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The Best Methods to Approaching Democratic Governance in Decentralized Autonomous Organizations (DAOs)

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While the development of Decentralized Autonomous Organizations (DAOs) is exciting, it also poses a serious governance challenge: the potential concentration of power in the hands of a small number of influential token holders. It is impossible to overstate how serious this plutocracy issue is and how multiple strategies must be employed to protect the democratic integrity of DAOs. In order to secure, democratize, and streamline DAO operations, this article suggests an integrative governance model that combines different tactics.

1. Delegated voting and randomly selected committees under faceted governance

The establishment of a complex, delegative democratic system in DAOs serves as the proposal’s first tenet. Here, the DAO’s organizational structure is divided into specialized committees that each manage particular areas of decision-making. To ensure fair representation, members of these committees are drawn at random from the pool of token holders.

We suggest a hybrid of quadratic and delegated voting within each committee. Due to the exponentially rising cost of additional votes, quadratic voting reduces the risk of dominance by wealthy token holders. Delegative voting enables token holders to give their voting power to vetted agents, ensuring that their opinions are heard even when they are not actively participating in decisions. As it rewards long-term token holding with increased voting power, this model also promotes sustained participation in the DAO.

2. Fukarchy and the Harbinger Tax: Two Faces of the Same Coin

The use of the futarchy and harbinger tax mechanisms is also advised. Futarchy, a governance model based on prediction markets, can be used in situations where the outcome of a decision is quantifiable. This guarantees that choices are made in a way that will benefit the DAO the most.

On the other hand, the Harbinger Tax mechanism acts as a safeguard against the accumulation of majority tokens by a single entity. By distributing or burning a portion of their tokens, this model prevents an excessive concentration of voting power by requiring any member attempting to obtain significant control through mass token purchases.

3. Maintaining equality by authenticating each individual’s identity

The final tenet of this governance structure is the “one person, one vote” tenet, which is realized through distinctive identity verification.

It enables each member to cast a single vote, regardless of how many tokens they have. It is important to note that maintaining anonymity and decentralization is a difficult task. Applying decentralized identity platforms or zero-knowledge proofs may provide a workable solution to get around this.

Although the proposed governance model may appear complex, it is simple and efficient and is aimed at protecting the democratic ethos of DAOs. This model aims to safeguard DAOs from being ruled by a small number of extremely powerful entities as well as to encourage a power balance and the active participation of all stakeholders in the DAO’s success.

Though promising, it’s important to realize that this model is primarily theoretical. Before being put into practice, it would require extensive testing, evaluation, and modification. However, it offers a useful guide for creating a strong, just, and democratic governance system within DAOs, aligning with the bigger picture of the blockchain landscape. 


Author: Pooyan Ghamari, Swiss Economist and Specialist in Blockchain Technology


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