Currently, decentralised governance largely means coin-based voting with every tokenholder voting on every decision. The flaws of this methodology are well documented, but we think they can largely be summarised into two main areas:
(1) Tragedy of the commons: Large groups of small holders are unlikely to be best positioned to make good decisions on complex subjects. There is a tragedy of the commons at play where each small holder has an insignificant impact on the outcome and has no incentive to do the often significant research required to vote well. In practice, this often means governance devolves to being dominated by a small group of whales.
(2) Misaligned interests: Coinholder voting prioritises tokenholders at the expense of other members of the community. The interests of tokenholders may not always be aligned with other stakeholders or with the protocol’s interest, particularly given tokenholders may have undisclosed conflicts of interest.
We believe (1) can largely be mitigated by some form of delegation, which we describe in the “Sub-DAO” section. (2) is tougher, with many of the solutions having to be implemented by the protocols themselves via things like Lido’s stETH veto ability. Nevertheless, we propose a potential solution under the Court of Cosmos section.
Right now, every tokenholder has to vote on every single decision made by a DAO. This is highly inefficient and doesn’t scale. Similar to companies and even governments, we see the evolution of DAOs involving delegating decisionmaking power to smaller, specialised groups operating independently. While there will be many permutations of this, broadly this setup means a main DAO which is governed by tokenholders and responsible for high-level strategy and policy, with specialised, independent sub-DAOs being delegated resources/governance power to enact a certain mandate. This is excellently described by Vitalik in his recent post on DAOs.
https://lh6.googleusercontent.com/L_DmU7wrPgNb5wajCt2FoFnAHtJUsBXrJI8jg_x_ozB30KAzUVUGJcBecjLq697okw3NlvzO4eXIwpUHABctKlrcpYJATYiIEEw5u3WE_fh9MzQFotDQvux1wPcj4AMnA6VETz9PEtQfe7Dkj2us8Fw
Initially, these sub-DAOs could simply be permissioned multi-sigs which are granted some resources from the main DAO and then operate independently. The DAO would control all multi-sig permissioning including adding new signers, revoking a signer’s access. However, the DAO could also delegate governance power regarding specific kinds of decisions to the sub-DAO, with some checks and balances to prevent malfeasance. For instance, a money market protocol could initiate a risk sub-DAO and delegate governance power regarding asset listing and other risk parameter adjustment decisions. These decisions could then be made independently by the sub-DAO which would allow risk decisions to be made far more quickly. Similarly, we can imagine a “dev sub-DAO” which is in charge of smart contract upgrades, a treasury sub-DAO which is in charge of budgeting, etc. This is the vision outlined in YFI’s excellent “Governance 2.0” post from 2021.
For increased accountability, decisions made by the sub-DAO could be time-locked for a given amount of time during which they could be “challenged” by the main DAO (i.e. some quorum of tokenholders stake tokens to challenge the decision). If the quorum is hit, this would initiate a full DAO vote. If the DAO upholds the sub-DAO decision, challengers would be slashed some amount. If the DAO reverses the sub-DAO decision, the sub-DAO could be slashed some amount.
Ultimately, rather than the DAO delegating its governance power as a block, we could imagine a world where discrete bundles of governance power are tokenised and individual holders are able to delegate them to a sub-DAO of their choice. This creates a decentralised system of political parties competing for tokenholder delegations.
Where: This is necessary on every Cosmos chain but would arguably make the most sense on Neutron, since it is focused on being the neutral hub-chain for cross-chain protocols.