July 23, 2024
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DAOs and Don’ts – The Underlying DAO Problem and a Solution

DAOs (decentralized autonomous organizations) are excellent for propelling products ahead through unique community involvement.

They offer a governance paradigm that allows DeFi initiatives to completely involve their ecosystems in decision-making and help shape their future. They enable simple on-chain governance, which is conveniently offered by blockchain and smart contract technology.

The approach has since been widely embraced by the industry, with over 10,000 DAOs believed to be in existence. There is currently $12 billion in treasuries, with almost six million governance token holders issued. These are promising figures.

All of this demonstrates the industry’s commitment to its core spirit of decentralization.

Nonetheless, this governance model’s success remains restricted. There is an evident difficulty with engagement and retention.

Only 1.8 million of the approximately six million governance token holders are active voters. That equates to a 28% voter turnout. Putting that into some democratic context, just three countries in the world have lower electoral turnouts than that.

Participation is essential for a DAO to function successfully as a healthy governance structure, as it is for any democratized institution.

Most DAOs do not appear to have sufficiently defined value propositions and product market fit. For most people, community governance is insufficient as a product offering.

There are three basic approaches to addressing these difficulties and increasing engagement and retention.

Participating in a DAO should be a fun and interactive experience. Governance is definitely insufficient of a value proposition for token holders to participate at scale. Elements that enhance the user experience must be included. Simply put, a DAO must be enjoyable.

The DeFi sector as a whole has a high technical barrier to entry, and DAOs are no exception. Being a part of a DAO should not necessitate extensive technical understanding. Terms should be easy to understand, and onboarding should be as simple as possible.

This is the only way for the sector to get traction and grow. DAOs should ideally be used as major onboarding mechanism to expand project ecosystems. They have the potential to attract new users and introduce them to products/protocols if done appropriately.

A DAO must provide more than voting and proposals in order to be sustainable and maintain participation and retention. A DAO should encompass an entire ecosystem, with many diverse community goals.

It should provide token holders with platforms that are expressly designed for marketing, product growth, onboarding, and discussion, all with well defined growth targets.