Why Stake-Weighted Voting is Not Enough for Fair Reward Distribution

Large token holders (whales) vote for proposals that maximize their short-term yield, not long-term protocol health. This leads to:\n- Vote-buying and bribery markets (e.g., Curve Wars).\n- Centralization of governance power in a few addresses.\n- Stagnant innovation as proposals favoring incumbents pass.

Smaller stakeholders have negligible voting power, leading to rational apathy. Low participation makes governance vulnerable to attacks.\n- Sybil attacks become cheap.\n- Proposal quality suffers from lack of diverse input.\n- Security models (e.g., quorums) fail without broad participation.

Decouple voting power from pure capital. Systems like SourceCred or Gitcoin Passport assign influence based on proven contributions.\n- Reward long-term engagement and expertise.\n- Mitigate plutocracy by valuing work over wealth.\n- Align incentives with protocol growth, not just token price.

Adopt mechanisms like Quadratic Voting (QV) or Gitcoin Grants' QF to diminish large-holder dominance. Voting power increases at the square root of tokens committed.\n- Empowers the long tail of small stakeholders.\n- Reveals intensity of preference, not just capital.\n- Proven in practice for public goods funding.

Let markets decide. Proposals are implemented based on the outcome of prediction markets (e.g., Gnosis), not direct votes.\n- Objective outcome-based governance.\n- Incentivizes accurate forecasting over political maneuvering.\n- Reduces governance overhead for token holders.

Formalize and incentivize delegation to knowledgeable parties, similar to Compound's Gauntlet or MakerDAO's Delegates.\n- Professionalizes governance with accountable actors.\n- Reduces voter fatigue for passive holders.\n- Creates a market for governance expertise.

Stake-weighting conflates capital with competence, letting the largest token holders dictate all outcomes. This leads to:

• Voter apathy from smaller holders.
• Proposal quality collapse as signaling becomes financial, not meritocratic.
• Centralization pressure where ~10 entities often control >60% of voting power.

Protocols like Gitcoin Grants, Coordinape, and SourceCred map on-chain/off-chain work to token distributions. Fairness is enforced via:

• Retroactive Public Goods Funding (RPGF) for past work.
• Peer-to-peer recognition circles to quantify soft contributions.
• Objective metrics (code commits, governance posts) via tools like Wonderverse and Dework.

Mechanisms that dilute pure capital influence. Gitcoin's Quadratic Funding and 1Hive's Conviction Voting model preference intensity over wallet size.

• Quadratic Funding matches donations, making many small contributions more powerful than one large one.
• Conviction Voting uses time-locked tokens, requiring sustained belief in a proposal, not just momentary capital.

Decoupling governance rights from transferable assets. Vitalik's Soulbound Tokens (SBTs) and DAO-specific reputation systems like those in Aragon grant power based on proven participation.

• Non-transferable reputation prevents vote buying.
• Tiered access unlocks proposal rights after a history of constructive engagement.
• Sybil-resistance via BrightID or Proof of Humanity.

Infrastructure to objectively measure contribution. Goldsky, Dune, The Graph, and Space and Time provide verifiable data feeds for reward formulas.

• Custom SQL queries track any on-chain action.
• ZK-proofs of contribution (e.g., Axiom) enable private verification.
• Oracle networks like Chainlink bring off-chain activity on-chain.

Fully Homomorphic Encryption (FHE) protocols like Fhenix and Inco allow computation on encrypted data. This enables:

• Private voting to prevent pre-proposal coercion.
• Blind contribution scoring to reduce bias.
• Confidential reward calculations that only reveal the final distribution.

Stake-weighting conflates financial stake with operational value, allowing passive whales to capture governance and rewards meant for builders. This creates perverse incentives for protocol development.

• Result: Top 10 voters often control >60% of voting power.
• Consequence: Grants and treasury funds flow to low-risk, whale-aligned proposals.

Move beyond a single token metric. Build a reputation graph that scores contributors across dimensions: code commits, governance forum activity, and ecosystem development.

• Mechanism: Use off-chain attestations or soulbound tokens to create non-transferable reputation.
• Outcome: Reward distribution aligns with verifiable work, not just capital.

Any system rewarding activity must solve for fake identities. Integrate proof-of-personhood primitives like Worldcoin, BrightID, or Gitcoin Passport to establish unique human identity.

• Prevents: Farming rewards across hundreds of sybil wallets.
• Enables: Fair distribution of airdrops and grants to real users and builders.

Don't try to predict valuable work—fund it after it's proven. Inspired by Optimism's RPGF rounds, this model uses community signaling to reward past contributions that created ecosystem value.

• Mechanism: Quadratic funding or conviction voting to allocate funds.
• Impact: Redirects millions in funding to builders based on demonstrated impact, not promises.

Separate the right to earn fees from the right to govern. Models like Curve's veCRV allow users to lock tokens for yield boost while delegating governance power to experts.

• Result: Active delegates with skin in the game govern, while passive LPs earn fees.
• Prevents: Vote-buying and mercenary capital dominating governance decisions.

Apply diminishing returns to voting power to prevent absolute control. A quadratic formula or hard cap on any single voter's influence preserves decentralization.

• Mechanism: Voting power = sqrt(stake) or a hard cap of ~5% per entity.
• Outcome: Prevents a $10B+ whale from single-handedly controlling protocol upgrades and treasury spend.