DAOs (Decentralized Autonomous Organizations) are entities ruled by sensible contracts the place token holders suggest, vote, and determine the way forward for protocols. In concept, voting in DAO ecosystems was designed to be open, clear, and democratic. Everybody with tokens had a say.
However the actuality tells a special story.
A Crypto analyst, Ignas, reported {that a} person generally known as hitmonlee.eth spent 5 ETH (by Foyer Finance to accumulate voting rights tied to 19.3 million ARB tokens. With just a few clicks and a modest sum (by crypto whale requirements), this person gained outsized affect in Arbitrum’s governance.
The outdated DAO mannequin is in shambles:
Final weekend, hitmonlee.eth paid 5 ETH (~$10k) on @lobbyfinance to purchase 19.3M ARB (~$6.5m) voting energy.
That’s extra votes than skilled DAO delegates like Wintermute or L2Beat have.
All votes had been forged for @CupOJoseph for Arbitrum’s… pic.twitter.com/QRgeom9Otq
— Ignas | DeFi (@DefiIgnas) April 8, 2025
This isn’t an remoted incident; it’s a symptom of a deeper flaw. Fairly than decentralization, token-weighted voting typically concentrates energy within the fingers of the rich, turning governance right into a high-stakes recreation for individuals who can afford it.
So, the place does that depart the common DAO member? And what does this say about the way forward for decentralized governance?
On this piece, we’ll discover how token voting works, why it’s structurally flawed, and what different fashions are rising to make sure that DAOs stay as much as their unique democratic beliefs.
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How Token-Based mostly Voting Works in DAOs
Immediately, most DAOs use token-based voting: the extra governance tokens you maintain, the extra voting energy you will have. In easy phrases, proudly owning 1% of the entire token provide usually means you wield 1% of the voting energy. This strategy borrows closely from conventional company shareholder voting, aligning affect with monetary stake. It’s simple to implement, scales properly, and incentivizes funding, but it surely comes with a elementary contradiction.
Not like companies, DAOs are presupposed to be decentralized, clear, and community-first. Token-based voting, nevertheless, typically undermines these beliefs. It opens the door to governance seize by rich people, funds, or insiders who can merely purchase extra affect. This transforms what needs to be a participatory ecosystem right into a pay-to-play mannequin the place energy doesn’t essentially mirror contribution, dedication, or experience, however capital. The result’s a system that seems decentralized on the floor however can replicate the identical hierarchies that DAOs had been meant to disrupt.
ALSO READ: DAOs and The Coordination of Human Endeavour
Focus of Energy Amongst Whales
Regardless of their promise of decentralization, many DAOs face a troubling focus of energy within the fingers of some. Token-based governance typically leads to “whales” wielding disproportionate affect over choices that have an effect on whole ecosystems. This centralization of management echoes the very dynamics DAOs had been designed to disrupt.
A revealing research by Chainalysis discovered that in ten main DAOs, lower than 1% of holders management practically 90% of the voting energy.
This imbalance permits a small group to steer governance, leaving smaller stakeholders with little significant voice.
The implications of this had been dramatically illustrated in June 2022 throughout a disaster involving Solend, a lending platform on Solana. A whale had taken on a large mortgage, and because the value of SOL declined, their place risked liquidation. If the liquidation had occurred on the open market, it may have triggered a broader crash in Solana’s value. To mitigate the fallout, the DAO authorities voted to quickly take management of the whale’s account and deal with the liquidation by way of over-the-counter (OTC) offers. The transfer sparked backlash not just for overriding decentralization rules, but in addition for displaying how one whale’s publicity may destabilize a whole protocol.
This isn’t an remoted case. Enterprise capital agency a16z, for instance, reportedly holds over 55 million UNI tokens, granting it important management over Uniswap’s governance. In a single controversial occasion, a16z voted in opposition to deploying Uniswap v3 on the BNB Chain by way of the Wormhole bridge—a call seen by some as serving company technique over neighborhood profit.
The development extends additional. In Compound, one other outstanding DeFi platform, simply 10 voters held practically 58% of the entire voting energy. Actually, it typically took fewer than three voters to move proposals, successfully sidelining the broader neighborhood.
The implications of whale dominance are far-reaching. Governance choices are likely to favour the pursuits of huge holders, resulting in protocol bias that prioritizes capital safety over neighborhood development. Smaller token holders might change into disillusioned, feeling that their votes carry no weight, a barrier to entry that erodes participation. Most regarding of all, stagnant innovation may result, as whales resist adjustments that may problem their affect, even when these adjustments are essential for the ecosystem’s evolution.
In essence, whereas DAOs purpose to democratize decision-making, the fact typically falls quick, elevating pressing questions on how DAOs can create fairer and extra inclusive governance fashions sooner or later.
RELATED: Past Tokens: How DAOs Are Diversifying Treasuries and Forming Alliances
Voter Apathy and the Phantasm of Participation
One of many clearest cracks within the facade of token-based governance is the rising voter apathy amongst DAO members. Whereas these programs promise open, democratic participation, the fact paints a far much less inclusive image. Most token holders stay disengaged, not out of ignorance, however out of disillusionment.
