How to set DAO governance thresholds

Governance thresholds for minimum participation, approval threshold, and vote duration are levers that need to be adjusted for your DAO’s specific needs. There is no “one size fits all” approach. This guide outlines the concepts and main considerations as a starting point for you to experiment and iterate from.

DAO governance thresholds

Minimum participation/Quorum

Minimum participation, or quorum, is the minimum level of participation required for a vote to be valid. For example, in the case of wallet-based voting, imagine the quorum required 5% of the total voting power to participate. Say there’s a vote where 100% of people who participated voted “yes,” but only 2% of all wallets in the DAO voted. In this case, the vote would not be valid. The higher the quorum, the harder it is for votes to pass. In the case of token-weighted voting, quorum percentage refers to the percentage of the total supply of tokens that need to participate.

Note that this threshold has different implications if you have token-based (1 token = 1 vote) or wallet-based (1 wallet = 1 vote) voting. In token-based voting, you could have 10% of tokens voting, but this might be less than 10% of of the people (or wallets) in the community.

When setting quorum, you may want to consider:

• What proportion of your community are active voters? You’ll want to set the quorum below this.
• Watch out for getting trapped beneath your threshold. If you set a quorum that can’t be reached by your community in practice, then you would not be able to pass a vote to change the quorum.
• To find out the threshold best for your DAO, you may want to run a few low-stakes decisions with no quorum to gather data on voting numbers. From there, find a good middle-ground for your quorum.
• Are there whales in your community that could pass the vote alone? If using token voting (1 token = 1 vote) you may want to set a quorum above the level where a whale could easily pass a vote on their own.
  

Pass rate

The pass rate is the percentage of votes cast that need to be in favor for the proposal to be accepted.

The most typical pass rate to set is 50%, meaning a simple majority is needed when there is a yes/no vote. Or, if you want more community buy-in for votes to pass, a 2/3rd pass rate is a good level.

Voting period

The voting period is how long the vote is active.

While there is no magic number for how long your vote should last, the most common period is 7 days. Anything between 3-14 days is typical.

The primary considerations for setting your voting period are:

• Speed. You may want a short voting period if your DAO needs to make fast decisions. For example, if you’re designing an NFT-collecting DAO, you may need to make quick decisions on whether you will bid for a certain NFT in an auction.
• Participation. You may want a longer voting period depending on how available your community members are to participate. For example, if you set your voting period at two days, many contributors might not get time to read the proposal and cast their votes.
• Safety. Having a very short voting period, such as one day or less, may expose the DAO to higher risk in situations where a malicious proposal enters and there is less time to organize a community response to block the proposal.
  

How to pick the best format for your DAO’s needs

Here are a few examples of active DAOs’ thresholds:

One of the best ways to start is to experiment with what works for your context. You can do this with low stakes decisions, starting with low thresholds, and moving them up if necessary. For example, Lido was founded in early 2021, and didn’t implement their 12-24 hour time lock voting period until over 16 months after their formation. Safe experimentation, even later in the DAO’s life, is essential.

While experimentation and iteration can be your best guide, you can also apply lessons from general cases:

• Community Activity: Specifically look at how engaged your community is likely to be in governance. Remember, participation is often high for the first few votes, and then drops down, so it’s best to not set pass rates and quorum after early votes. If there is low activity, you may need to set lower thresholds. Activity is often affected by the topics listed below.
• Delegated voting: Do voters have the option to delegate votes to another member of the community? If so, more votes will be cast, given that people can offload the responsibility of voting to a trusted delegate.
• Token distribution: Is there an even distribution, where everyone has a similar amount of tokens, or is there an uneven distribution, where a few people (”whales”) have a large number of tokens? Even distributions might have higher community engagement because people feel like they can exercise their voice more.
• Role of members: Are the community members primarily investors looking for a return, or are they users, fans, players, or contributors of a product? The latter might  be more active in governance.
• Size of community: Large communities tend to have lower engagement levels (proportionally) than small communities.
• Speed. How quickly do you need to move governance forward? If you need to make decisions fast, you may prioritize making it easy to pass votes by setting low quorum and pass rates with short voting periods.
• Safety. In contexts where the risk of being targeted is high, such as DAOs that have large treasuries, you may prioritize options with the lowest risk of manipulation, such as higher thresholds and post-vote time locks.
  

There’s no single “right” way to set thresholds yet

The best way to set governance thresholds is to research what current DAOs are doing and compare that to your community’s needs. Small experiments and incremental changes can be good ways to ensure you’re testing the right thresholds without putting your DAO at risk.