A Deep Dive Into How the Top 10 DAOs Work

Decentralized autonomous organizations (DAOs) are fast becoming the gold standard for projects looking to create self-sustainable applications and services around the blockchain industry. This concept unlocks new opportunities, whereby the average blockchain application user can contribute and vote on developmental and non-development changes.

But what is a DAO?

Let's stick to the basics to answer this question! DAOs are decentralized organizations that allow users to collaborate and make decisions in an entirely decentralized and trustless manner. Using blockchain technology, the community of stakeholders holds the decision-making power without the control of a single authority.

In light of the compelling nature of this governance model and the rate at which it is gaining traction, this article is based on research of the top active DAOs based on CoinMarketCap's ranking of the top DAOs by market capitalization and will discuss how their members reach consensus and form actionable decisions.

While these top DAOs are mostly decentralized finance (DeFi) protocols, it must be noted that there are a plethora of DAOs serving various purposes — from venture and investment DAOs like MetaCartel, to grants DAOs like Gitcoin, to social DAOs like FWB and media DAOs like Bankless.

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Uniswap DAO

As part of plans to enable a self-sustainable and competitive decentralized exchange, the development team of Uniswap launched its governance token, UNI, in September 2020. This singular act unlocked a new governance structure and officially gave the Uniswap community a say over the day-to-day running and development of the project. More specifically, anyone holding UNI tokens could either vote or delegate votes on development proposals that could alter the operation or infrastructure of the Uniswap Protocol.

Before the introduction of this token, the development team had the sole responsibility of determining the development decisions of the Uniswap project. Now that governance has been transferred to the community, such decisions are made by the entirety of the Uniswap network. This is thanks to the introduction of UNI.

To this end, the team issued 1 billion UNI tokens to be shared among core contributors of the platform, including the development team, Uniswap community members, investors and advisors. The percentages of the total supply distributed to each group are as followed:

60.00% or 600,000,000 UNI to Uniswap community members
21.266% or 212,660,000 UNI to team members and future employees with a 4-year vesting schedule
18.044% 180,440,000 UNI to investors with a 4-year vesting schedule
0.69% or 6,900,000 UNI to advisors with a 4-year vesting schedule

The governance token holders collectively have control over the following resources:

Uniswap governance
UNI community treasury
The protocol fee switch
Uniswap.eth ENS name
Uniswap Default List (tokens.uniswap.eth)
SOCKS liquidity tokens

How Can Uniswap Holders Submit a Proposal?

More importantly, any UNI holder can submit a proposal to alter or introduce new features and have them approved by other community members. There are different layers that development proposals need to scale before they can be implemented. The first phase is the temperature check, where the proposer needs to introduce the idea to the community and garner enough votes to move to the next stage. Here, the proposal must garner up to 25,000 UNI yes-votes to be eligible for further deliberation.

The second phase is the consensus check. In this stage, the proposer has to enable a formal discourse that would highlight the core changes and advantages of the proposal. For the proposal to scale this phase, the proposal must attract nothing less than 50,000 UNI yes-votes.

The last phase is the governance proposal. This is where the proposer submits audited codes for the final set of deliberations. As with the other 2 phases, there is a minimum voting requirement that would determine whether the proposal gets adopted or not — each proposal must garner up to 40,000,000 UNI yes-votes to become eligible for implementation.

However, before all this, proposals can be submitted for community consideration only if each proposer has over 2,500,000 UNI delegated to their addresses. Initially, the requirement was 10,000,000 UNI. This rule was later reviewed via the governance mechanism to 2,500,000 to reduce the barriers to submitting proposals.

Notably, UNI holders can either vote themselves or delegate their votes to other users, who they believe would make decisions that would represent the best interest of the Uniswap ecosystem. More information on Uniswap governance can be found here.

Aave DAO

Aave is another DeFi protocol that has adopted a dynamic governance system that lets users contribute actively to the management and development of crypto ecosystems. Naturally, this was made possible by introducing AAVE tokens which provided the means to distribute voting power to Aave users. As a user, you can participate in the governance process of this project by holding AAVE tokens and/or stkAAVE (staked AAVE).

Initially, only the Aave development team could submit proposals. An updated version of the governance protocol was later activated in December 2020 to ensure that decentralization remains the building block on which the entire Aave lending ecosystem operates. With this, the governance system has become more robust such that all AAVE and/or stkAAVE holders are eligible to propose changes.

