Compound's seven proposal voting rate is only 5%, is DAO really the ultimate form of democracy?

After the rise of DeFi in 2020, various protocols have successively launched tokens under the guise of "governance." In the bull market the following year, the concept of governance led by the community further led to the emergence of DAOs with different purposes in the market, and various DAO tools have also been introduced. However, this article examines the current governance situation of the protocols, and collective decision-making does not seem as "collective" as imagined. The majority of participants are in it for investment purposes, with sporadic participation and most proposals being led by VCs.

This article is excerpted from writer Noah Edelman. For any concerns, please refer to the original article.

What is DAO?

DAO stands for Decentralized Autonomous Organization, in which governance token holders act as registered voters in a democratic country, able to vote on proposals for new products, budget planning, policies, etc. Watch the video for more information:

No One Votes

The author emphasizes that democratic countries have led to positive global developments, such as empowering marginalized groups or eliminating ideologies, but there is a problem: no one is voting. Around 35% of people globally choose not to vote in democratic countries, citing reasons like apathy, futility, issues with voting mechanisms, discrimination, etc.

The 2020 U.S. election saw a record-high voter turnout of 66.9% in 120 years, indicating that 33% of people still chose not to vote, a similar dilemma that is even more severe in the DAO field.

In the DAO field, voter turnout is practically non-existent.

Reality of DAO

Take the lending platform Compound as an example, with a Total Value Locked (TVL) exceeding $4 billion. Token holders of the governance token COMP can vote on proposals. However, the author points out that when browsing the DAO governance tool platform Tally, the voter turnout is more disappointing than attendance at his high school tennis matches, and many flaws of real-world democratic systems have spread to the DAO field:

The voting turnout for the last seven governance proposals was only 3.34%, a shocking number. Despite Compound being a protocol worth billions of dollars and building the future financial infrastructure, most community members do not effectively exercise their voice in the future of DAO.

Note: Actual data at the time of writing was around 5%.

He believes that some questions need to be addressed and clarified:

• How democratic is DAO?
• Is it appropriate when a minority dominates all major decisions but claims that community members can appropriately control the organization's mission?
• Is DAO just an oligarchy? In terms of the largest voting power in Compound, VC giants like Polychain Capital, a16z, Paradigm, etc., occupy the top spots.

Real Democracy

The author points out two things:

1. Establishing real democracy is difficult

Political science professor Brian Klass describes many countries as "fake democracies," where there is an election system but lacks press freedom and accountability for officials.

2. Not everything can be voted on

The author gives an example that it is impossible for all Americans to vote on every congressional policy, as it is already challenging for the public to be familiar with political candidates, let alone understand thousands of specific legislations. He mentions:

If you look at the latest proposal for the "High-TVL cToken" implementation in Compound, you'll understand why regular token holders won't bother to vote. Are you serious? Are these even in English? How can you expect all community members to fully comprehend hundreds of proposals and vote?

3. Not everyone cares

Not all Americans are interested in politics, and similarly, many token holders are only in it for investment, prestige, or entertainment.

How to Solve it?

The author believes that most DAOs today operate as traditional democratic countries: direct one-person-one-vote voting. However, this type of democracy is challenging to scale. To increase participation in major decisions, transitioning to a republican or representative democracy may be necessary.

Token holders can delegate their votes to representatives, bringing many advantages:

• Not all coin holders need to analyze each proposal in depth.
• Representatives have a deeper understanding of the proposal content.
• Voter turnout will increase.

This is similar to what the Ethereum Name Service did when launching the ENS token, where users had to delegate their voting rights to representatives when claiming airdropped tokens, as shown below:

Although representative democracy may become more corrupt, with voting power becoming more centralized in representatives who are wealthy and well-connected, the author believes that acknowledging these flaws, implementing representative voting mechanisms cautiously, will allow the Web3 community to establish a more democratic operating system globally.