Delegation via NFT excels at representing unique, non-fungible governance positions because it binds power to a distinct, tradable asset. For example, platforms like Uniswap use NFTs for their Governor Bravo delegate seats, creating a clear, on-chain record of a specific delegate's authority and tenure. This model is ideal for representing fixed committee seats, time-locked voting power, or reputation-based roles where the identity and history of the delegate are as important as the raw voting weight.
LABS
Comparisons
Delegation via NFT vs Delegation via ERC-20 tokens: Governance Power Representation
A technical comparison of using non-fungible tokens (NFTs) versus fungible ERC-20 tokens as the basis for delegating voting rights in DAOs. Analyzes flexibility, composability, security, and implementation complexity for protocol architects and CTOs.
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introduction
THE ANALYSIS
Introduction
A technical breakdown of the two dominant models for representing delegated governance power on Ethereum.
Delegation via ERC-20 tokens takes a different approach by making voting power a fungible, liquid commodity directly tied to token holdings. This results in a highly flexible and composable system, as seen with Compound's COMP or Aave's AAVE governance, where any token holder can delegate to any address. The trade-off is a loss of granular metadata about the delegation act itself, treating voting power as a simple balance rather than a distinct right.
The key trade-off: If your priority is granular control, delegate identity, and non-transferable rights (e.g., for a security council or curated delegate list), choose the NFT model. If you prioritize maximum liquidity, simplicity, and broad participation where voting power is purely a function of token ownership, choose the ERC-20 model.
tldr-summary
Delegation via NFT vs. ERC-20
TL;DR: Key Differentiators
A direct comparison of governance power representation models, highlighting the core architectural trade-offs for protocol designers.
01
Delegation via NFT: Pros
Granular, non-fungible control: Each delegation is a unique token, enabling distinct metadata (e.g., expiry dates, custom voting policies). This matters for complex DAOs like NounsDAO, where delegation is tied to a specific NFT asset, not a generic token balance.
02
Delegation via NFT: Cons
Low composability & liquidity: NFTs are not natively supported by DeFi primitives (e.g., Aave, Compound). This creates friction for delegators who wish to use their voting power as collateral, a major drawback for DeFi-integrated governance systems.
03
Delegation via ERC-20: Pros
High composability & standardization: ERC-20 tokens are the universal currency of DeFi. Protocols like Uniswap and Compound use this model, allowing delegated votes to be seamlessly integrated with lending, staking, and liquidity pools.
04
Delegation via ERC-20: Cons
Fungible and simplistic: Delegation power is directly proportional to token balance, lacking nuance. It cannot natively encode time-locks or conditional delegations, making it less ideal for permissioned or reputation-based governance systems.
GOVERNANCE POWER REPRESENTATION
Feature Comparison: NFT vs ERC-20 Delegation
Direct comparison of delegation mechanisms for on-chain governance.
| Metric / Feature | NFT-Based Delegation | ERC-20 Token Delegation |
|---|---|---|
Granular Delegation Control | ||
Delegation of Partial Voting Power | ||
Standard Interface (EIP-721/EIP-20) | EIP-721 | EIP-20 |
Native Support in Major Snapshot Strategies | ||
Gas Cost for Single Delegation Transfer | ~150k-200k gas | ~45k-65k gas |
Representation of Non-Fungible Rights (e.g., specific proposals) | ||
Typical Use Case | DAO sub-committees, reputation-weighted voting | Standard token-weighted governance |
pros-cons-a
PROS & CONS ANALYSIS
NFT vs. ERC-20 Delegation: Governance Power Representation
A technical breakdown of tokenized governance models, comparing the unique properties of NFTs against the fungible nature of ERC-20s for delegation.
01
NFT Delegation: Key Advantage
Granular, non-fungible representation: Each delegation is a unique token, enabling customizable metadata (e.g., proposal tags, time-locks, specific DAO sub-committees). This matters for complex governance structures like NounsDAO, where delegation can be tied to specific traits or purposes.
02
NFT Delegation: Key Limitation
High gas overhead and complexity: Minting/burning NFTs for each delegation is ~50-100k+ more gas than a simple ERC-20 transfer. This creates friction for high-frequency re-delegation and is a poor fit for protocols like Uniswap where voters frequently adjust stakes.
03
ERC-20 Delegation: Key Advantage
High liquidity and composability: Fungible vote-escrow tokens (e.g., Curve's veCRV) can be traded, used as collateral, or integrated into DeFi pools. This matters for maximizing capital efficiency and is the standard for TVL-heavy protocols (>$1B) seeking deep liquidity integration.
04
ERC-20 Delegation: Key Limitation
Opaque delegation history: A wallet's voting power is a simple balance, losing the audit trail of who delegated what and when. This complicates sybil resistance analysis and reward distribution for delegated voters, a challenge seen in early Compound governance.
pros-cons-b
Delegation via NFT vs. Delegation via ERC-20 Tokens
ERC-20 Delegation: Advantages and Limitations
A technical comparison of governance power representation methods, highlighting key trade-offs for protocol architects and engineering leads.
01
Delegation via ERC-20 Token (Standard)
Direct Voting Power Representation: Voting weight is directly proportional to the token balance in the delegator's wallet. This is the native model for protocols like Compound (COMP) and Uniswap (UNI).
