The issue of autonomous governance is closely related to the issue of decentralization of blockchain projects, since the tools for voting and co-management of treasury are also tools for reducing centralization. This article discusses the place of DAO projects in the crypto market and the issue of distribution of governance tokens in them, as well as presents some useful resources from the DAO world.

Ethereum and the logic of smart contracts became the beginning of a new category of the crypto market - DAO projects. Despite different points of view on DAO, the main thing in it is the presence of openness and decentralization of management through smart contracts. For example, when the resources of the project and its development occur through the creation of a general monetary reserve (treasury) and its management through transparent voting. Bitcoin can also be classified as a DAO, as miners and developers make a joint decision to accept new updates. And they do it without complex voting mechanisms with smart contracts. Nevertheless, we will mean by DAO at least those projects that have smart contracts and governance tokens.

Speaking about the classification of DAO, we can distinguish DAO for DeFi protocols, for fundraising (funds, grants or some groups for buying an NFT together), tools for launching other DAOs, as well as various social and media projects. The former had the highest growth among other DAOs and rose to the top cryptocurrencies by capitalization.

Moreover, 6 of the 8 largest DeFi protocols by TVL belong to DAOs (MakerDAO, Uniswap, AAVE, Curve Finance, Compound and Balancer). And although the total capitalization of DAO projects is only 1-2% of the capitalization of the entire crypto market (according to Сoinmarketcap), a simple summation of the top ten DeFi + DAO projects shows that their share among other DeFi projects is almost 30%. Thus, top DeFi projects, which account for a third of the DeFi market, use DAO mechanisms.

Among the well-known DAOs, one can also single out ApeCoin or Decentraland, which belong to the Metaverse (or NFT) segment. Both of these projects occupy the first lines in terms of capitalization among projects in their category. They are followed by Sandbox, which also launched its DAO in Q1 2022 (although this is not reflected in many screeners). These three projects also account for about a third of the Metaverse segment and almost a quarter of the NFT segment.

DAO Maker, Seedify.fund and SuperFarm are currently the top 3 launchpads by capitalization, accounting for 57% of the segment. And guess if these three projects have their own DAO mechanics or funds? The largest Layer 0 solutions Polkadot and Cosmos also conduct on-chain voting. In the first one, a mechanism for selecting projects (parachains) through auctions (crowdloans) was created.

Thus, DAO mechanisms (in particular, funds, grants, and voting systems) are more or less integrated into many projects and are closely intertwined with the DeFi, NFT, and Metaverse segments that became the trend of the last bullrun. Together they form a single web 3.0 space or metaverse. The technical embodiment of this space is distributed virtual machines - blockchain (or DAG) protocols, and DAOs are responsible for organizing all this. Therefore, as well as with the emerging trend towards layer 0 solutions, there will probably be DAO tools for organizing other DAOs (that is, a DAO consisting of other DAOs).

If the bitcoin network is decentralized and miners vote for various changes in the protocol, then there are some elements of autonomy of control in it. This can be said to be inherent in blockchain projects by default. Perhaps this is not autonomous control, but at least semi-autonomous. But how decentralized are the projects that exist today, and are DAO projects so autonomous?

To answer this question, you need to pay attention to the initial distribution of governance tokens and how they are distributed among wallets today. Decentralization can also be assessed by the number of miners/validators (or mining pools), by the number of key developers (the number of commits on github), trading exchanges, nodes by country, and the number of clients/codebases (for example, Bitcoin Core and Bitcoin Unlimited for Bitcoin). These six metrics are subsystems of the blockchain, and ideally they should all be decentralized.

The most popular indicator for assessing the decentralization of blockchain networks (and the above subnets) is the Nakamoto coefficient. This coefficient represents the minimum number of participants that can collude to disrupt the network.

Consider the distribution of coins using the example of four DAO projects (Balancer, Compound, Uniswap and Yearn Finance), the indicators of which have already been analyzed in this paper.

The first thing that can catch your eyes is the high percentage of tokens for participation incentives (especially YFI), as well as UNI tokens, which were distributed in the form of a retroactive airdrops (retrodrop). Almost half of the COMP and UNI tokens went to the team and investors.

