Why Your Token's Voting Power Should Decay Over Time

A whale's vote in Year 1 has the same weight in Year 10, even if they've been inactive or adversarial. This leads to:

• Stagnant voter bases and low participation from new entrants.
• Protocol capture by early investors or exchanges, as seen in early Compound and MakerDAO governance battles.
• Misaligned incentives where passive capital has equal say to actively staked capital.

Curve Finance's veCRV model pioneered time-based decay. Lock tokens for up to 4 years for maximum voting power, which then linearly decays to zero.

• Aligns long-term holders with protocol success; power requires continuous re-commitment.
• Creates a liquid secondary market for governance rights via vote-escrow NFTs.
• Inspired derivatives like Convex Finance (CVX) to aggregate and manage decayed voting power.

Static models like early Uniswap governance empower perpetual, disengaged whales. MakerDAO's MKR has struggled with voter apathy and low turnout despite its critical role.

• No mechanism to flush out inactive capital.
• Governance attacks become cheaper over time as token value diverges from voting utility.
• Fails the "skin in the game" test for recent, active participants.

New protocols are experimenting beyond simple linear decay. Frax Finance's veFXS uses a similar model but with multi-layered governance.

• Quadratic voting or proof-of-personhood integration can combine decay with sybil resistance.
• Decay can be tied to activity, resetting or slowing based on participation, creating a 'use-it-or-lose-it' dynamic for power.
• This evolution is critical for DAO tooling platforms like Aragon and Tally.

Early investors or VCs with large, permanent stakes can become passive, disengaged voters. Their static voting power creates a governance overhang, where critical proposals fail due to apathy, not opposition. This leads to protocol stagnation and misalignment with active users.

• Risk: >50% of voting power can become inert.
• Outcome: De facto veto power for inactive capital.

Static voting power is a financial asset that can be accumulated on the open market. An attacker can slowly buy up tokens to reach a governance quorum, then pass proposals to drain the treasury or extract value. This makes the protocol a target for financialized governance attacks, similar to risks seen in early Compound and MakerDAO forks.

• Attack Path: Accumulate tokens → Pass malicious proposal.
• Defense: Decay raises the cost and speed required for capture.

Without decay, small groups of large holders can form permanent, low-maintenance cartels. They can extract rents by voting for proposals that benefit them (e.g., fee redirects) or by selling their voting influence. This leads to governance centralization and erodes the protocol's credibly neutral foundation. Decay forces cartels to continually re-stake their influence, increasing operational cost and exposure.

• Result: Persistent rent extraction from the treasury.
• Mitigation: Decay increases cartel coordination costs.

If a protocol fails or becomes obsolete, its governance tokens often retain full voting power over a dead system. This creates zombie governance, where the only "active" participants are arbitrageurs or attackers looking to loot remaining value. Decaying voting power ensures governance influence naturally atrophies with protocol disuse, allowing for cleaner forks or sunsets.

• Analog: Abandoned DAO treasuries with active keys.
• Solution: Influence fades with participation.

In systems like Compound or Uniswap, users delegate to experts for convenience. Without decay, these delegation relationships become set-and-forget, granting delegates permanent, unchecked power. If a delegate becomes malicious or incompetent, voters have no automatic mechanism to revoke influence. Decay forces periodic re-delegation, creating natural accountability checkpoints.

• Failure Mode: Lazy delegation creates centralized points of failure.
• Check: Decay mandates active re-engagement.

Tokens used for governance are often locked, reducing liquid supply and market efficiency. Without decay, this creates a permanent lock-up tax for engaged voters. Decay allows voting power to be temporally bounded, enabling users to participate in governance for a cycle and then return tokens to liquid markets without sacrificing future influence. This aligns with veToken model improvements and ERC-20G concepts.

• Trade-off: Governance rights vs. capital efficiency.
• Balance: Decay enables periodic liquidity resets.

Early whales accumulate governance tokens and can exert outsized influence indefinitely, even after they've stopped contributing. This creates a stagnant, extractive power structure.

• Voter turnout often falls below 10% for non-critical proposals.
• Whale voting blocs can veto progressive changes, leading to protocol ossification.
• Passive holders have no incentive to delegate or participate, ceding control to a small minority.

Implement a decay function (e.g., ve-token models like Curve, but with expiration) where voting power diminishes over time unless actively renewed through participation.

• Forces continuous skin-in-the-game. Power requires recent, verifiable contribution (staking, providing liquidity, building).
• Automatically dilutes absentee whales. Their influence fades if they disengage, redistributing power to active participants.
• Creates natural governance cycles. Prevents permanent capture and encourages regular protocol reassessment.

Learn from existing models but enforce expiration. Curve's veCRV showed the power of time-locking, but its permanent-lock loophole (via Convex) illustrates the need for mandatory decay.

• Mandatory decay curves are superior to optional locking. Power should diminish on a predictable schedule.
• Pair with delegation markets (like MakerDAO's MKR lock) to maintain quorum.
• Integrate with DeFi actions. Renewal power by providing liquidity, not just re-staking the governance token.

Decay transforms governance from a capital-based plutocracy to an activity-based meritocracy. The protocol's direction aligns with its most current, engaged stakeholders.

• Mitigates regulatory risk by moving away from pure financial-weight voting.
• Incentivizes ecosystem participation over passive speculation.
• Enables graceful protocol evolution as power naturally shifts to new builders and users.