Why Plutocracy Is the Inevitable Drift of Token-Based City DAOs

Token-based governance is plutocratic. One token equals one vote. This replicates the shareholder model of a corporation, not the citizen model of a democracy. The wealth concentration in crypto markets guarantees governance power mirrors financial holdings.

The drift is structural, not accidental. Unlike traditional cities where residency defines citizenship, DAOs like CityDAO or Praxis define it by token ownership. This creates a permanent incentive misalignment between capital appreciation and public good.

Evidence: In most token-based DAOs, less than 1% of holders control over 90% of voting power. This mirrors the power-law distribution seen in MakerDAO governance, where a few whale wallets dictate protocol upgrades.

One-Token-One-Vote is plutocracy. This governance primitive equates capital with influence, creating a direct financial incentive for whales to accumulate voting power. The system optimizes for capital efficiency, not citizen representation.

Liquid democracy fails at scale. Delegation models like those in Compound or Uniswap consolidate power with the largest token holders who can afford professional delegates. This creates a political oligopoly where influence is rented, not earned.

Voter apathy is a feature. Low participation from small holders, a chronic issue in MakerDAO and Aave, cedes effective control to concentrated capital. The cost of informed voting outweighs the marginal benefit for most.

Evidence: In top DAOs, less than 5% of token holders typically vote, with decisions often made by fewer than 10 entities. This mirrors shareholder capitalism, not civic governance.

Token-weighted voting is plutocracy. The one-token-one-vote model directly translates financial stake into political power. This creates a positive feedback loop where capital controls governance, and governance decisions favor capital.

Liquidity mining accelerates centralization. Protocols like Uniswap and Compound distribute governance tokens to the largest capital providers. This incentivizes mercenary capital that consolidates voting power without long-term commitment to the city's success.

Delegation fails as a counterweight. Systems like Optimism's Citizen House attempt to separate voting power from token ownership. In practice, low voter turnout and apathy delegation concentrate effective control in a few large, active whales or entities like a16z.

Evidence: In MakerDAO, less than 10 wallets control over 50% of MKR voting power. This voting cartel consistently directs protocol surplus and fees to its own vaults and affiliated projects.

Optimists argue for progressive decentralization. They claim initial plutocracy is a temporary bootstrap phase, with governance power gradually diffusing to residents via soulbound tokens or proof-of-personhood systems like Worldcoin. This is a governance fantasy that ignores economic incentives.

Tokenized voting is a financial instrument. Liquid governance tokens on exchanges like Uniswap attract mercenary capital, not civic participation. The financialization of governance creates a permanent arbitrage between voting power and civic interest, a dynamic seen in protocols like Compound.

The plutocratic equilibrium is stable. Wealth concentration creates a feedback loop where the wealthy propose policies that protect their capital, using treasury tools like Gnosis Safe. This is not a bug but the Nash equilibrium of token voting, as modeled by Vitalik Buterin.

Evidence: Look at existing city-DAO experiments. CityCoins and Prospera have not achieved meaningful resident-led governance; decision-making power remains with the largest token holders, validating the plutocratic drift model.

Token-weighted voting is plutocracy. One-token-one-vote systems, used by CityCoins and early DAO experiments, mathematically concentrate power with capital. This replicates traditional wealth inequality on-chain, making civic governance a function of financial stake.

Quadratic voting fails at scale. While Gitcoin Grants uses it for public goods, its Sybil-resistance relies on centralized identity proofs like BrightID. For city-scale governance, the cost of identity verification outweighs the theoretical fairness benefit.

The solution is non-financial primitives. Civic participation must be anchored in proof-of-personhood or proof-of-residency. Projects like Worldcoin (for identity) and zk-proofs of physical address are the required infrastructure, not more token mechanics.

Evidence: In MakerDAO, a handful of whale addresses control governance. For a city DAO, this model guarantees policy capture by the wealthiest residents, invalidating its democratic premise from inception.