Why On-Chain Voting Fails Without Economic Skin in the Game

One-token-one-vote concentrates power with the largest holders, who are often passive capital like exchanges or funds. Their economic interests are misaligned with protocol health.

• Compound's Proposal #62: A single whale's 8M COMP vote passed a contentious change, overriding community sentiment.
• Low Cost of Attack: A malicious actor can borrow or rent voting power for less than 0.1% of the protocol's TVL to pass a self-serving proposal.

With no cost to abstain or vote 'yes', participation is meaningless. This enables Sybil attacks where an attacker creates thousands of wallets to simulate grassroots support.

• Uniswap's 'Fee Switch' Vote: ~10% turnout from circulating supply, with decisive votes from a handful of entities.
• Curve's veToken Model: Mitigates this via vote-locking, but still suffers from voter apathy and bribery markets (vote escrow).

Force voters to economically commit to the outcome of their vote. This aligns incentives and filters out noise.

• Futarchy (Gnosis, Polymarket): Let voters bet ETH on proposal outcomes; the market's prediction becomes policy.
• Conviction Voting (1Hive): Voting power increases linearly with the time tokens are locked on a proposal, requiring long-term commitment.
• Bonded Voting: Require a slashable stake to vote; lose it if you vote with the losing side or act maliciously.

Current delegate models (e.g., Compound, Uniswap) are reputation-based with no downside. Introduce slashing for delegate misconduct to create accountable representation.

• MakerDAO's Constitutional Delegates: Move towards a legal liability framework for core delegates.
• Kleros' Court Model: Jurors are randomly selected from a staked pool and are finally slashed for incorrect rulings, applying directly to governance.

Voting 'yes' is a free option on potential upside with no downside. Voters approve everything, delegitimizing the process. A 'no' vote requires active effort to defend the status quo.

• Optimism's Grant Votes: Early rounds saw >95% approval rates for all proposals, regardless of merit.
• Treasury Drain: Creates a tragedy of the commons where the protocol treasury is treated as a public good for funding any idea.

A partial solution that increases voter stake but introduces new flaws. Users lock tokens for up to 4 years to get vote-escrowed (ve) tokens.

• Pro: Aligns voters with long-term health; ~70% of CRV is locked.
• Con: Creates vote-bribing markets (e.g., Votium, Bribe.crv.finance) where protocols pay veToken holders for votes, corrupting intent.
• Result: Governance becomes a rent-seeking marketplace, not a mechanism for optimal outcomes.

Large token holders (VCs, exchanges) vote on protocol changes but are not the primary users bearing the risk. This creates misaligned incentives and low-quality governance.

• Key Risk: Whale votes can pass changes that harm active users but benefit passive capital.
• Key Metric: On major DAOs, <5% of token holders typically participate in votes.
• Result: Governance becomes a signaling game, not a risk-management tool.

Require voters to bond (lock) tokens for a period to participate. Votes are weighted by the size and duration of the bond.

• Key Benefit: Aligns voter skin-in-the-game with long-term protocol health.
• Key Benefit: Penalizes malicious proposals via slashing mechanisms on bonded assets.
• Result: Shifts governance power from passive capital to committed, long-term stakeholders.

Sybil-resistant airdrops distribute governance tokens to users, but recipients often sell immediately, leaving governance in the hands of mercenary capital.

• Key Risk: >80% of airdropped tokens are often sold within weeks, divorcing governance from real users.
• Key Metric: Post-airdrop, voter participation is dominated by delegates representing speculative funds.
• Result: Protocol direction is set by entities with no operational experience using the product.

Weight voting power by verified, on-chain usage metrics (e.g., volume, fees paid, liquidity provided) over a trailing period, not just token balance.

• Key Benefit: Power flows to the protocol's most active and valuable users.
• Key Benefit: Creates a continuous incentive to use the protocol, not just hold its token.
• Result: Builds a governing class of experts who understand the product's mechanics and needs.

Complex technical proposals are decided by token holders who lack the expertise to evaluate them, leading to rubber-stamping or dangerous ignorance.

• Key Risk: Security-critical upgrades (e.g., Ethereum EIPs) are voted on by holders who don't read code.
• Key Metric: <1% of voters read full proposal specifications before casting a vote.
• Result: Governance becomes a popularity contest for delegate teams, not a technical review process.

Let the market decide. Instead of voting on proposals directly, create prediction markets on the proposal's outcome metric (e.g., "TVL will increase 20% in 90 days if passed").

• Key Benefit: Harnesses collective intelligence and capital at risk to forecast outcomes.
• Key Benefit: Decisions are made based on predicted measurable impact, not rhetoric.
• Result: Creates a price for governance decisions, forcing economic accountability. (See: Gnosis, Polymarket).