Non-Transferable Voting Rights vs Transferable Voting Rights

Strengths: Aligns long-term incentives through lockups (e.g., Curve's 4-year max). Reduces mercenary capital and vote-selling. Trade-off: Creates illiquidity for voters and can lead to governance capture by large, early holders.

Strengths: Maximizes voter liquidity and accessibility. Enables dynamic delegation (e.g., Uniswap) and efficient capital allocation. Trade-off: Prone to short-term speculation and vote-buying attacks, diluting long-term alignment.

Protocols prioritizing stability and long-term health. Ideal for:

• Curve Finance: Where gauge weight votes directly control liquidity incentives.
• Frax Finance: veFXS model for directing flywheel rewards.
• Use case: When voter decisions have immediate, high-value economic consequences.

Protocols prioritizing participation and broad distribution. Ideal for:

• Uniswap: Where delegation allows token holders to signal without active management.
• Compound: For straightforward, one-token-one-vote governance on upgrades.
• Use case: When maximizing voter turnout and reducing entry barriers is critical.

Specific advantage: Voting power is locked (e.g., Curve's veCRV, Balancer's veBAL), making vote-buying attacks expensive and impractical. This matters for protocols where governance security is paramount, as it forces commitment and aligns voter incentives with long-term protocol health over short-term speculation.

Specific disadvantage: Capital is locked and cannot be deployed elsewhere, creating a high opportunity cost for token holders. This matters for protocols competing for TVL, as it can deter participation from large, yield-seeking capital (e.g., DAO treasuries, funds) and reduce the liquid token's market depth.

Specific advantage: Voting power is freely tradable (e.g., Uniswap's UNI, Compound's COMP), allowing for efficient price discovery of governance value. This matters for protocols prioritizing maximum liquidity and capital efficiency, enabling dynamic coalition formation and allowing holders to monetize governance rights instantly.

Specific disadvantage: Voting power can be rapidly accumulated on the open market, making the protocol susceptible to flash loan attacks or acquisition by adversarial entities. This matters for high-value DeFi protocols where a governance attack could drain treasuries (e.g., manipulating grant proposals or fee parameters).

One-person-one-vote principle: Voting power is tied to a verified identity (e.g., Gitcoin Passport, BrightID) rather than capital. This directly combats whale dominance and vote-buying. This matters for protocols prioritizing egalitarian governance and community-driven decisions, like public goods funding (e.g., Optimism's Citizen House) or foundational protocol upgrades.

Long-term stakeholder alignment: Voters are often long-term participants (developers, active users) whose interests are tied to the protocol's health, not short-term token price. This matters for complex technical governance (e.g., Ethereum EIPs, Cosmos Hub parameter changes) where informed, vested community members are critical.

Unlocks delegated voting markets: Token holders can delegate voting power to experts (e.g., via Tally, Boardroom) or sell it, creating a liquid market for governance influence. This matters for liquid staking tokens (LSTs) like Lido's stETH or DeFi protocols (e.g., Compound, Uniswap) where maximizing capital utility is paramount.

Enables specialized governance delegates: Concentrates voting power in the hands of dedicated, informed entities (e.g., Gauntlet, Flipside Crypto) who can analyze proposals at scale. This matters for large-cap DAOs (e.g., Maker, Aave) with high proposal volume and complex treasury management, improving decision quality and participation rates.

Bottleneck on participation growth: Identity verification (Proof-of-Personhood) layers are not yet scalable to millions of users without centralization trade-offs. This matters for mass-market dApps aiming for global governance, as systems like Worldcoin or Idena face adoption and privacy hurdles.

Votes follow capital, not merit: Enables vote-buying and governance attacks, where whales or competing protocols can acquire voting power to steer decisions. This matters for protocols with high-value treasuries or critical infrastructure, as seen in historical attacks on decentralized exchanges.