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Diving deeper into DAO Governance

2 weeks ago
By Liwaa
Written by
Liwaa
15.09.2022

Decentralised Autonomous Organisation (DAO) is a governance structure that allows projects and companies to operate in a fully decentralised way. This means everyone involved in the DAO will potentially play a role in all decisions taken under a single consensus. Using a DAO structure empowers people and creates a healthy atmosphere with a focus on a single goal of promoting growth and achieving a common vision towards a specific outcome, however, this is not always guaranteed. There is no doubt that DAOs are on the rise with a market cap of $16b as of September 2022 as shown in the data provided by CoinMarketCap. We are seeing more and more projects using this structure, however, it is not easy to run a proper DAO governance & market it to the right people to build a strong community.

Understanding different ways of DAO governance

Within a DAO structure there are multiple ways of conducting the governance, we will highlight a few that are trending and have been used by multiple projects that are successful.

  • Complete DAO Governance

As the name suggests a “Complete” DAO governance allows the community to drive the project however they see fit. This type of governance requires a loyal community that is working together to push the project in the right direction promoting continuous growth. Usually, this type of governance has a high barrier of entry to curate a community that truly believes in the project to push things forward and avoid any outliers trying to ruin the project.

Example Steemit is a project that has a complete DAO governance mechanism where token holders are able to vote on different proposals presented by the DAO. Unfortunately, Steemit had experienced an attack in one incident where Justin Sun the Founder of Tron had developed plans to merge Steem into Tron. To acquire the voting power he approached one of the founders of Steem and bought tokens equivalent to 30 percent of the total supply. Once the Steem community discovered his purchase, they froze his tokens. What followed was a public back-and-forth between Sun and Steem to control enough tokens to install their preferred slate of top 20 witnesses. After involving major exchanges and spending hundreds of thousands of dollars on tokens, Sun was eventually victorious and effectively had free reign over the network.

  • Limited DAO Governance

This type of DAO governance is the most commonly used to add a layer of safety to the project and make sure that outliers can’t drive the project to ruin. By implementing a veto mechanism, any decision that would impact the project negatively can be vetoed by specific people and overruled. This is a strong way of keeping things under control while allowing DAO governance to take place. However, this is not appreciated by everyone in the community as it undermines the true nature of “decentralisation”.

Example Nouns DAO is a project that has a limited DAO governance mechanism where each NFT holder is eligible for 1 vote on a proposal that is done by the community. The founders of the project are part of the DAO because they own some of the Nouns NFTs which allows them to have equal voting rights, however, they also have some veto power as they rightly mention “The Nouns Foundation will veto proposals that introduce non-trivial legal or existential risks to the Nouns DAO or the Nouns Foundation.”. Nouns have successfully raised over 28,500+ ETH equivalent to $50m+ at the time of writing this article.

Conclusion 

DAOs are on the rise with the era of Web3 emerging, it is important to understand how these different DAO governance structures work and why they are in place. It is highly recommended to test out different DAO governances by being part of the DAO and actively participating in key decision-making processes. Cherubs DAO is one of the projects that have created a DAO mechanism similar to Nouns DAO with an aim to tackle different causes in the world. This showcases the power of DAOs in creating a positive impact on the world through collaboration and unity.

Liwaa