Another improvement that was implemented via this upgrade was the dual voting rights allocated to each token holder. Now, all token holders could delegate their voting and proposing rights separately. In other words, if an AAVE holder delegates his proposing right to another community member, he can still exercise his voting rights once the proposal is up for deliberation.

Also, the governance protocol upgrade comes with multiple executors. The first is the short timelock, which allows for fast implementation of upgrades associated with fees, the protocol’s reserves, and other sensitive components of the ecosystem. The long timelock, on the other hand, provides a more thorough and longer voting process for proposals focused on altering the protocol’s governance mechanism and tokens. Another notable upgrade was the introduction of The Guardians, which is basically a group of elected users that have the right to halt the implementation of malicious proposals.

How Can Aave Holders Submit a Proposal?

To create a proposal, the proposer would first gauge the Aave community’s sentiment by submitting an Aave Request for Comments (ARC) on the community's forum. The next phase entails the creation of an Aave Improvement Proposal (AIP) based on the feedback received from the ARC initially submitted on Aave’s community forum. The AIP can then be published and submitted via Github by forking the AIP repository. Once reviewed, the proposal will be enabled for on-chain governance.

Note that the Aave protocol uses a voting threshold whereby an AIP must garner a more substantial volume of positive votes before it can be implemented. A total of 16,000,000 AAVE was issued. 13,000,000 AAVE was distributed to users, while the remaining 3,000,000 AAVE was allocated to the ecosystem's reserve.

MakerDAO

MakerDAO was one of the first DeFi projects to capitalize on the possibility of on-chain governance. The protocol also issues a governance token, MKR, to distribute voting power to users. Initially, 1,000,000 MKR was minted. However, unlike the first two protocols mentioned in this guide, the total supply of MKR is not fixed.

MKR tokens are minted and destroyed depending on the debt status of the entire MakerDAO ecosystem. In a situation where the Maker protocol is running a debt deficit (that is, the financial resource of the protocol cannot cover its debt), new MKR tokens are minted. Inversely, MKR tokens are destroyed when the protocol’s surplus exceeds a certain threshold. In this case, excess DAI is auctioned for MKR and subsequently burned.

It is worth mentioning that MakerDAO utilizes an on-chain and off-chain voting system to reach a consensus on governance. Off-chain voting is entirely restricted to the platform’s community forum, where anyone can activate a forum signal thread to gauge the general sentiment on issues associated with the operations of MakerDAO. Here, anyone can participate in the off-chain voting process whether they own MKR tokens or not.

How Can MakerDAO Holders Submit a Proposal?

In contrast, on-chain voting is restricted to MKR holders alone. There are two types of on-chain voting systems. The first is known as Governance Poll, while the second is Executive Votes. The Governance Poll helps measure the sentiments of MKR holders regarding proposals that would end up passing through the Executive Votes before implementation. In general, the governance poll helps determine voters’ sentiments on proposals and sets the values and parameters before they undergo Executive Votes.

For the Executive Votes, more care is exercised by voters to ensure that only the most relevant and effective of changes are being implemented on the Maker protocol. Hence, proposals undergo more scrutiny. The types of changes or alterations that are considered on this layer include:

The addition or removal of collateral types
The addition or removal of vault types
The replacement of modular smart contracts
The adjustments of parameters, including the Vault-specific parameters and the global system parameters.

To vote on proposals (generally called Maker Improvement proposals MIPs), you need to own MKR, or have MKR delegated to you. Next, you need to create a voting contract and then lock the MKR tokens in it. Note that locked MKR tokens can be withdrawn at any time.

Compound

Compound is another effective on-chain governed ecosystem that elevates users to the role of decision-makers when they hold the protocol’s governance token, COMP. Only 10,000,000 COMP will ever exist, and over 5,400,000 COMP has already been distributed to Compound users. More specifically, the protocol distributes 2,312 COMP daily as rewards to active lenders and borrowers. In essence, users tend to accrue COMP tokens as they participate in the lending and borrowing economy of the Compound ecosystem.

How Can Compound Holders Submit a Proposal?

Interestingly, anyone can autonomously create proposals to change certain aspects of the protocol by locking 100 COMP in an address.

