Experiments in Delegation

Decentralized autonomous organizations (DAOs) offer a promising solution to the challenges of coordinating human efforts. However, voter participation in DAOs remains an issue, often being as low as 5-10%.

A recent survey of Uniswap’s governance revealed several issues including misalignment between stakeholder interests and the changes proposed, a disorganized forum structure along with a lack of financial incentives and transparency among delegates.

As a result of these challenges, coin voting is losing popularity and purpose. The Beanstalk governance exploit, one of the largest in the decentralized finance (DeFi) space, was made possible by the coin voting mechanism.

Delegation is a simple and effective tool that can add features to make coin voting mechanisms into a more reliable alternative. Although delegation has its drawbacks, its simplicity makes it an attractive option for experimentation.

What is a Delegate?

A delegate is an individual or group, such as a DAO or team, that serves as a representative for token holders who choose not to participate in governance directly.

Delegation is a cost-effective way to involve idle tokens in the governance process. As a result, the collective cost of governance is reduced as fewer individuals are needed in the governance process. This leads to lower opportunity costs along with increased efficiency and improved decision quality.

Let's explore some use cases of delegation in practice.

MakerDAO

The MakerDAO governance system uses recognized delegates – actors whitelisted by governance facilitators.

These delegates must meet certain requirements for participation and communication. They can be pseudonymous, as long as they share contact information, participate in community calls, and publish a delegate platform post.

Governance facilitators track participation and communication metrics for each recognized delegate, and reward them based on performance metrics in a retrospective manner.

Optimism Collective

The Optimism Collective is an ambitious experiment in digital governance with the goal of driving rapid and sustainable growth in the L2 ecosystem.

The collective is governed by two houses, the Citizen's House and the Token House, which handle different aspects of governance. The citizens’ house will govern public goods funding and keep the network in check from plutocratic capture. The token house governs protocol upgrades, project incentives and more.

Additionally, Optimism has implemented a delegate dashboard, powered by Karma, to increase transparency and accountability among delegates.

Element’s Governance Steering Council

The Element Governance Steering Council (GSC) is a group of delegates who have achieved a predetermined threshold of delegated voting power, granting them additional governance powers within the Element governance system.

Members are selected on a continuous, rolling basis and in real-time, allowing for new members to join as current members' delegated voting power falls below 0.9% of the total circulating votes.

Paired with the GSC dashboard, this system addresses challenges such as a lack of governance participation, plutocracy, and accountability.

Professional Delegates

As opposed to “regular” delegates who may lack context and focus on governance, professional delegates are DAO enthusiasts who work full-time and have a wide range of expertise and knowledge in different domains.

Professional delegates usually come in the form of teams organized under an organization or brand that contribute to DAOs by providing research, governance operations, increasing community engagement, and providing context.

For example, Flipside Governance participates in the governance of other DAOs by providing engagement, research, data, and governance operations. Flipside Governance is part of Flipside, a data analysis tool that improves the governance of DAOs to be more informed and effective.

Closing Thoughts

Voter participation and voter fatigue are significant challenges that delegation aims to address in DAOs. However, delegation is not a one-size-fits-all solution to coin voting problems and is still in an experimental phase.

Delegation won’t always lead to better results, but one can safely assume that, if applied correctly, it will positively impact the protocol’s governance over time.

From individuals to VCs, protocols need to have a diverse pool of delegates. Currently, large protocols rely heavily on professional delegates, but a diverse group of stakeholders will make governance challenging and inclusive.

There is room for iteration and improvement, and it will be interesting to see how the use of delegation evolves as decentralized systems move forward.

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