Pros:
- Simplicity: Uses the well-understood ERC-20 standard. No new token logic required.
- Fungibility: Tokens are interchangeable, making delegation markets and liquid staking derivatives (e.g., Lido's stETH) straightforward.
- Tooling Support: Full compatibility with existing wallets (MetaMask), DEXs, and DeFi primitives.
Cons:
- Coarse-Grained Delegation: Cannot delegate a portion of a wallet's balance without complex multi-sig setups.
- No Built-in Revocation Logic: Revoking delegation requires a new on-chain transaction from the delegator.
02
Delegation via NFT (ERC-721/1155)
Granular Power Representation: Voting power is represented as a non-fungible claim, decoupled from the base token. Pioneered by protocols like Element Finance and Ribbon Finance.
Pros:
- Fine-Grained Control: Enables delegation of specific amounts (e.g., 150.5 tokens) or time-locked positions without moving the underlying ERC-20s.
- Built-in Expiry & Revocation: NFTs can encode expiration blocks or be burned by the issuer to revoke power, improving security.
- Rich Metadata: Can attach delegation terms, reputation scores, or custom attributes directly to the token.
Cons:
- Increased Complexity: Requires managing two token standards (ERC-20 + ERC-721/1155) and their interactions.
- Wallet UX Friction: Not all wallets/NFT marketplaces handle governance NFT delegation intuitively.
- Less Liquid: Delegated positions are not natively fungible, complicating secondary markets.
03
Choose ERC-20 Delegation When...
Your priority is ecosystem integration and simplicity.
- You are forking an established governance system like Compound's Governor Bravo.
- Delegators are primarily large token holders or institutions managing power via multi-sigs.
- You need seamless compatibility with liquid staking tokens (LSTs) and DeFi lending markets.
- Your team wants to avoid the development and audit overhead of a custom NFT contract.
04
Choose NFT-Based Delegation When...
You require advanced delegation logic and security controls.
- You are building a time-locked or vesting-based governance system (e.g., for venture investors).
- You need to support sub-delegation or delegation of partial balances (e.g., a DAO treasury delegating to multiple committees).
- Revocation security is critical, and you want logic like "delegation expires in 90 days unless renewed."
- You are innovating on governance models and need the flexibility of on-chain metadata (e.g., Moloch DAO's ragequit-inspired systems).
CHOOSE YOUR PRIORITY
When to Choose NFT or ERC-20 Delegation
ERC-20 Delegation for Architects
Verdict: The standard for composable, high-liquidity governance. Strengths: Native integration with DeFi primitives like Aave, Compound, and Uniswap. Delegated voting power is fungible and easily tradable, enabling sophisticated strategies like vote-escrow models (e.g., Curve's veCRV). Smart contract interactions are predictable using the EIP-712 standard for signing. Ideal for protocols where governance power should be a liquid, financialized asset.
NFT Delegation for Architects
Verdict: Superior for granular, identity-based governance and access control. Strengths: Each delegation is a unique, non-fungible asset (ERC-721/ERC-1155), perfect for representing specific roles, committee memberships, or time-locked power. Enables complex delegation graphs (e.g., delegate different NFTs for different proposals). Use cases include DAOs like Nouns, where each NFT is a vote, or for granting specific treasury permissions. More gas-intensive for batch operations.
GOVERNANCE POWER REPRESENTATION
Technical Deep Dive: Implementation & Standards
This section analyzes the core technical trade-offs between using NFTs and ERC-20 tokens as the standard for representing delegated governance power in DAOs and protocols.
ERC-20 tokens are inherently better for fractionalization. They are fungible by design, allowing power to be split into tiny, tradable units (e.g., 0.001 tokens). NFT-based delegation typically represents a whole, indivisible voting position, though advanced implementations can use semi-fungible (ERC-1155) or fractionalized NFT standards to work around this limitation. For protocols like Uniswap or Compound, where precise, granular delegation is critical, ERC-20 is the standard choice.
verdict
THE ANALYSIS
Final Verdict and Decision Framework
A data-driven breakdown to help protocol architects choose the optimal governance power representation model.
Delegation via NFT excels at representing unique, non-fungible governance rights and complex voting power structures. For example, protocols like Uniswap use NFTs (e.g., DelegationV1 and DelegationV2 contracts) to represent a delegate's unique identity and historical contributions, enabling features like time-locked votes or reputation-based multipliers. This model is ideal for systems where governance power is tied to specific, non-transferable attributes like a user's on-chain history or a specific staked asset.
Delegation via ERC-20 tokens takes a different approach by representing voting power as a fungible, liquid asset. This strategy results in superior composability and market efficiency, as seen in Compound's COMP or Aave's AAVE token models, where delegated voting power can be easily integrated with DeFi primitives like lending pools or liquidity gauges. The trade-off is a loss of granularity; it cannot natively encode complex, identity-specific delegation rules without additional smart contract layers.
The key trade-off is between granularity and liquidity. If your priority is programmable, identity-aware governance with features like vote escrow (veToken models) or soulbound reputation, choose the NFT model. If you prioritize maximizing voter participation through liquid, tradable governance rights that integrate seamlessly with the broader DeFi ecosystem, the ERC-20 standard is the superior choice. The decision hinges on whether governance is a feature of a unique asset or a function of a liquid financial instrument.
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