However, this proposal will not be considered for voting until the proposer’s address is delegated 65,000 COMP. After a 3-day voting process, a proposal that has garnered at least 400,000 positive votes is queued on the protocol’s Timelock for two days before being implemented. Some of the changes that can be proposed are the assets’ collateral factor, interest rate models, addition or removal of markets, and other parameters used by the Compound protocol. Like all the DAOs mentioned so far, Compound allows the delegation of votes.

While the original governance model was launched in February 2020, an improved version was activated in March 2021. These improvements offered a more robust approach to on-chain governance. Part of the upgrade is the decision to add one more voting option for voters. Already, voters could either opt for a Yes or a No vote. With the upgrade, voters can now opt for a third option, which is Abstain. Also, they can add comments to explain the reason for supporting or rejecting a proposal. Additionally, proposers can adjust parameters like voting delay, voting periods and submission threshold.

Decred

Unlike the protocols mentioned so far, Decred is a blockchain on its own. Therefore, governance is strongly tied to the consensus protocol that governs the validation process of transactions. Decred uses a hybrid consensus mechanism that combines proof-of-work (PoW) and proof-of-stake (PoS) protocols. To vote, a Decred user needs to timelock their DCR coin to purchase tickets. These tickets can be used both for the platform’s on-chain and off-chain voting.

For the on-chain voting, the protocol randomly selects five tickets to review the latest block created by miners. At least 3 of the five tickets must vote that the block is valid in order to achieve a finalized stat . Once voting is completed, the DCR linked to that ticket is unlocked and returned to the DCR owner along with the PoS reward earned by voting mined blocks successfully.

How Can Decred Holders Submit a Proposal?

Apart from block voting, DCR holders can also participate in on-chain consensus voting. For changes to be made to the consensus mechanism of Decred’s blockchain, at least 75% of voting tickets must support the proposal. In contrast, all off-chain voting is carried out on Politeia — an off-chain governance platform for the Decred ecosystem. The proposals you can propose or vote on via this platform include:

How to spend the platform’s treasury funds
Changes to the ecosystem’s constitutions and policies

Although voting is done offline, the record, proposals and activities executed on Politeia are periodically anchored to the Decred blockchain for cryptographic security.

SushiSwap

SushiSwap also has a system that resembles a working community-powered governance structure. However, while the voting of the platforms listed above utilizes on-chain voting or a mixture of on-chain and off-chain voting, SushiSwap’s governance relies majorly on an off-chain system.

Here, voting takes place on Snapshot — a decentralized and gasless voting dashboard. Proposals are first created on the SushiSwap Community Forum for deliberation before it is moved to Snapshot for voting. Note that only proposals that gain enough traction in the forum can be moved to the snapshot for proper voting. The voting metric used in the SushiSwap Snapshot is SUSHIPOWAH.

To become an eligible voter, you must hold SUSHI via any of the following means:

1 SUSHI token = 1 SUSHIPOWAH
1 SUSHI in the SUSHI-ETH pool = 2 SUSHIPOWAH
1 SUSHI held via xSushi = 1 SUSHIPOWAH.

How Can SushiSwap Holders Submit a Proposal?

Note that a proposal must garner 5,000,000 votes before it can be implemented. When proposals cross the 5,000,000 voting threshold, the decision that has more votes determines whether the proposal is adopted or rejected. Successful proposals are then incorporated by the core development team or Operation Multisigs, headed by a pseudonymous developer named OxMaki.

The maximum supply of SUSHI is capped at 250,000,000 SUSHI. Already, over 127,000,000 SUSHI is in circulation, and the number of SUSHI minted per block reduces until the maximum supply is reached in November 2023. Interestingly, the SushiSwap ecosystem is looking to upgrade its governance system to a more conventional DAO design in the future.

Synthetix DAOs

Synthetix allows members to elect representatives periodically to carry out different roles in a dynamic DAO ecosystem. In other words, all members have to do is vote representatives that would make decisions on their behalf. What makes Synthetix unique is the robust nature of its governance system. For one, Synthetix incorporates six different DAOs designed to play specified governance roles within the Synthethix ecosystem.

There are six governing bodies on the Synthetix ecosystem::

Spartan Council
Protocol DAO
Synthetix DAO
Ambassador DAO
Grant DAO
Core Contributors

The first DAO is the Spartan Council which comprises eight members elected to carry out proposal reviews and interview authors of Synthetic Improvement Proposals (SIPs) and Synthetix Configuration Change Proposal (SCCPs).

