Why Delegated Governance Fails Without Reputation-Based Delegation

Voting power is a direct function of token holdings, not expertise. This creates a system where the richest, not the most knowledgeable, dictate protocol evolution.

• Whale Dominance: A single entity with >1% supply can unilaterally veto proposals.
• Misaligned Incentives: Large holders optimize for short-term price, not long-term protocol health.
• Expert Exclusion: Core contributors and researchers lack capital, rendering their voice negligible.

Passive token holders delegate to centralized entities (e.g., Coinbase, Binance, Figment) for convenience, creating massive, unaccountable voting blocs.

• Vote Farming: Delegators chase APY boosts, not governance quality.
• Centralized Control: CEXs control >20% of delegatable supply on major chains.
• Low-Effort Voting: Delegates use simplistic heuristics or sell votes to the highest bidder.

Token-weighted systems have no native defense against splitting capital across countless addresses. Reputation is non-transferable and non-fungible; tokens are.

• Cost of Attack: Sybil attacks require only capital, not identity.
• DAO Tool Failure: Snapshot votes are easily gamed without on-chain execution.
• Precedent: MakerDAO's early governance attacks and Curve wars demonstrate the flaw.

Delegation pools are easily gamed by whales creating thousands of pseudo-identities to capture governance rewards. This dilutes signal and centralizes power under a facade of decentralization.\n- Real Consequence: A single entity can control >30% of delegated votes with minimal skin-in-the-game.\n- Systemic Risk: Proposals reflect capital concentration, not network expertise or long-term alignment.

EigenLayer isn't just for restaking; its cryptoeconomic security is a reputation sink. Operators build reputation through consistent, verifiable performance across AVSs. This creates a portable, stake-weighted trust graph.\n- Key Primitive: Operator performance data becomes a delegatable reputation asset.\n- Network Effect: High-reputation operators attract more stake, creating a virtuous cycle for reliable governance delegates.

Karma protocol explicitly separates voting power from token ownership. It creates a liquid market for delegation based on delegate track records, not just token balances.\n- Mechanism: Delegators stake on delegates' performance, earning rewards for good decisions.\n- Outcome: Aligns incentives; high-reputation delegates command premium delegation fees, filtering out passive or malicious actors.

Most token holders delegate and forget, creating zombie governance where a small cabal of early delegates holds permanent, unchecked power. Delegation becomes a set-and-forget tax optimization, not an active choice.\n- Data Point: On major L1s, <5% of delegates change their delegate year-over-year.\n- Result: Governance stagnates, innovation stalls, and protocols ossify.

Protocols like UMA use optimistic oracle disputes to verify real-world outcomes of governance decisions. This creates an on-chain record of delegate judgment and execution fidelity.\n- Reputation Feed: Each dispute resolution logs which delegates voted correctly on contentious execution.\n- Future Use: This verifiable history can weight future voting power, promoting delegates who demonstrate good judgment.

The endgame is a portable, composable reputation layer. A delegate's performance in Compound governance should inform their weight in Uniswap delegation. Projects like Orange and Ethos are building these cross-chain reputation graphs.\n- Composability: Reputation becomes a delegatable primitive across the stack.\n- Barrier: Breaks down protocol silos, creating network-wide standards for governance quality.