Decentralized autonomous organizations (DAOs) manage shared assets and pursue member-driven initiatives through transparent rules encoded on blockchains. One of the major challenges they face is ensuring broad involvement in governance activities like voting and proposing to truly reflect community preferences.
A handful of decentralized communities have tried to solve this problem of low voter participation by rolling out incentives. Just last week, Qredo DAO ratified a proposal allocating 1,000,000 QRDO tokens to incentivize community participation in governance processes.
This article explores whether providing financial incentives to spur participation advances DAO functionality and alignment or risks undesirable distortions. We weigh the pros and cons across factors like turnout effects, incentive gaming, voter quality, and cost burdens.
The Potential Benefits
Offering cryptocurrency rewards in return for governance participation could:
- Increase Voter Turnout: By compensating time and effort, more users complete ballots, bolstering the perceived legitimacy of results based on higher input representation.
- Attract Marginal Participants: Even small rewards bring in voters with lower engagement who might otherwise totally abstain.
- Improve Decision Quality: Higher turnouts with wider demographic representation may lead to choices that balance tradeoffs across all users better rather than just appeasing a small faction.
- Mitigate Plutocracies: Rewards value participation itself rather than just tokens held, reducing the influence of “whales” in voting outcomes counter to majority preference.
- Prevent Apathy and Disengagement: Seeing one’s inputs tangibly reflected in proposals getting approved and earning related payouts maintains involvement, preventing a sense of futility.
Implementing incentives holds the theoretical promise of shifting DAO governance onto a sounder footing of broad-based interactive democracy that cuts against trends toward mob rule or apathy among token holders.
The Potential Downsides
However, introducing financial incentives around governance also poses hazards like:
- Sybil Attacks: Bad actors could create multiple accounts to claim rewards repeatedly without actually improving aggregate wisdom applied to decisions.
- Short-Term Thinking: Participants primarily motivated by rewards may vote in pursuit of immediate returns rather than long-term sustainability, stability, and growth.
- Distraction from Purpose: Excessive fixation on available token prizes could divert focus from the DAOs core mission and intended operations.
- Discourage Unpaid Involvement: Core contributors acting out of passion for the organization could reduce engagement if they perceive their voluntary efforts unfairly devalued relative to mercenary participation attracted by incentives.
- Favor Whales: Unlike reputation-based schemes, token incentives still skew toward those holding larger stakes instead of valuing perspectives evenly in voting.
- Unsustainable Economics: Ongoing outlays for incentives must derive from the DAOs holdings, draining assets from other priorities like funding projects.
By monetizing participation, DAOs risk shifting community behaviors in ways that are antithetical to their missions and identity in exchange for punctuated engagement around lucrative incentive plans.
Optimizing Incentive Design
Since incentives for governance participation constitute such a double-edged sword, proper implementation requires care and restraint to promote intended benefits while circumventing perverse risks.
Key principles for incentive optimization include:
- Strictly Limited Application: DAOs can restrict token rewards to exceptional votes most deserving of elevated turnout. This prevents the dilution of significance through overuse.
- Fractional Subsidies: Cover only part of participation costs so recipients still contribute personal value for outcomes to discourage mercenary votes.
- Reputation Tying: Require identity verification and account history minimums so bad actors cannot spawn sham voters exploiting bounties.
- Vesting Schedules: Distribute earned tokens over lengthy 6–12-month periods post-participation to lock in recipients longer term and discourage short-term dumps.
- Community Feedback: Govern usage of incentives via on-chain polls and forums to dynamically align applications with collective priorities.
Adhering to such disciplined tactics prevents the reactionary allocation of financial incentives. Sustainable utilization requires ongoing scrutiny of effects using rigorous analytics.
Evaluating Impact
DAO leaders can gauge the efficacy of incentivization schemes by analyzing longitudinal data across metrics like:
- Voter Turnout Percentage: Are absolute totals and ratios relative to total membership increasing substantially with incentives?
- Vote Outcomes: Do results on key issues show a marked change in distribution post-incentives that suggest better balance?
- New Voter Profiles: Are member cohorts participating much differently in holdings, history, and demographics in a way that signals broader input diversity?
- Member Surveys: Are subjective satisfaction scores around trust, legitimacy, and perceived fairness of governance processes improving?
- Cybersecurity Monitors: Monitoring could uncover increasing rates of suspicious duplicate accounts or unusual proposal activity that point to exploits.
DAOs can run controlled trials around incentivized votes adjusting reward schemes based on data feedback, as well as past participation reputation, voter identity verification, and random ballot audits to maximize legitimacy. Ongoing iteration and impact measurement take the guesswork out of optimizing participation incentives.
Conclusion
Incentives can temporarily boost participation under the right conditions but distort members’ motivations in ways antithetical to decentralization long term. Far richer involvement springs from architectures that embed user agency at all levels of generative activities.
Power transfers to communities not from being paid for input but from the continuous co-creation of collective destiny. DAOs that recognize participation as an end in itself rather than a bean to count using financial rewards tend most toward sustainable self-determined growth.
