How to solve the “free rider” problem in DAO governance

There have always been many problems with decentralized governance. Taking the on-chain protocol as an example, in the absence of incentives, only those participants with deep related interests (such as large currency holders) will actively participate in governance and add value to the product, while those other currency holders who are not involved in governance It’s a hitchhiker.

Free-riding is very detrimental to the long-term growth of the agreement. Simply put, it makes the “car” too heavy. When the value of the agreement increases due to community contributions such as community proposals, the agreement token captures the value. The most obvious manifestation is the increase in the price of the token, and those small short-term token holders who only hold the tokens but have not made contributions It will sell when the price rises, and get off the car with a profit. This not only has a negative impact on the currency price, but also makes continuous contributors feel unfair and reduces the enthusiasm for subsequent contributions.

If there is no incentive for governance, voters will be indifferent. However, incentivizing the public to participate in governance will add additional costs to the agreement. This trade-off is very difficult to control.

This article is from a former employee of a16z, the current 0x protocol engineer and Coinbase data scientist Alex Kroeger. The article details the free-riding problem in DAO governance and proposes a solution. Rhythm BlockBeats translated the full text:

When a commodity or service has private costs and non-exclusive public benefits, the free-riding problem will follow. A firework show is a typical example. As long as you are within the performance area, no matter whether you spend money to watch the show or not, you can enjoy the same scenery as the person who bought the ticket (after all, even if someone does not buy the ticket, who It can’t stop them from looking up at the sky).

Of course, there must be many people who want to watch the fireworks show, but if you, as the organizer, only reap personal benefits (the fun of watching fireworks in person), but you don’t get any public benefits (allowing others to watch it simultaneously) , Then you may not have enough money and motivation to arrange this firework show.

Free riders in DAO governance

How to solve the "free rider" problem in DAO governance

Comic works by artist Robert Leighton in The New Yorker Magazine

In the DAO, whether Token holders participate in governance (create proposals and vote on each proposal), a good governance environment can benefit all of them.

Although in the final analysis, as long as there is a good governance environment, participation is not so important, but I do not advocate that the entire team’s work is counted on one person, because everyone who has participated in group work in school before must be Knowing that there will be no good results in the end just by playing alone.

In addition, judging from the current situation, the benefits of concentration of benefits will become more apparent. If you enjoy a larger proportion of personal interests in the overall collective interests, for example, if you hold a large proportion of Token in the DAO, then you will be more willing to participate in governance activities.

Encourage people to participate in governance activities

What if we can also benefit from governance activities as individuals?

I think that, on the one hand, we should reward those who participate in governance so that they can enjoy more benefits in the agreement. But on the other hand, we should also punish those who do not participate in governance and dilute the benefits they can obtain in the agreement.

On-chain governance mainly includes two activities-creating a proposal and voting on the proposal.

Creating a proposal is not easy, so a good proposal should get the rewards it deserves and be distributed in the form of bounties, one-off grants, active contributor grants, and one-off payments within the proposal. The difficulty of operation and the scope of influence of each proposal are different. For example, updating the parameters is much simpler than rewriting the contract, and the scope of influence is also smaller.

Although it seems to me that we should encourage people to make better proposals, we don’t think we should have a one-size-fits-all solution.

On the other hand, voting should also be conducted in a more formal way. In the DAOs I know, they do not set clear voting incentives, so this also allows those who do not participate in the vote to take a free ride in the voting participants. In my opinion, we should clarify the reward mechanism for participating in voting, and issue governance token rewards for someone based on the number of votes they vote.

In the following, I discuss some potential incentive improper problems in voting rewards, and propose corresponding solutions.

Participate in voting without knowing it

It is actually very easy to obtain voting rewards by opportunistic means. You only need to vote for or against each time regardless of the content of the proposal, or even cast a random vote to successfully get the reward. This idea is now a reality, and @transmissions11 has released a contract that allows people to vote against every proposal.

How to solve the "free rider" problem in DAO governance

My solution to this is that we can give the winner more rewards based on the final voting result. This approach will encourage Token holders to make the best choice after thinking and encourage people to persuade others to accept their opinions.

Cast the same votes as the majority at the end of the voting period

There is another kind of free-riding behavior in voting. This type of voter will quietly wait until the end of the vote, and then vote when the result is clear.

My solution to this is to set a timetable for diminishing rewards. The voting reward is highest at the beginning of the voting period, and gradually decreases as the voting progresses, until it becomes zero at the end. This will help Token holders to keep an eye on future voting and to be aware of the content of the proposal before the voting starts.

Make up a lot of useless proposals

Another opportunistic approach is that people can create a large number of invalid proposals and vote on them to get rewards.

However, many DeFi protocols, including Uniswap and Compound, have corresponding preventive measures. In these agreements, the initiator of a proposal must meet the minimum delegated voting rights before voting. Although the solution to this problem is not yet complete, I suggest that we can remove the proposal initiator (and their delegated voting rights) from the voting reward list.

If this phenomenon continues to be repeatedly banned, then we can further raise the threshold for voting to prevent this kind of behavior from happening again.

The revival of proxy voting

In my opinion, direct voting is not suitable for everyone, because even if you want to be an active participant and invest a lot of time in DeFi governance, it is difficult for you to agree on 2 or more agreements. There is enough understanding, and the reality is that most people will not spend so much time on Crypto.

For many DAO Token holders, it is wise to delegate voting rights to an active community member. The advantage of setting up voting incentives is that it makes proxy voting not only a hobby, but also a future career.

How to solve the "free rider" problem in DAO governance

Advertisements for delegated voting will appear in your local journals, and can be generated by using fodey.com

Under normal circumstances, voting rewards will be distributed to the voting address, that is to say, the rewards for the delegated voters not only come from their own voting rights, but also include the voting rights given to them by the delegates.

Although this is a good thing for the principal, it does not provide much incentive for the principal. Therefore, in the commission contract, the principal needs to return a certain percentage of rewards to the principal, and if the principal wants to gain the favor of the principal, it can start from the following two directions:

Improve personal ability (high turnout rate, good reputation, accurate judgment, etc.) Increase the proportion of rewards and return

Summarize

DAO (and Web3 in general) provides a broad design space for the creation of incentive schemes, allowing us to develop better applications. However, in the current DAO voting model, we have not yet seen an excellent incentive design.

Voting rewards can not only promote the development of governance, but also create a highly competitive market for delegated voting.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/how-to-solve-the-free-rider-problem-in-dao-governance/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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