What Is DAO?
A DAO is a decentralized autonomous organization that is made up of a group of people who collectively own and manage it. There is no hierarchy among its members, and everyone has equal rights to propose a change in the organization and participate in governance.
To keep the organization decentralized, the rules that dictate how the DAO will work are coded in a smart contract and deployed on a blockchain. This blockchain stores records of how the DAO is funded, how proposals are submitted and voted on, and how to modify the rules of the smart contract.
How Can You Gain Membership in a DAO?
1) By Buying and Holding Its Token
Generally, anyone can join a DAO by fulfilling certain requirements; for some DAOs, this requirement involves holding its token. The token is regarded as its governance token and can be bought on centralized exchanges or given as a reward for performing an activity on the blockchain (like providing liquidity or contributing to the network’s security through proof-of-stake or proof-of-work). An example is Uniswap, which gives out UNI tokens to users who fund its liquidity pools. With a minimum of 2.5 million UNI tokens, a member can submit proposals for Uniswap’s governance, community treasury, or fees. A member with less than 2.5 million UNI tokens can delegate their voting rights to another member.
2) By providing value
For other DAOs, anyone can join as long as they can offer something to the committee in the form of tokens or something of value. For instance, Moloch DAO is a decentralized organization that provides grants to Web3 projects built on the Ethereum blockchain. To become a member, the investor is required to pledge 10–100 wrapped ETH. After the pledge, other members will invite the contributor to submit a membership proposal to its Discourse Forum. If the proposal is accepted, the investor becomes a member and is issued shares that are equivalent to the amount of WETH they pledged.
DAO Voting Methods
1) Quadratic Voting
This voting method allows members to express their preferences and the intensity of these preferences while voting. In quadratic voting, a member can vote multiple times for an option. But to reduce the effect of whales, the method uses a quadratic calculation such that two tokens (or shares) are calculated as 1 vote, 4 tokens are calculated as 2 votes and 100 tokens are calculated as 50 votes.
Quadratic voting helps members with small tokens or shares who have strong opinions about a decision influence the poll. For instance, if a Grant DAO wants to fund 1 out of 3 projects and a member with 1000 shares stakes 500 shares for the first project and 200 votes for the third project, the shares will be calculated as 250 votes for the first project and 100 votes for the third project. If another member with 500 shares stakes 100 shares for the first project and 400 shares for the third project; the shares will be calculated as 50 votes for the first project and 200 votes for the third project. With this voting method, both members have equal influence on the polls.
2) Token-Based Quorum
This voting method sets a minimum number of DAO members that must vote for the result of the poll to be considered. A threshold number of 70% means that a proposal will only be considered if 70% of the DAO members vote. The result of the polls is not considered at all if less than 70% vote.
In some DAOs, like Compound DAOs, a threshold is set only to determine the winning proposal. So if the threshold is set at 30%, it means that 30% of the DAO members have to vote in favor of the proposal for it to be implemented.
3) Holographic Voting
This method allows members to make a profit or incur a loss while supporting a proposal they trust. The DAO members are required to stake their share or token “for” or “against” a proposal. If it succeeds, the members who staked in favor will receive a reward, while those who staked against it will lose their tokens.
This method makes it difficult to implement a suspicious proposal, as the members will have to conduct extensive research on it before staking their shares.
4) Multisig Voting
This method combines off-chain voting with on-chain multisig execution. It is used in Web3 projects where everyone on the platform owns a share of the network.
In Decentraland, everyone who holds MANA (its governance token) or LAND (a share of the metaverse) can submit a proposal or vote on one. But to help members avoid the high gas fees needed to participate in governance, the DAO allows them to vote off-chain while a committee of delegates uses a multi-sig wallet to execute the winning proposal on-chain.
5) Conviction Voting
Conviction voting sees ‘time’ as a measure of how interested members are in a proposal. Members can stake their tokens on a proposal or remove their stake at any time (as long as the proposal has not been executed). Higher voting power is credited to tokens that remain staked in a proposal for a long time.
So if a member places 100 votes against a proposal and the votes remain staked for 3 months, and another member stakes 200 votes in favor of the proposal but for only 3 weeks before the maturation date, the 100 votes have more voting power (let’s say 5 points per vote). This makes the 100 votes count as 500 votes, while the 200 votes will have lesser voting power (let’s say 0.5 points per vote, making it 100 votes).
Conclusion
The type of voting method a DAO uses depends on its purpose. Some voting methods allow the DAO to reduce the effect of whales by increasing the influence members with minority shares have on the polls; other voting methods, like Holographic voting, ensure that members are not involved in suspicious voting by requiring them to stake their shares for their votes.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
Source: https://www.thecoinrepublic.com/2023/09/10/everything-you-should-know-about-the-top-dao-voting-methods/