Currently, the governance voter participation rate achieved by the protocol is only 5-10% on average. The concept of delegation mechanism helps to solve the problems currently faced by decentralized governance.
Decentralized governance requires community commitment and time more than anything else. With such a large number of token holders, it is not practical for all token holders to exercise their voting rights. Currently, the governance voter participation rate achieved by the protocol is only 5-10% on average. The concept of delegation mechanism helps to solve the problems currently faced by decentralized governance.
Representatives govern the protocol as representatives of token holders. They should participate in forum discussions, meetings, and vote on submitted proposals to determine the future of the protocol.
In this article, we’ll explore the capabilities, advantages, and disadvantages of delegation mechanisms, as well as the issues that delegation mechanisms currently face. From observation and practice, we believe that the delegation mechanism is an important part of successfully solving the problem of decentralized governance.
What is the delegation mechanism?
Decentralized protocols such as MakerDAO, Balancer, etc. now rely on token holders to drive the protocol development, but the status quo is that apparently very few token holders actually participate in voting. When analyzing on-chain data with tools such as Dune analytics, one can observe that few addresses actively vote or never vote for them.
Aave turnout: The average turnout for each proposal is about 5% or less
Compound voter turnout: The average voter turnout per proposal is about 10% or less
The lack of voting means the protocol could be subject to malicious activity, such as a hostile takeover or liquidation. Therefore, there are voting mechanisms, such as representation, that mitigate the impact of this type of activity.
Delegates are used to represent token holders who do not want to participate in governance themselves because they are not interested or have enough time. It is unrealistic to expect token holders to actively participate in every protocol they invest in, so trusting someone who can act on your behalf is a good approach.
This way, token holders can transfer their voting power to delegates of their choice, who then have the combined voting power of token holders to vote on proposals. Delegates only get voting rights, not custody of the tokens themselves. Token holders can also re-delegate to another representative or self-delegate (i.e. represent themselves) if they feel that their original representative no longer shares the same values as them.
Currently, many protocols are starting to implement representation mechanisms in their protocols, as relying solely on token holders has become unsustainable. With so many protocols implementing a representation mechanism, we have noticed its positives and negatives, which we explore further in this article.
Why do we need delegation mechanism?
Currently, protocols are lucky to have 5-10% voter participation because voters are overwhelmed by being spread across many different protocols and invested in different projects. In web3 governance, various communication tools such as discussion boards, Discord, and Twitter are commonly used, making it demanding and time-consuming to keep up-to-date even within one protocol. It is not sustainable to expect individual token holders to be active in various protocols. Especially if they are whales or VCs, this could mean a lot of voting power will be left unused.
Delegates take over this responsibility from token holders and focus on a protocol, which means that delegates should have better insight and understanding of the protocol than regular token holders. This transfer of voting power, combined with the expertise of delegates, means that the protocol may notice an increase in voting and sensible voting. So less formally, delegates are expected to summarize their reasons for each vote, so capturing this data can provide more informed votes. An average token holder does not need to explain the reasoning behind their vote.
Token holders can and should continue to vote for the protocol. But if they don’t invest time and resources to understand and support the protocol, their votes could be misguided. Lack of understanding can damage the agreement. Another scenario is that token holders may be blind, meaning they follow the majority to vote without thinking about making an informed decision because they think the majority is always right.
We believe that if token holders can devote time and resources to making an informed decision, they should vote, but if not, they should recognize their limitations and delegate to someone they trust . It also creates a win-win situation as delegates actively participate in governance and make more informed decisions that lead to better outcomes for the protocol. But delegation doesn’t always lead to better results, but one can safely assume that, if applied properly, it will positively impact the governance of the protocol over time.
Does the delegation mechanism imply decentralization?
The commitment to decentralization requires an understanding of the benefits and drawbacks of each voting mechanism. We have determined so far that token voting is not an ideal tool and will not be in the foreseeable future, but one way to mitigate the dangers of token voting is to introduce a representation mechanism. In token voting, one token equals one voting right. Therefore, holders with more coins have more influence than those with fewer coins, although this does not necessarily mean they have more sensible opinions. It’s a chaebol – an organization run by a wealthy few.
The delegation mechanism enables holders of a small number of tokens to concentrate their voting power in one person who is willing to actively participate and may have the same voting rights as holders of a large number of tokens. Although the delegation mechanism reduces the ill effects of token voting, it is only a temporary solution as we are exploring other voting mechanisms such as quadratic voting or belief voting.
Who can be a representative?
Anyone can be a representative. Applying for a protocol involves filling out a template provided by a specific DAO, such as the Balancer application template seen below. These applications may be vague, but some, such as Balancer, have issues that require further research on the protocol and its vision.
Balancer Representative Mechanism Application Example
After you are accepted as a representative, depending on their process, they may have a representative page where you can view all the representatives, similar to the Optimism representative page below.
Optimism representative page example
Some protocols do not have a delegate browsing page, instead, token holders must scroll through the forum to identify the ideal delegate and delegate to them via Snapshot.
Regardless of background and resources, everyone has the opportunity to serve as a representative. Representatives can also apply as professional organizations. The advantage of a professional representative is that they work at a high level and are therefore well-qualified. There are already several emerging governance-focused organizations like ours, and this can be expected to increase. A diverse set of reps complements another skill set, as each type of rep has its strengths and weaknesses. This resulted in a diversity of representation, which was crucial as each representative had a different perspective on each proposal.
law of non-attraction
While the representation mechanism appears to be an attractive opportunity for token holders, it is currently a very unattractive role for delegates. Delegates are still expected to volunteer their time and resources to support decentralized protocols, and this requires a lot of experience and a lot of commitment.
Instead, this led to a “honeymoon” phase for the delegates. Initially, delegates were eager to make an impact, but after realizing the unpaid workload, their engagement rate dropped. This situation is more common for representatives applying in an individual capacity because they need a source of income. This is an unfair and unsustainable model in the long run. In a bear market, delegates will be one of the key players in helping to advance and maintain the protocol, so we must reward delegates accordingly for their efforts.
Especially for individual representatives, it would be unfair to expect them to work for free. As a company, we are fortunate to have the resources and teams to commit to work for our representatives. However, we believe the protocol needs to have a diverse pool of representatives, from individuals to groups to VCs. Currently, the work of the representative is more likely to be taken by groups such as financial firms or wealthy individuals, who can continue to work unpaid for the foreseeable future.
Currently, only MakerDAO has proactively developed a monetary compensation model for its representatives, making it a more attractive role. Its low pay rate relative to other roles in this space is one of the reasons why the representation mechanism has not (yet) taken off.
Creating a better future for delegates
We believe that in order to increase the quality of the delegates and the participation rate of the delegates, the delegates should be financially rewarded. At MakerDAO, the compensation model revolves around various factors, such as: the amount of MKR voting rights, forum participation, and voting participation.
We believe that various models of compensating delegates should be tested to determine what best reflects their value-add to the ecosystem, without underpaying or overpaying. In addition to financial interests, we believe that delegates will become a more respected and important role in a full-fledged DAO because they are one of the main voices of a protocol.
The delegation mechanism is one of the most promising tools to accelerate the decentralization of the protocol, but it may not be popularized and further developed due to the lack of incentive mechanism. As the delegation mechanism goes through the experimental phase, we can expect to see various approaches that combine representation in the protocol’s governance structure with the protocol’s incentives.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/daos-delegation-mechanism-for-simplified-governance/
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