DAO governance is all about decision-making. When you set DAO governance, you define who can make decisions and how. Governance can be as simple as three out of five people voting “yes” for an idea or as complex as an entire network state of individuals voting on huge decisions.
DAO governance should evolve as your DAO does. Follow these steps in order to get started!
Set up DAO governance in 8 steps:
Let’s dive into the details!
The basis for DAO governance is voting. Who can vote and how they vote is a very important question to answer at the outset, before you choose any tools or set any parameters.
In the current DAO landscape, you have two options:
Governance token voting is when tokens act as voting chips, where 1 token = 1 vote. The more tokens you have, the more weight your vote has. So, someone with 10 tokens would have 10 times the voting power of someone with one token.
Governance tokens are cryptocurrencies minted by DAOs that are used in on-chain votes. For example, Lido’s $LDO token is used in Lido DAO votes, and Maker’s $MKR token is used in MakerDAO votes.
Governance tokens are traded on exchanges. So, anyone can buy and speculate on the token, meaning they buy it to make a profit. This means that DAO governance tokens can never be a complete representation of a DAO’s base of engaged members.
Token-based voting is often used by DAOs that:
In wallet-based voting, you authorize wallets to give them permission to vote, where 1 wallet = 1 vote. You can do this by setting up a multisignature wallet, which is a wallet that requires multiple approvals to sign a transaction.
For example, you might set up a three-of-five multisig. This means there are five wallet addresses linked to the multisig, and three of them need to approve the transaction so it can go through.
Wallet-based voting is best for DAOs that:
It’s common for DAOs to start as wallet-based DAOs (voting with a multisig) and then evolve into token-based DAOs (voting with governance tokens). In most cases, the key to DAO success is evolving and changing as you go.
Minimum participation (sometimes called quorum) is the number of voters that need to be present for a vote to be valid. It’s not the number of “yes” votes, it’s just the number of people who need to vote.
Many large DAOs with widely distributed token holdings have very low quorums, even as low as 1% of token holders! DAOs with very active voting that are wallet-based and use multisig voting might have a quorum of 50% or more so they can execute transactions.
Setting a minimum participation that is too high for your organization to reach could lock your DAO in governance stalemates. So, sometimes it makes sense for DAOs to wait to set their minimum participation rate until after a few votes have completed and the DAO has data on average voter participation.
Pass rate is the number of “yes” votes required for a vote to pass. If a vote doesn’t hit the pass rate percentage, it doesn’t pass and the action doesn’t execute.
There are two common options for DAOs setting pass rate:
Pass rate is a lever you can adjust when designing different governance flows for different proposal types. For example, many DAOs use majority pass rate for basic decisions, such as funding a workstream. They might use a super-majority for more critical or controversial decisions, like amending the charter or minting more tokens.
The voting period is the amount of time a vote is live. DAO members can only cast their votes during that time period.
Many DAOs use a seven-day voting period to give voters a full week to see the proposal and vote. If your DAO needs to move quickly, a shorter voting period like three or five days might make sense.
Sometimes voting periods are followed by a timelock, meaning the results of the vote cannot be executed within that time. This is a security measure that gives DAOs time to respond in case a malicious proposal passes. For example, a timelock of seven days would mean that the result of the vote (maybe funding a workstream) could not be executed until that seven day period has ended, and then the funds could be sent.
Now that you’ve set governance parameters— including who can vote, minimum participation, pass rate, and voting period—it’s time to build your proposal process so members know how to propose new ideas and get funding to act on them.
Proposal processes outline the steps required for a proposal to go from idea to execution. Think of this as the play-by-play of how a new workstream would get funding.
A sample proposal process:
Post the proposal for an official vote on your DAO’s voting platform: This might be an off-chain vote, like on Snapshot. Or, it could be an on-chain vote on a platform like Aragon or Tally.
A proposal structure is what teams should include in their proposals. Think of this as a template that people can use to draft their proposals.
A sample proposal structure:
Next steps: If your team gets funded, what comes first?
A DAO tooling stack includes all the tools you need to operate as an organization. This includes communication channels like Discord and Telegram, contributor payment and rewards like Coordinape and Gnosis, membership tracking like POAP and Guild, and more.
Here are a few areas of tooling you’ll need to think about for setting governance:
You will likely add to your DAO tooling stack over time, so start with the basics and iterate over time!
The only way to know if your governance process is set up properly for your needs is to hold your first vote!
Consider holding a tester vote: a vote that doesn’t send funds anywhere or only sends a very small amount of funds. This tester vote is a way to see if you need to adjust your governance parameters or adjust your tooling stack.
Once the vote is complete, document how it goes. This will be helpful to look back on when you are iterating on your governance process in the future. It’s best to experiment as you go, so you’ll want this documentation to look back on!
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