Finding a DAO Voting Protocol Fit for Purpose

In traditional companies, top-level decisions are usually made by a board or the C-level team in a top-down manner. Alternatives do exist, such as bottom-up decision-making and horizontal management. However, by and large, a set hierarchical process is the standard. Of course, this has some benefits, such as its well-established structure, and downsides, for example, accusations of inequality or slow decision-making. However, in decentralized autonomous organizations (DAOs), the decision-making process works a little differently.

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DAOs aim to present an alternative to centralized organizations on all levels, including their structure, how they operate, and how decision making happens. Originally, DAO decision making followed a simple token-weighted system: essentially one token, one vote (1T1V). However, this mechanism has proven somewhat contentious in the crypto community, with many arguing that 1T1V is always weighted towards people with more tokens or stake in the organization, giving them the potential to create a token monopoly.

This inequality tends to contradict with the fairness-based aims of most DAOs, which sparked a debate: if a token-weighted mechanism is not fair, then what is?

DAO voting mechanisms: pros and cons

Token-weighted quorum voting

Quorum voting necessitates a specific threshold for a proposal to pass. This is the most commonly used voting protocol for DAOs, and its process is straightforward. It works by ensuring a specific quorum, such as a percentage or a fixed number of tokens/votes, to be reached for a vote to pass.

Pros:

• Process is straightforward and clear for voters

Cons:

• Requires participation by the community, sometimes more so than other methodologies
• Can be swayed by majority token holders and be seen as unfair
• Can lead to campaigning, making voting political

Quadratic Voting

Supporters of quadratic voting for DAOs believe that it offers a solution to accurately assessing the votes of the community. It works by utilizing ‘influence power.’ The DAO’s voters assign a weighted intensity of preference to their votes, which is then recorded to show how many voters strongly preferred one option over another and make decisions based on this. Voters can also select to purchase additional votes to support their position on an issue. In practice it looks like this:

(Vote)^2 = increased power of influence

Pros:

• Acts as a counter to the ‘majority’ vote
• Represents how invested the community is in an issue

Cons:

• Open to Sybil attacks: there is a risk of fake or additional identities being created by voters which would sway the outcomes unfairly
• Necessitates the implementation of a proof-of-identity mechanism to reduce fake voters

Liquid democracy or vote delegation

Similar to a political democracy, a liquid democracy in a DAO utilizes an electorate—a group of elected experts—to make decisions. Although this may sound a lot like centralized decision making, DAOs have made this process more ‘liquid’. In practice, what this means is that DAO members can assign or ‘delegate’ their votes to another party, for example, an industry expert, who will vote on their behalf. However, unlike a political democracy, if for some reason, they lose faith in this person or would like to change their expert, they can delegate their votes to another.

Pros:

• Allows users the choice to be an expert or someone who supports an expert.
• Experts can influence the protocol to improve the DAO.

Cons:

• Similar to real-life political democracies, there are accusations of corruption, campaigning, and collusion, creating unfairness

Rage quitting or vote withdrawal protocol

Created to avoid majority tokenholders controlling the vote, rage quitting protocol works exactly like it says. For example, when a proposal is submitted, it requires sponsorship before it can be voted upon. If it receives this sponsorship, it’s put to a vote. If approved by the majority, the proposal enters a cooling-off period, much like a regular contract, wherein voters can withdraw support, or rage-quit. If, at this stage, the vote loses support, it may be scrapped instead of executed.

Pros:

• Helps prevent majority voters from hijacking the minority vote
• Ensures unity in decision making

Cons:

• Protocol may take some time, and decision making is a longer process

Holographic Consensus

The Holographic Consensus voting protocol works by allowing community members to essentially bet ‘for’ or ‘against’ a proposal and whether it will ‘pass’ or ‘fail’. If a proposal gets a large majority voting one way or another, it is considered ‘boosted’, which means it may pass with a relative majority rather than a quorum. In addition, voters who bet on a proposal and predict it correctly may get a reward. The Holographic Consensus protocol derives its name from the process of recording information and reconstructing it to create a hologram, or in this case, recording information and reconstructing it to achieve consensus.

Pros:

• Increases the scalability of governance for a DAO and allows expansion
• Requires absolute majority for a decision to be approved
• Creates gamification in voting protocol

Cons:

• This type of voting protocol may be expensive to implement and maintain

Conviction Voting

This is an aggregated process that allows DAO members to accrue votes for a proposal over time. Community members stake their votes on specific proposals; the longer they hold these positions, the more ‘conviction’ they accrue. Members can also switch their votes to other proposals as well if their beliefs change. Their previous conviction simply drains away while the new conviction grows. Once a specific level of conviction has been received by a proposal, it is considered passed and approved.

Pros:

• Allows voters to show interest in a proposal
• Doesn’t force a majority but considers the beliefs of the community
• This long-term protocol prevents new buy-in voters from over-influencing the DAO’s protocol

Cons:

• Time is the major downside in conviction voting protocol, as proposals take time to approve

Is there a ‘correct’ voting protocol?

No singular voting protocol has proved effective beyond all doubt, and more types of voting methods are being developed as the DAO ecosystem evolves. Each has its pluses and minuses that must be considered by the DAO implementing it on an individual basis. Some are more suitable in certain circumstances than others.

For example, some DAOs may prioritize the ability to scale over resilience; for others, the opposite is true. No matter which protocol is chosen, the DAO must consider the roles of non-voting members, lazy consensus, corruption, and soft governance when deciding how to effectively manage their voting process to ensure autonomous decentralized decision making.