DAO.

Lower turnout ratio: Since, most DAOs follow a system of quorum voting, every voting has to pass a threshold limit to pass. Sometimes the proposals are not clearly understood by the community leading to a lower turnout.

Plutocracy: One token- one vote systems tend towards plutocracies. The more token you have the more powder you have in the outcome of the decision.

Quorum voting:

As the name says it, a certain quorum or number of members has to vote on a proposal for the vote to be valid. If the quorum threshold criteria is met, the voting will be decided based on a relative majority. Here, it’s believed the member votes in the best economic interest for himself, which would align with the best interest of the DAO. 

As DAOs scale it will be difficult to meet the quorum threshold. Larger part of the voting share can be taken up by wealthy investors. If the users are not able to understand the proposal, they may abstain from voting. This leads to proposals not being executed even if they are at the best interest of DAO.

DAOs using quorum based voting includes curve, kleros and compound.

Liquid Democracy:

Members either directly vote on the proposal or delegate it to a representative. Gitcoin uses this through a steward council. Liquid democracy combines direct democracy with representative democracy, with a fluid and transparent structure. Members can either directly vote on the proposal or for members, less aware of the proposal can delegate it to a representative. If the member feels the representative is influenced by bribe or poor judgement, the member can take back the vote. This makes the representative accountable and to act in the best interest of the DAO. Sybil attack is pertinent problem to liquid democracy, where user can create many identities, and gather the voting rights. ‘Proof of Humanity’ could solve that particular problem.

Holographic consensus model:

The particular model is ideal for large DAOs or with the vision of making them large. DAOstack modelled this consensus model, combining prediction markets and token based quorum voting.

As per DAOstack the governance model allows for local(relative majority) decisions that are guaranteed to be in line with global(absolute majority) opinion. Both the local and global decisions are crypto economically incentivized in the model and making both the systems parallel in nature. By default proposals will pass only through absolute majority. To gather attention to proposals, predictors can place a stake on proposals for a particular outcome. As the prediction get a sufficient positive signal, the proposal will be boosted. The boosted proposals will move into a queue, where decisions will be made by reputation holders and the predictors will receive economic incentive based on their stake, and lose the stake if predicted incorrectly. The single biggest challenge DAOs have is getting attention. Holographic consensus model tries to solve the attention problem.

The model may not be suitable for smaller DAO, as the gas fees associated are high. It also becomes confusing for users, as there are two token in the system and UI becomes much harder to understand.

Notable example of using this model is DXdao and ETHDENVER.

Conviction voting:

Conviction voting executes proposals based on the aggregated preference of community members, expressed continuously.  Voters can assert varied level of preferences in multiple proposals which are time boxed sessions. The user can keep changing the preference from proposal to proposal, but the longer they keep, more stronger the conviction grows. A person could put a quarter of voting power in a proposal X, half of voting power in proposal Y and divide the rest of voting power to Z and W. Imagine these preferences are filled in a bucket. The more one hold onto a preference, the bucket fill with more conviction. If you shift your preference to a different bucket the conviction erodes like there is a hole in the bucket. The accumulation and decay of conviction is based on decay curve.

Projects using conviction voting include common stacks, 1Hive and Panvala.

Quadratic Voting:

Quadratic voting is not just about being on or against, it also shows the intent behind the vote. Here, each voter is given voting credits, they can use it to influence an outcome or decision. The cost of casting more than one vote will be more expensive than the first vote.

Cost to the vote=(no of votes)^2

For instance, the voters are issued 10 vote credits. If the user make 1 vote, it will cost him 1 credit, 2 votes will cost 4 credits and 3 votes will cost 9 credits. If a user is keen on a particular proposal, he will spend more credits.

Microsoft economist Glen Weyl proposed quadratic voting. Vitalik Buterin has also championed this novel idea.

People cannot work together beyond a certain number of members. Countries, corporations, international organization, NGOs, etc. have been inspired to be coordinated. There is no rule-of-  thumb to work people together. It is highly variable, contingent and ideology based. To bring all these elements into an algorithm and run the group is a huge challenge. Different DAOs have adopted various voting mechanism to suit their particular needs and nature of the group (size,vision,resource availability, etc.). Some voting mechanism has worked wonderfully well for DAOs. The right balance could be choosing a set of voting mechanism or the best solution is still ‘work in progress’.  DAOs could possibly solve the classical governance problem that has been prevalent for centuries.

Speaking of work-in-progress, SBT(Souldbound tokens) could be a novel idea in bridging web3 ecosystem with human relationship and trust. Souls are accounts that are publicly visible, which holds non transferable tokens called Soulbound tokens. SBTs could represent commitments, credentials and affiliations accrued over a period of time. Although SBTs could open up unexplored use case of web3 in real economy; governance is a sure space it can be of value. Sybil attacks being a persistent problem for DAOs could be mitigated by SBTs. SBTs could be used to differentiate between bots and unique souls, giving more vote weightage to reputable souls and correlating souls to find if similar souls are grouping together.