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Decentralized autonomous organizations, better known as DAOs, enable projects and protocols to distribute decision-making and governance to their users. DAOs tend to be non-hierarchical, so no single party makes decisions for the collective. Instead, people who own a token associated with the DAO can vote on decisions that affect the group. These votes are verifiable on a blockchain for transparency.
This guide will explore the steps to introducing a DAO proposal and explain some common voting methods. (For how to start your own DAO, see our guide here.)
A DAO proposal is an idea by a DAO community member outlining new organizational requirements or changes they think will benefit the protocol. Depending on the DAO, a member can vote on multiple decisions that affect a project, such as hiring DAO personnel, allocating liquidity, or even altering code.
Typically, a proposal comprises a comprehensive description of the idea, its implementation plan, and the estimated funds needed to bring it to fruition.
While the specifics vary, most DAO proposals typically follow a similar structure:
Though some DAOs allow anyone to propose a change, usually you need to have a significant stake in the protocol. For example, the Ethereum Name Service (ENS) requires proposal creators to own at least 100,000 ENS tokens. To be eligible to introduce a proposal in Curve Finance, you need to own and lock CRV, Curve’s token, in an escrow contract for up to four years, depending on how much influence you want in the community. Anyone with over 2,500 CRV can submit proposals.
You’ll also need to think through your idea. Like a business proposal, your DAO proposal should clearly define the problem, solution, and expected funds required.
Typically, DAOs have active forums on platforms such as Discord, where members can communicate and discuss different issues and proposals. Before formally submitting a proposal, it’s a good idea to test the waters by initiating a discussion on the proposal’s topic. Once you’ve received feedback on your idea, you can tweak it to suit the community’s needs better.
DAOs have platform-specific steps for submitting a proposal. The most popular platform is Snapshot. Refer to the DAO’s documentation or Discord channel for specific steps. For instance, with Curve, you need to open the Curve DAO dapp (decentralized app) and select the type of vote you wish to propose: “New Text Vote” or “Create Vote.” All proposals must be accompanied by a post on the Curve governance forum. You’ll need to provide information about the following: your motivation for making the proposal, technical details, drawbacks, and a short description of what you intend to change.
Once you have submitted your proposal, you’ll need to engage with community members and answer any questions they have. More community support means if the idea is great, it has a higher chance of going through.
Once a proposal is submitted, the baton is passed to the DAO members to deliberate and vote.
DAO voting allows token holders to decide the fate of proposals. Let’s break down four of the most common voting methods:
Token-based quorum voting is the most basic and widely-used mechanism for DAO decision-making. It requires a participation threshold for the proposal to be valid. For instance, if the quorum is 51%, it means that 51% of eligible voters must vote in order for the proposal to be considered. (Remember: Holders can have many tokens and, therefore, represent many “voters.”) Further, the quorum can vary for different DAOs. For instance, Compound DAO requires at least 400,000 votes (1 token=1 vote) for a proposal to be considered. The side with the most votes wins.
Unlike some DAOs, where members are entitled to one vote for each token they hold, quadratic voting uses weighted voting power. Each DAO member is granted one vote by default, but each additional vote costs exponentially more tokens. Thus, a voting power of two requires four tokens, three votes requires nine tokens, and so on. The idea is to reduce the influence of large token holders (or whales) on DAO decisions and ensure proposals have a broad base of support. Quadratic voting has some prominent supporters, most notably Ethereum co-founder Vitalik Buterin.
Example: Prime DAO
Multisignature (multi-sig) voting is a popular — yet more centralized — way of DAO voting. In multi-sig voting, DAO members with private keys sign off on proposals. These could be elected representatives or owners of a project. Predetermined governance rules stipulate how many members must agree for the proposal to go forward.
DAOs have the potential to disrupt traditional voting systems, but DAO governance has a long way to go. One of its challenges is addressing user participation: Voting mechanisms can only work if there’s significant community engagement. Existing voting mechanisms might work for large protocols like PancakeSwap or protocols with a passionate user base. However, DAOs sometimes struggle to meet the quorum required to pass votes or are heavily influenced by whales.
While there is no “perfect” DAO system, individual organizations continue to innovate to find a better way to govern.
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Thank you for joining us on this exploration of Decentralized Autonomous Organizations DAO.
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