At the same time, Nakamoto's coefficients for BAL, COMP, UNI and YFI are 16, 9, 82 and 71, respectively. This indicates, firstly, the relatively high decentralization of the YFI project due to one hundred percent distribution of funds in the form of incentives. And also about the successful experience of Uniswap with a retrodrop. The retrodrop is an airdrop of tokens to those participants who actively used the project service, even without the announcement of the token itself and its distribution. That is, 15% of UNI was distributed among users who were not sure (or did not suspect) that UNI tokens would appear in the future, but simply wanted to use DEX for their needs.

This format of distribution of funds based on the transactional reputation of wallets is a good alternative or at least an addition to the ICO, IEO or IDO models. Since even the latter suffer from the influx of users with multiple accounts (multi-accounts).

Of course, projects with potential retrodrops can also be replayed by creating many wallets and performing some operations with them in the project's services. However, the openness of the blockchain allows, in theory, a deeper analysis of addresses, for a more detailed assessment of their transactional reputation, avoiding the need for KYC (that is, keeping users anonymous). Thus, projects can, if desired, identify dummy addresses created only for the abuse of the distribution of tokens, and thereby increase their decentralization and autonomy (although there are other ways to fight, such as the Bright ID project).

Returning to the DeFi+DAO project example, we also note that the coefficients did not exceed 100. This means that less than a hundred addresses hold more than half of the tokens, or that less than a hundred of the largest addresses can jointly make one or another decision if there is no way to implement a more complex mechanism (for example, quadratic voting).

Finally, let's compare the Nakamoto coefficients by the number of validators for the most popular networks (from 1, 2):

As you can see, the Solana and Avalanche projects are the most decentralized in terms of this indicator. In some sources, including the original article on the coefficient, the Nakamoto number for bitcoin is calculated as 7349 (in this case, it will be the largest among the networks). However, if we take into account that miners are pooled, then both Bitcoin and Ethereum will have several pools, which in total will have more than 51% control over mining.

This suggests that a large number of validators or an initially large distribution of coins in the form of an airdrop is not yet a guarantee of high decentralization. Miners can pool, and tokens after distributions can still be concentrated in the hands of a small number of wallets.

Analytics for DAO projects - DeepDAO

DeepDAO is a provider of analytical information for DAO projects. In particular, here you can find that DAO projects today are:

• More than 4800 organizations

• More than $12 billion in funds as a treasury

• More than 3.8 million of governance tokens holders and more than 690 thousand active voters and proposal makers.

Voting via Sybil, Tally and Snapshot

You can view current discussions in DAO projects and participate in them through the Sybil, Tally and Snapshot platforms. The first two involve on-chain voting, and the last one is off-chain voting.

Issuing your own governance token and other activities - Coinvise and Rally

Thanks to platforms such as Coinvise and Rally, you can quickly issue your token, create quests, or conduct an airdrop with customized vesting. You can create your own microeconomics and monetize your intangible products in a few clicks.

Creating multi-signature wallet via Gnosis Safe 

Let's assume that you have already started building your community, written a manifesto, discuss important issues via discord, and vote via snapshot. In the next step, you would like to create some kind of token store that can be used for general purposes. Such storage would be available only if a certain number of keys (wallets) are signed at the same time. For example, by signing with 10 wallets out of 15, funds from the vault could be used to buy your collective NFT, for example.

DAO implies decentralization and autonomy. The first is achieved through the design of the blockchain network and consensus mechanisms. Formalization of the rules of the organization through smart contracts makes it possible to automate various aspects of management. However, at the current stage of development of blockchain projects, voting tokens look more like investment instruments. And those who still participate in voting suffer from their excess, and the original idea of ​​stimulating through tokens is no longer relevant.

One way or another, DAO mechanisms are an integral part of blockchain projects and the hype for this segment is yet to come. We have already seen the rise of DeFi projects and the role of autonomous governance in them. It will be also interesting to watch the integration of DAO mechanics into the AI ​​or IoT spheres. The first one will probably be able to increase the automation of the project to levels at which voting will be completely reduced to a minimum, since control will be transferred to artificial intelligence. And in the case of the Internet of Things, we will see how various “smart things”, such as smart homes, will make decisions on their own, such as “whether to buy groceries”, “whether to postpone utility bills” or “what background music should be played”, given that the owner is in a bad mood now. The autonomy of such systems will only grow over time, and perhaps various objects inside the house will be able to decide for themselves how to make the owner's stay as comfortable as possible.

*Any questions in twitter: @ranas_xyz

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