Decentralized Autonomous Organizations (DAOs) have been heralded as the future of governance, unlocking a more egalitarian approach to decision-making. However, decentralization of leadership is not a magic solution that gives better results immediately. In order to truly get the most out of a decentralized organization, steps must be taken to regulate weighted voting and tokenomics. If not balanced carefully, the DAO can explode – and some already have.

Decentralized governance explained

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DAOs offer a model for managing a project or company that distributes voting rights among all members. There is usually no central authority, only the will of the collective. While this seems justified in theory, the opposite may be true for some governance models.

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Perhaps the most problematic of all structures are DAOs that operate on a token-based voting system. Despite being decentralized, token-weighted governance – in which users with the most tokens hold the largest share of voting power – can inadvertently delegate control to a few wealthy participants and take it away from many. As is immediately apparent, this completely undermines the philosophy on which The DAO was built and allows rich whales to be called disproportionate.

DAOs are more focused on community than profit. why over here

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It can do more harm than centralization alone; Token-based voting systems can lead to hostile takeovers by DAO token whales and other malicious actors – such as in the acquisition of the Build Finance DAO. In February, The DAO fell victim to an attacker who had enough assets to pursue a proposal to give him full control of the project.

Due to its token-based governance model, this acquisition became fully regulations compliant, leaving little recourse for developers or the community but to isolate the project and start from scratch. Clearly, voting weighted by asset allocation is not the best way forward.

Overcoming DAO problems

The point is that asset-weighted voting is not an ideal tool for decentralized governance systems, especially if they want to replace the old model. The long-term goal is to be able to run businesses, organizations, and even nations with a decentralized system that meaningfully gives each individual a voice but also takes into account what that member is providing. Various forms of personalized, blockchain-powered ID, as well as a voting structure based on merit, may be needed to balance the equation.

Imagine a new model, where voting members are evaluated on the basis of certain Key Performance Indicators (KPIs). These may include engagement and growth metrics within the DAO, and failure to meet these KPIs could result in that user’s voting power being reduced or removed altogether. Adopting this approach would encourage all institutions to make decisions that are in the larger interest of the community, not just themselves.

This can also apply to almost any factor in the platform, such as future technological developments or how community funds are allocated. It can also create new social organizing structures for charities, environmental groups and entire governments – serving purposes larger than capital gains alone.

Decentralization, The DAO and Current Web3 Concerns

Already, NFT communities have demonstrated that they can encourage acts that benefit the collective, such that participation is a prerequisite for an NFT drop to be “whitelisted”. It is not uncommon for successful Web3 projects to offer some sort of collaborative, mutually shared goal, and current systems of leadership do not offer that direct incentive to participate. Take for example modern governments, in which citizens vote to place an individual in a position of centralized power. Web3 and The DAO are demonstrating how things can work differently through mutual benefit and incentivized partnerships.

It’s just a vision, but the basic premise remains. New structures must be explored to ensure decentralized organizations cannot remain corrupt. There are too many attack vectors affecting important projects, and these issues need to be addressed as quickly as possible if DAO governance is to evolve into a global movement and ever see implementation beyond crypto.

Sasha Ivanov He is the founder of Waves Platform, a global public blockchain platform that reached a market capitalization of over $5.4 billion in 2022. It was crowdfunded with 30,000 BTC, representing the second largest successfully crowdfunded blockchain project (after Ethereum). The name refers to his background as a theoretical physicist and the recently discovered gravitational waves predicted by Einstein a century ago.

This article is for general information purposes only and should not be construed as legal or investment advice. The views, opinions and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cryptooshala.