Token-Gated Voting

The most common model where each token held equals one vote. This creates a direct, linear relationship between economic stake and governance influence. While simple, it can lead to plutocracy, where large token holders (whales) dominate decisions.

• Example: A user with 1000 $UNI tokens has 1000 votes.
• Contrasts with one-person-one-vote systems used in traditional organizations.

A feature allowing token holders to delegate their voting power to other addresses without transferring custody of the tokens. This enables governance participation for less active holders and supports the emergence of delegated representatives or "governance experts."

• Process: A holder signs a transaction assigning voting power to a delegatee.
• Use Case: Protocols like Compound and Uniswap use delegation to increase voter turnout and expertise.

Governance systems define specific thresholds that must be met for a proposal to be created and to pass. A proposal threshold is the minimum token balance required to submit a proposal. A quorum is the minimum percentage of the total voting power that must participate for the vote to be valid.

• Purpose: Prevents spam proposals and ensures decisions reflect sufficient community engagement.
• Example: A DAO may require a 1M token threshold to propose and a 4% quorum to pass.

Extensions to basic 1T1V that modify how voting power is calculated to address centralization or encourage long-term alignment.

• Quadratic Voting (QV): Voting power increases with the square root of tokens committed, reducing whale dominance. (Theoretically proposed, rarely implemented on-chain due to Sybil attack risks).
• Time-Weighted Voting: Voting power increases based on how long tokens have been locked or staked, rewarding long-term holders.
• Conviction Voting: Voting power accumulates over time a voter maintains their choice, signaling stronger preference.

The technical process that occurs after a vote passes. On-chain execution means the vote outcome automatically triggers a smart contract function (e.g., upgrading a protocol). A timelock is a mandatory delay between a vote passing and its execution, providing a final safety review period.

• Security Function: Timelocks allow users to exit or react if a malicious proposal passes.
• Implementation: Used extensively by Compound and MakerDAO for treasury and parameter changes.

A core challenge is preventing Sybil attacks, where an entity creates many wallets to gain disproportionate voting power. Token-gating is inherently Sybil-resistant because acquiring tokens has a cost. However, pure 1T1V does not distinguish between one holder with many tokens and many holders with one token each.

• Enhanced Models: Some systems integrate proof-of-personhood or soulbound tokens to layer identity on top of token ownership.
• Limitation: Pure token-based systems measure capital, not unique human participation.

The fundamental principle is one token, one vote, where a user's voting weight is directly proportional to their token balance. This is enforced via smart contracts that verify token ownership, often through a snapshot of balances at a specific block height. The process typically involves:

• Proposal Submission: A governance proposal is created on-chain.
• Voting Period: Token holders cast votes weighted by their balance.
• Execution: If the proposal passes predefined thresholds, the associated actions are automatically executed by the smart contract.

These are the specialized assets that confer voting rights. Examples include UNI (Uniswap), AAVE (Aave), and MKR (MakerDAO). Key characteristics:

• Non-transferable voting power: Some protocols use a vote-escrow model where tokens are locked for a period to increase voting weight.
• Delegation: Holders can delegate their voting power to other addresses without transferring custody of the tokens.
• Utility beyond voting: Many governance tokens also grant access to protocol fees, staking rewards, or other ecosystem benefits.

Several models exist to structure the voting process:

• Simple Majority: Proposal passes with >50% of the vote.
• Quorum-Based: Requires a minimum percentage of the total token supply to participate for validity.
• Quadratic Voting: Voting power increases with the square root of tokens committed, reducing whale dominance.
• Conviction Voting: Voting power increases the longer a voter stakes their tokens on a proposal, signaling stronger conviction.

Token-gating is a primary method for Sybil resistance, as acquiring a meaningful number of tokens to manipulate votes is economically costly. However, risks include:

• Whale Dominance: Large holders can exert disproportionate influence.
• Voter Apathy: Low participation can lead to governance by a small, potentially unrepresentative group.
• Flash Loan Attacks: Borrowing a large sum of tokens temporarily to sway a vote, though mitigated by snapshot mechanisms.

To save gas costs, many protocols use off-chain voting facilitated by tools like Snapshot. A merkle tree proof of token holdings at a specific block is used to validate votes off-chain. The on-chain execution of a passed proposal is then typically permissioned to a multisig wallet or a smart contract that verifies the Snapshot result. This separates the signaling vote from the costly execution step.

