Why 'One Token, One Vote' Guarantees Low-Quality Curation

Governance is a market for votes, not a forum for debate. Large token holders (whales, VCs) can single-handedly pass proposals, regardless of merit. This leads to:

• Protocol capture by entities optimizing for short-term token price, not long-term health.
• Vote-buying markets where governance power is rented, as seen in early Compound and Uniswap delegate races.
• Sybil-resistant designs like quadratic voting fail because capital can be split across wallets at minimal cost.

Rational token holders have no incentive to research complex proposals. The cost of informed voting exceeds the marginal benefit of their stake. This creates:

• Low voter turnout (often <10%), making governance vulnerable to small, coordinated groups.
• Delegation to default options (e.g., Coinbase, Binance) who vote for generic, low-risk, low-innovation proposals.
• Curation quality tends to zero as the system rewards laziness, not expertise. See MakerDAO's struggle with low-information MKR holders.

Holding a governance token does not equate to having protocol expertise. 1T1V assumes alignment where none exists, resulting in:

• Technical decisions made by non-technical voters, leading to security risks and suboptimal upgrades.
• Misaligned incentives: A trader's 'skin' is in token price volatility, not protocol utility. Curve's vote-escrow model improves this but still equates staked capital with wisdom.
• Contrast with Futarchy or Knowledge-Weighted Voting (e.g., Vitalik's SBT-based ideas), which attempt to separate capital from decision-weight.

Governance tokens are designed to be liquid, which is antithetical to stable, long-term stewardship. This creates a fundamental conflict:

• Voters are transient: They can exit their position immediately after a harmful vote, externalizing the cost.
• **Protocols like Olympus DAO tried locking (OHM) but sacrificed liquidity, crippling token utility.
• The solution space explores non-transferable stakes (e.g., stake-for-access, soulbound tokens) but faces adoption hurdles against liquid, tradable alternatives.

Large token holders (whales) dictate governance outcomes, optimizing for short-term token price over long-term protocol health. This leads to rent-seeking proposals and low voter participation from smaller holders.

• Result: <10% of token holders typically vote, ceding control to a few entities.
• Example: Early DeFi DAOs saw treasury drains and fee switch proposals that benefited large stakers.

The effort-to-reward ratio for informed voting is negative for small holders, leading to delegation. This creates de facto oligarchies where a few delegates (e.g., Coinbase, Figment) control vast voting power without skin-in-the-game for specific protocol nuances.

• Result: Curation quality depends on ~10-20 delegates, not the community.
• Partial Fix: Snapshot with delegation, but does not solve misaligned incentives.

When governance fails, the ultimate curation is a fork. Successful forks like Compound Treasury or Uniswap v3 deployments on other chains prove the market can reject DAO decisions. However, this is a capital-intensive, last-resort solution.

• Proof: $1B+ in TVL has migrated via governance forks.
• Limitation: Forks fragment liquidity and developer mindshare, a net loss for the ecosystem.

A partial solution that replaces voting with market-based forecasting. Proposals are evaluated based on the predicted market price of the governance token if implemented. Platforms like Gnosis have experimented with this.

• Benefit: Incentivizes accurate information aggregation over mere token weight.
• Drawback: Highly complex, susceptible to manipulation in low-liquidity markets, and slow.

Mechanisms like those pioneered by Gitcoin and 1Hive aim to dilute whale power. Quadratic Funding makes small donations more impactful, while Conviction Voting requires sustained token commitment over time.

• Benefit: Democratizes influence and surfaces community-preferred projects.
• Limitation: Still token-dependent, vulnerable to Sybil attacks without robust identity proof.

Separates governance rights from liquid capital by issuing non-transferable reputation (e.g., Colony, early DAOhaus). Voting power is earned through provable contributions.

• Benefit: Aligns power with proven contributors, not just capital.
• Failure Mode: In practice, often gamed by insiders and creates rigid, closed oligarchies if not carefully designed.

1T1V conflates financial stake with governance competence, allowing capital-rich but context-poor actors to dominate. This leads to protocol capture and misaligned incentives.

• Vote buying becomes trivial via flash loans or simple bribery.
• Proposal quality drops as signaling shifts from merit to capital aggregation.
• Exit of experts occurs when knowledgeable contributors are systematically outvoted.

Token-weighted voting creates massive information asymmetry. Small, informed holders are drowned out, while large, passive holders lack the incentive to research, leading to low-quality governance signals.

• Voter turnout is often abysmal (<10%) outside of major proposals.
• Delegation defaults to staking providers, not subject-matter experts.
• Outcomes reflect liquidity, not the protocol's long-term health.

Move beyond pure capital weight. Systems like SourceCred, Gitcoin Grants' Quadratic Funding, and Conviction Voting tie influence to proven contributions and decentralized identity.

• Skin-in-the-game via non-transferable reputation (e.g., POAPs, Soulbound Tokens).
• Quadratic Voting reduces whale power and amplifies broad consensus.
• Futarchy allows markets, not votes, to decide on measurable outcomes.