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DAO governance is not working. Now what?

A consistent theme this year at conferences like MCON, Eth Bogota, and the DAOist, was the shortcoming of the current state of DAO (Decentralized Autonomous Organization) governance. Besides a few exceptions, most DAOs experienced low voter turnout, over-concentration of voting power, and the inability to push forward significant changes.

The community is working on solutions like better notifications, quadratic voting, and vote delegations. These features bring additional sophistication to the existing system. However, they are addressing the symptoms of the problem and not the causes.

1) Better Notifications

Given the distributed and anonymous nature of many DAOs, there isn't an easy way to let people know it is time to vote. Unified notifications are important table stakes. Although, do we need more alerts?

2) Quadratic Voting

Like ranked-choice voting, quadratic voting enables voters to express multiple choices with varying degrees of support. Therefore, votes are weighted toward the preferred choices and not only toward the top choice. This is a great tool to introduce a diversity of choice and discourage popularity contests. Though these aren't the major DAO governance problems.

3) Vote Delegations

Delegated voting enables voters to assign their voting rights to another who will engage in governance on their behalf. This strategy increases the number of votes counted for each proposal by trading off the concentration of power.

Root Causes

Instead of starting with more features or tactics, let's look at this issue from the token holder's point of view.

Misaligned expectations

It is easy to join a DAO. Perhaps too easy. For most cases, the requirement was to buy some tokens and/or NFTs. Particularly in the bull market, many people bought tokens for speculations. They have no plans or desire to govern.

Voter Fatigue

People generally don't vote or don't vote often. On average, US presidential elections have a 60% turnout, while local elections have 15%. Though many DAOs have turnouts in the single digit percentages. Juicebox has one of the highest turnouts at 40%.

Missing Feedback & Buy-in

Often, the first time a member interacts with a proposal is when the proposal is being voted on. Members have no opportunity to provide feedback ahead of time. If a member loves 80% of the proposal and disagrees with 20%, the only action is to vote it down.

Also, content is often missing in proposals. The authors usually don't provide the discussions that led to the proposal or clearly outline the pros/cons and alternatives explored. These are the challenges we aim to address with the CharmVerse Proposal Builder. Finally, voting is not a good mechanism for decisions that are highly technical or require deep domain expertise. People voting on items that they don't understand does not generate engagement.

Additional Reading

If you are into governance, we recommend this piece from our friend, Andrew Furmanczyk, founder of Mother DAO, on the failure of Direct Democracy and Liquid Democracy.

Potential Solutions

To scale decentralized organizations, we should learn from prior organization behavior studies and the successful implementation of high-performance teams.

Dunbar number

For groups that have to work together, let's keep the size below the Dunbar number - cognitive limit to the number of people with whom one can maintain stable social relationships—relationships in which an individual knows who each person is and how each person relates to every other person.

2-Pizza Team

In the early days of Amazon, Jeff Bezos instituted a 2-pizza rule - every internal team should be small enough to be fed with two pizzas. This translate to about 5-10 people per team. For missions and objectives that require a group of members to work closely together, we should create 2-pizza pods (or sub-DAOs).

Vote on Asset Allocation

We can leverage DAO proposals to scale these 2-pizza teams and Dunbar number groups. On a monthly, quarterly, or annual basis, each pod creates DAO proposals for funding allocations. The pod highlights its objectives, plans, and success metrics. DAO members only have to vote in this predetermined cadence with a structured process. Once funding is allocated, the pod can execute autonomously, only having to worry about its performance and KPIs to attract the next round of funding.

Next Steps

At CharmVerse, we believe that token communities are the future of work and organizations. We are building our platform to make operating them easier and more efficient. If you are excited about this future like us, please reach out. Let's build together!

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