In line with information from DeepDAO, solely round 3.3 million out of 11.8 million governance token holders throughout varied DAOs are actively voting or proposing. That’s a staggering over 70% of token holders who’re basically silent. The end result? A small, lively minority finally ends up steering the ship, typically comprising insiders or massive token holders with vested pursuits.
This isn’t only a participation downside; it’s an influence downside. When the identical few voices repeatedly dominate outcomes, it sends a transparent message to smaller holders: your vote doesn’t actually matter. Over time, this breeds a poisonous suggestions loop. Disenchantment results in apathy, which in flip results in a fair higher focus of affect.
In apply, many DAOs change into democratic in identify solely. The veneer of decentralization masks a actuality the place governance is dictated by a handful of well-positioned contributors, whereas the broader neighborhood drifts into irrelevance. This imbalance not solely weakens the integrity of DAO decision-making but in addition threatens their long-term sustainability and innovation.
Token-based voting, because it stands, gives a system the place votes exist, however honest illustration doesn’t.
Different Governance Fashions
Because the cracks in token-based governance change into extra seen from whale dominance to widespread voter apathy, many within the crypto neighborhood are exploring different fashions that promise fairer, extra inclusive decision-making. Among the many most compelling of those are quadratic voting and reputation-based voting, two programs that purpose to shift the stability of energy away from pure token possession and towards extra significant participation.
Quadratic voting: Prioritizing ardour over energy
Quadratic voting challenges the concept that extra tokens ought to equal extra affect. As a substitute, it introduces a value curve the place every extra vote turns into more and more costly: the price of n votes equals n² tokens. So whereas casting one vote prices one token, casting three votes prices 9. This design discourages vote hoarding and encourages customers to vote solely on points they care deeply about.
This mannequin has already seen success in tasks like Gitcoin Grants, the place it’s used to allocate funding for public items. By surfacing collective priorities as an alternative of favouring the loudest or wealthiest voices, quadratic voting helps give smaller stakeholders a significant seat on the desk.
Nonetheless, the system isn’t foolproof. Its greatest problem lies in Sybil resistance—guaranteeing that one individual equals one id. With out robust id verification, unhealthy actors can recreation the system by creating faux accounts, undermining the very equity it goals to advertise.
Status-based voting: Affect earned, not purchased
Whereas quadratic voting tweaks the worth of votes, reputation-based voting redefines what earns you a vote within the first place. Right here, governance energy stems from contributions, experience, and neighborhood belief, slightly than token holdings.
Initiatives like Colony.io assign popularity scores primarily based on customers’ work high quality and consistency, whereas the Optimism Collective’s Residents’ Home empowers decision-making by verifiable contributions and id, slightly than simply pockets balances. These programs reward long-term involvement and discourage speculative governance participation pushed solely by monetary acquire.
The advantages are clear: deeper engagement, much less susceptibility to vote-buying, and a governance mannequin that extra intently displays the precise builders and stewards of a neighborhood. Nonetheless, challenges stay, notably round measuring contribution high quality and creating sturdy, privacy-respecting id layers to stop manipulation.
A step towards fairer DAOs
Neither mannequin gives an ideal repair, however they signify essential steps towards maturing DAO governance. Transferring past token counts, these programs discover what it actually means to construct honest, decentralized communities: the place votes are earned, not purchased; the place participation is motivated by function, not revenue; and the place governance energy displays dedication, not simply capital.
Within the quest for really decentralized governance, rethinking the voting mechanism in DAOs could also be an important vote we forged but.
Closing Thought: Decentralization Deserves Higher
On the coronary heart of the DAO motion lies a strong concept: that communities, not companies, ought to form the way forward for decentralized platforms. However the actuality is proving way more difficult. Token-based voting, whereas environment friendly and acquainted, has largely recreated the very energy buildings it sought to get rid of. Wealth begets affect, whales dominate outcomes, and the common participant is usually left watching from the sidelines.
This isn’t a failure of ambition; it’s a design flaw. One which displays how decentralization in concept can nonetheless fall prey to centralization in apply.
However there’s hope within the alternate options. From quadratic voting that prioritizes ardour over energy, to reputation-based programs that reward long-term contributors, DAOs are starting to experiment with governance fashions that transfer past mere token counts. These improvements gained’t clear up each problem in a single day, however they do mark a shift towards fairer programs, ones the place affect is earned by participation, not bought with capital.
If DAOs really purpose to fulfil their founding beliefs, they have to rethink what energy means in a decentralized world. The way forward for collective governance relies upon not simply on who will get to vote, however on whose voice truly counts.
Disclaimer: This text is meant solely for informational functions and shouldn’t be thought of buying and selling or funding recommendation. Nothing herein needs to be construed as monetary, authorized, or tax recommendation. Buying and selling or investing in cryptocurrencies carries a substantial threat of economic loss. All the time conduct due diligence.
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