Trailblazing the Future: How DAOs are Revolutionizing Governance

DAOs made their debut in the crypto world with two key commitments: firstly, the creation of an inclusive community wherein individuals from various backgrounds can actively shape the direction of the platform, and secondly, to provide complete transparency and accountability for all future actions.

In recent years, several DAOs have excelled in fulfilling these commitments, particularly in 2024, a noteworthy year for the wider crypto industry.

Three Major Trends on the Horizon

The DAO landscape is continuously evolving, especially in relation to governance. As we navigate through 2024, three significant trends have started to emerge, drawing the attention of established DAOs already present in the market.

Separation of Token-only Powers

Since DAOs first emerged, the most prevalent governance model has been token-based, where voting rights are determined by the number of tokens held; more tokens equate to greater influence.

Yet, many participants are recognizing the shortcomings of this model, advocating for a governance structure that takes into account a member's contributions and standing within the community.

For instance, platforms like Optimism DAO are taking strides to balance influence between token holders and proactive contributors, leading to a more equitable governance structure.

Treasury Funding Dilemma

The main function of a DAO’s treasury is to finance initiatives, projects, and processes designed to help the community achieve its objectives, which could range from hosting community events to marketing campaigns and general incentives.

As market dynamics shift in anticipation of a potential bull market, the native tokens of DAO funds are experiencing a surge in value. However, this has also sparked debate over who should have access to the treasury.

Some advocate that financially robust groups should not receive treasury tokens, arguing instead for these assets to benefit participants without substantial financial backing.

Rage Quitting

The phenomenon of 'rage quitting' is currently a hot topic in the sector. This feature allows members to ‘fork’ the DAO if they disagree with its decisions, enabling them to exit anytime while taking a share of the funds.

This dynamic encourages members to strive for consensus, as failure to align could result in the loss of both funds and allies, thereby enhancing accountability across the board.

Nevertheless, some members seem to exploit such capabilities. For instance, Nouns DAO faced significant loss in community backing following three separate ‘forks’ from September to November.

Numerous participants believe that rage quitting was more a tactic for a few users to liquidate their funds quickly rather than a genuine concern for governance.

Top 5 DAOs in Governance

Over time, certain DAOs have built a sterling reputation, gaining substantial leverage within the crypto community. Some of the most notable include:

Uniswap

Uniswap, a well-known decentralized trading platform, allows crypto traders to automatically swap DeFi tokens. It achieved DAO status shortly after its inception.

Those holding UNI tokens hold the power to vote on matters related to budgeting, administration, and strategic direction.

Every proposal within the platform must pass through two critical phases before receiving approval: the Consideration stage and the Consensus stage.

• To initiate the Consideration phase, a proposal requires at least 25,000 affirmative votes from UNI holders over a span of two days.
• Following this, the proposal enters a 5-day window for consensus, where it must achieve a minimum of 50,000 affirmative votes in order to gain approval.

At times, coalitions may conspire to advance proposals that lack integrity and do not serve the DAO's long-term interests. To mitigate this risk, a threshold of 40 million affirmative votes is needed for such proposals to proceed.

Lido DAO

Regarding Layer 1 and Layer 2 cryptocurrencies, Lido provides a reliable protocol that facilitates the PoS mechanism, addressing a persistent liquidity issue faced by numerous other platforms.

Through its voting system, the Lido DAO plays a vital role in determining key components of the protocols for liquid staking. Within this DAO, voting power is directly tied to the quantity of LDO tokens held, granting greater influence to those with larger holdings.

Here’s the process at a glance:

• Initially, a proposal is presented on the forum to gather community insights. This stage typically lasts seven days.
• Next, the proposal enters the 7-day Snapshot voting period, where at least 5% of the total LDO supply must participate to establish a quorum, and this takes place off-chain.
• Once the proposal is approved, it moves to on-chain voting, utilizing Aragon to facilitate the process, maintaining the same quorum requirements.

To receive approval, the 'yes' votes must surpass 50% of the tokens that were cast in the voting.

In some cases, proposals may be deemed urgent, allowing them to bypass the Snapshot and jump directly to on-chain voting without prior discussion on the forum.

Ape Foundation

ApeCoin is governed by the APE Foundation, which promotes a transparent and community-oriented governance model. The Foundation has an executive board tasked with overseeing DAOs' decisions and ensuring their implementation.

Having APE tokens grants individuals access to the ApeCoin DAO, which decides on fund allocation, governance policies, community relationships, and various ecosystem-related matters.

The executive branch of the APE Foundation, known as the 'Board,' is responsible for executing the DAO’s resolutions by managing daily functions crucial to the community's development. Token holders can partake in voting for Board members, promoting a fair and transparent governance structure.

MakerDAO

For making executive decisions that support the ecosystem's development, the Maker ecosystem employs a DAO model called MakerDAO. This structure empowers voters to endorse executive measures that can implement critical alterations to the platform, such as fee arrangements or emergency shutdowns.

Voting power stems from holding MKR tokens, which are available across a variety of decentralized exchanges. As with many DAOs, it's worth noting that members with a larger MKR stake usually wield more power.

Any individual with an Ethereum address has the ability to submit a legitimate proposal. Then, it’s up to MKR holders to vote and determine which initiatives become Active Proposals, with the one receiving the most affirmative votes attaining that status.

During this process, voters may activate the Governance Security Module (GSM) for proposals that raise suspicions. For instance, a proposal might conflict with existing platform policies or threaten the DAO’s security measures.

Engaging the protocol will momentarily halt the decision-making process for a maximum of 24 hours, allowing users to deliberate on whether to issue a shutdown order.

Arbitrum DAO

The Arbitrum DAO boasts the richest asset base compared to all other DAOs. ARB token holders play an essential role in the platform’s budgeting, technical framework, and governance strategies.

Furthermore, members who cannot engage in daily governance activities can still have a voice by delegating their ARB tokens to representatives.

Moreover, Arbitrum’s governance system is designed to be autonomous; it does not rely on external entities to execute its resolutions, ensuring that votes directly influence the on-chain outcomes. This self-executing governance strategy is a significant stride towards autonomy and empowering the community with control over the network.

The Future

Recently, many DAOs have demonstrated considerable potential, and some are poised to leverage current trends within the industry to grow their communities and make sweeping changes to the DAO landscape as a whole. Given the rising interest in DeFi, Web3, and the metaverse—each of which champions decentralized decision-making—the future looks promising for DAOs.