Why Token Voting Undermines Public Goods Funding

Token voting is extractive. Voters optimize for personal token appreciation, not protocol sustainability, leading to proposals that boost short-term metrics like TVL at the expense of core development and security.

Governance becomes a yield farm. Delegates and whales treat voting as a revenue stream, supporting grants that benefit their own portfolios, as seen in early Compound and Uniswap treasury proposals.

Evidence: An analysis of Optimism's Citizen House shows over 60% of retroactive funding proposals are submitted by entities holding large OP token positions, creating a clear conflict of interest.

Token voting is misaligned. Voters are tokenholders, not users. Their financial incentive is to maximize token price, not protocol utility. This creates a principal-agent problem where governance decisions benefit speculators at the expense of the ecosystem's long-term infrastructure.

Public goods are undervalued. Funding proposals for core development or security audits provide diffuse, long-term value. Token voters, focused on quarterly returns, systematically underfund these essentials. This is the tragedy of the commons applied to on-chain treasuries, as seen in early Compound and Uniswap governance.

The result is protocol ossification. Without consistent investment in the foundational stack, technical debt accumulates. Protocols like MakerDAO must create complex subDAOs like Spark Protocol to bypass their own stagnant governance, a clear admission of the core system's failure.

Evidence: An analysis of Snapshot votes shows less than 5% of major DAO treasury proposals fund non-revenue-generating public goods. The rest are marketing initiatives or liquidity incentives designed to pump the token.

Token holders are speculators, not stewards. Their financial incentive is token price appreciation, which is decoupled from the long-term health of the protocol's ecosystem. This creates a principal-agent problem where voters optimize for airdrops and fee extraction, not developer tools or documentation.

Voting power centralizes with whales. The quadratic voting solutions proposed by Gitcoin and Radicle fail in practice against sophisticated vote-buying and sybil attacks. The result is governance capture, where a few large holders dictate funding to projects that benefit their portfolios, not the commons.

Evidence: Analyze any major DAO treasury. Uniswap's grants program is perpetually underfunded relative to its multi-billion dollar treasury, as token holders reject proposals that don't directly boost UNI metrics. The Optimism Collective's Citizen House is an explicit attempt to bifurcate governance and mitigate this exact failure mode.

Token voting is plutocracy. It conflates financial stake with governance wisdom, creating a system where capital concentration dictates resource allocation, not merit or need.

Voters optimize for token price. Governance participants are rational actors who prioritize proposals that increase their token's value, not the ecosystem's long-term health. This is the principal-agent problem in action.

Public goods are non-excludable. Projects like Optimism's RetroPGF or Gitcoin Grants exist because voters underfund infrastructure and tools that don't directly boost their own holdings.

Evidence: In Compound Governance, large token holders repeatedly vote for high-risk, yield-maximizing proposals that endanger protocol solvency, demonstrating the tragedy of the commons.