• Uniswap Governance: UNI holders vote on treasury management, fee switches, and protocol upgrades.
• Compound Governance: COMP holders propose and vote on changes to asset collateral factors and interest rate models.
• MakerDAO: MKR holders are ultimately responsible for risk parameters of the Dai stablecoin system, including debt ceilings and stability fees. These systems demonstrate how token-gated voting moves control from a core development team to a distributed community of stakeholders.

Token-gated voting provides Sybil resistance by tying voting power to a scarce, verifiable asset, making it costly to create many fake identities. The most common models are:

• One-token-one-vote (1T1V): Simple but concentrates power with large holders.
• Quadratic voting: Power scales with the square root of tokens held, reducing whale dominance.
• Conviction voting: Voting power accrues over time a token is locked, favoring long-term stakeholders. The choice of model directly impacts decentralization and resistance to manipulation.

These systems are vulnerable to several coordinated attacks:

• Vote buying and bribery: Off-chain coordination to concentrate voting power on specific proposals, undermining the on-chain mechanism.
• Flash loan attacks: Borrowing a large amount of tokens temporarily to gain disproportionate voting power for a single proposal cycle.
• 51% attacks: A single entity or cartel acquiring majority token supply to control all governance outcomes.
• Timing attacks: Exploiting proposal submission and voting period timings to rush through malicious proposals.

Vote delegation allows token holders to delegate their voting power to experts or representatives. While it improves participation, it introduces principal-agent problems:

• Delegates may act against their constituents' interests.
• Delegates can become centralized points of failure or corruption.
• Meta-governance issues arise when a protocol's tokens are used to govern other protocols (e.g., using AAVE to vote on a Uniswap proposal), creating complex, layered power structures.

Security is highly dependent on correctly configured parameters:

• Proposal thresholds: Minimum token requirement to submit a proposal. Set too high, it stifles innovation; too low, it enables spam.
• Voting delay & period: Time between proposal submission and voting, and the voting duration. Insufficient time limits analysis and encourages snap decisions.
• Quorum requirements: Minimum participation threshold for a vote to be valid. A low quorum allows a small, possibly malicious group to pass proposals.
• Upgrade mechanisms: The process for changing the governance contract itself is a critical attack surface.

Vote escrow models (e.g., veToken models like Curve's veCRV) require users to lock their tokens for a set period to receive governance power. This enhances security by:

• Aligning voter incentives with long-term protocol health.
• Making flash loan attacks impractical due to lock-up periods.
• Creating a cost (opportunity cost of locked capital) for acquiring voting power. The trade-off is reduced liquidity for token holders and potential voter apathy if locking periods are too long.

Protocols implement various guards to improve security:

• Multisig or timelock executives: Critical actions approved by governance are executed via a timelock contract, providing a delay for the community to react to malicious proposals.
• Governance mining: Rewarding participation to encourage a broader, more informed voter base.
• On-chain dispute resolution: Systems like optimistic governance or forking as a last resort, allowing the community to reject malicious outcomes.
• Continuous security audits of the governance smart contract code is non-negotiable.

Quadratic voting is a voting mechanism designed to reflect the intensity of voter preference while limiting the influence of large token holders. It is sometimes implemented within token-gated systems to promote more equitable outcomes.

• Formula: The cost to cast multiple votes for a single proposal increases quadratically (e.g., 1 vote costs 1 credit, 2 votes cost 4 credits).
• Goal: Allows voters to express how strongly they care about an issue, rather than just the direction of their preference.
• Application: Used in some DAO governance models to mitigate plutocracy (rule by the wealthiest).

Vote delegation is a process where a token holder (the delegator) assigns their voting power to another address (the delegate) to vote on their behalf. This is common in large-scale DAOs to improve participation and expertise.

• Purpose: Enables governance participation for less active token holders and consolidates voting power with knowledgeable community members.
• Mechanism: Often implemented via smart contracts where delegated voting power is automatically applied to the delegate's votes.
• Example: In Compound Governance, COMP holders can delegate to an address, which then represents their voting weight.

Token-gated voting systems are implemented either on-chain or off-chain, each with distinct trade-offs.

• On-Chain Voting: Votes are transactions recorded directly on the blockchain (e.g., using Governor Bravo contracts).
  • Pros: Fully transparent, immutable, and enforceable.
  • Cons: Requires gas fees, which can limit participation.
• Off-Chain Voting: Votes are collected via signed messages (e.g., Snapshot) and may later be executed on-chain.
  • Pros: Gas-free, allows for more complex voting mechanisms.
  • Cons: Requires a separate execution step to enact decisions.