How does DAO governance work?

Blockchain technology, web3 services, and digital payments are becoming more and more prevalent. The existing hierarchical world’s governance standards cannot be followed by new businesses and communities that use and manage blockchain initiatives.

Decentralized autonomous organizations, also known as DAOs, are a new method of funding projects, controlling communities, and sharing assets that are being established by these new corporate entities. Web3 technology and quickly developing governance and incentive systems are used to spread decision-making authority and monetary rewards instead of the conventional top-down hierarchical structure.

What is DAO governance?

We have already discussed what DAOs are and how they differ from the current hierarchical order that prevails in the majority of businesses today.

When creating a DAO, one must decide on the governance model that the DAO will be built upon. This includes questions like: how many members will the DAO have, what type of voting system will it use, how will it handle conflict resolution, and how often it will need to update its governance model.

DAO voting mechanism

Every DAO needs to choose a voting model that will be put in place whenever members need to make a decision. Several models already exist, but none of them is ideal yet. They work best when the issue at hand has a simple “yes” or “no” solution. But when it comes down to more complex issues where a longer discussion should be held, the current DAO voting mechanisms are not completely successful yet.

• Token-based quorum: The most widely used DAO voting mechanism, where for a proposal to pass, a certain number of DAO members must participate in the voting process. If the threshold has been met, the decision that has received the most votes wins. Failing to reach the threshold means that the proposal fails. The downside of this model is that people holding a large number of tokens get to enjoy more voting power in this system.
• Quadratic voting (QV): Members can buy additional tokens and acquire greater voting power. The voting power increases by the square of the number of tokens a member has. This means that the representative impact of a single vote is one; two votes have an impact of four, three votes an impact of nine and so on.
• Conviction voting (CV): The longer your vote stays unchanged, the more weight it has. Changing votes is always possible, but it comes at the price of sacrificing the weight of your decision. This approach eliminates last-minute manipulations.
• Holographic consensus: This mechanism requires no threshold to be successful. Even one member can be the sole participator in the decision-making. The voting process is easy, less expensive and less demanding, but makes proposal passing a risky endeavour as it is a very easy process that doesn’t require too much attention from other members.
• Multi-sig voting: This mechanism creates a balance between central authority and decentralisation. DAO members can signal on proposals, while a centralised entity executes the vote on the relevant proposal. Multi-sig voting is extremely fast and could be appropriate in cases where urgent action is needed.

Types of DAO

Protocol DAOs
‣ The most common type of DAO currently
‣ Focus on the governance of decentralized protocols
‣ Utilisation of smart contract protocols for offering DeFi services
‣ Examples: MakerDAO, Uniswap, Yearn Finance, GoCrypto DAO

Collector DAOs
‣ One of the most important types of DAOs
‣ Primary focus on collecting funds so that the community can have ownership of blue-chip NFT and other digital collectibles
‣ Examples: Flamingo DAO, Fingerprints DAO

Investment DAOs (aka. Venture DAOs)
‣ Raising funding for a particular project
‣ Work similar to traditional investment funds
‣ Pool the funds for investments in early-stage blockchain and crypto projects
‣ Offer an exclusive avenue for investments in new web3 protocols and off-chain investments
‣ Examples: MetaCartel Ventures

Philanthropy DAOs
‣ The less common type of DAO currently
‣ Focus on supporting social responsibility initiatives
‣ Examples: Big Green DAO, Angel Protocol

There are additional DAO types, such as Social DAOs, Media DAOs, Entertainment DAOs, and more, but these are the most common.

GoCrypto 2.0 as a DAO

The GoCrypto 2.0 decentralized payments protocol that will enable decentralized payments driven entirely by smart contracts will also take the form of a DAO. The complete governance of the revolutionary protocol will be given to its DAO members who will make sure that it develops in the direction preferred by the crypto community.

Holders of the GoC token will be able to create their own account inside the GoCrypto 2.0 protocol, mint NFTs, stake GoC and leverage the NFT power for a role in the DAO governance.

The future of DAO

DAOs will likely be shaped by DeFi trends as many DeFi protocols are organized as decentralized autonomous organizations. As DeFi continues to grow and become more mainstream, we can expect to see more DAOs being created to manage these protocols.

Another trend is the development of more sophisticated DAO structures and governance mechanisms. As DAOs become more complex, there is a growing need for more advanced decision-making processes and better ways to incentivize participants to contribute. Some DAOs are experimenting with new voting mechanisms which can help to prevent majority tyranny and give more power to minority stakeholders.

The regulatory framework will certainly play a big role in the future of DAOs. Although legislation concerning DAOs remains scarce, some laws are already being introduced. Regulators are currently trying to fit these new organizational structures into a traditional company registration framework which cannot produce a positive outcome. Technologists, regulators, and entrepreneurs will need to work hand in hand in building a regulatory framework around the revolutionary decentralized technology to provide digital businesses with a bright and optimized future.

Overall, the future of DAOs is likely to be shaped by continued innovation and experimentation, as well as increasing interest and adoption from a wide range of industries and communities.

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