Once these proposals have been vetted by the Spartan Council, they are passed to the Protocol DAO (pDAO) — this governing body is responsible for upgrading the protocol’s smart contracts based on the decision of the Spartan Council to implement SIPs and SCCPs. PDAO members are nominated by the Spartan Council. Each member of the pDAO has to scale strict criteria to be eligible for the position.

The third organization is the Synthetix DAO, and it is responsible for managing the platform’s treasury and ensuring that the other organizations are adequately incentivized to maintain a sustainable and decentralized ecosystem.

Then we have Ambassador DAO (aDAO), which looks to contribute to the governance of external protocols that could impact the Synthetix ecosystem.

Grants DAO focuses more on reviewing, vetting and funding proposals, while the Core Contributors are autonomous teams that take up a series of development and non-development roles. Note that all the members of the DAOs mentioned above are paid a stipend by the Synthetix DAO. Also, elections are carried out at the start of each epoch, which is simply the time it takes to finalize 30,000 blocks on Ethereum.

How Can Synthetix Holders Participate in Governance?

Elections are held on the snapshot with weighted votes assigned to users staking SNX on the Synthetix protocol. Once participants are assigned weighted votes based on the amount staked, they can delegate their votes to the individuals they would like to see emerge as members of the governing bodies.

Interestingly, the ecosystem holds a monthly meeting on discord where DAO members report their operations and receive feedback from the community. These meetings are aired on YouTube and Spotify.

0x DAO

0x is another decentralized exchange (DEX) looking to transition from a monolithic governance system to a dynamic variant collectively powered by users. Much like other DAOs mentioned in this guide, 0x has issued a governance token, ZRX, and assigned voting power to holders. In essence, anyone holding ZRX can participate in the governance of 0x Protocol.

How Can 0x Holders Submit a Proposal?

You will need to control or have 100,000 ZRX (0.01% of the total supply of ZRX) delegated to you to get your proposal submitted for public voting. Before initiating public voting, you ought to submit the proposal to the governance forum to measure the community’s sentiment over the proposed changes.

The ecosystem also relies on the influence of bootstrap delegates. It is much easier to scale the requirements for proposals if you receive the support of any of the bootstraps delegates. The proposal must adhere to a one-epoch waiting period to give voters enough time to consider the proposed changes and form a sentiment.

Once voting commences, voters will have 72 hours to self-vote or delegate 50% of their voting power to another ZRX holder. If the proposal manages to attract 10,000,000 ZRX yes-votes, it is queued in a timelock and eventually implemented by the core team.

Although this process describes the system that would eventually govern the implementation of core protocol changes, it is currently reserved for the governance of the protocol’s treasury. The 0x team looks to evolve the DAO such that a decentralized governance system becomes the de facto system for all decisions implemented on the 0x ecosystem.

Curve DAO

Curve implemented an on-chain governance system in mid-2020 when it introduced Curve DAO token (CRV). The token has a maximum supply of 3,303,030,299 CRV and a circulating supply of over 420,000,000 CRV. Currently, Curve’s liquidity providers receive CRV as rewards, with around 750,000 CRV distributed daily. Part of the core functionality of the protocol’s DAO is to determine the shares of daily CRV rewards that are distributed to each liquidity pool on the Curve ecosystem.

Also, the DAO decides on the parameters governing the operations of pools, including the fees paid by traders.

How Can Curve Holders Participate in Governance?

To participate in this governance system, users have to lock their CRV tokens on a voting escrow to receive weighted voting power, called veCRV. The voting weight issued to each user depends on the timelock implemented for the locked governance token.

For instance, you will receive a 1:1 relationship between locked CRV and veCRV if you lock your tokens for up to 4 years. The minimum duration for locking CRV tokens is one week. Your veCRV weight will gradually decrease as the expiration date of the CRV lock draws nearer. It is worth mentioning that 50% of the total Curve trading fees are distributed to veCRV holders as incentives for locking CRV and participating in the protocol’s governance.

Once you receive voting power, you can start voting on proposals. However, note that your voting power at the block at which a proposal was created would determine the voting weight you can use for the proposal in question.

Furthermore, only DAO members with 2,500 veCRV voting weight and above can submit proposals. Like most of the DAOs highlighted in this guide, proposers must first draft proposals and submit them on the community’s forum before they can be nominated for voting on the blockchain.

UMA DAO

UMA is a protocol that allows users to create synthetic-based assets on the Ethereum blockchain. As it governance system, UMA has empowered UMA token holders to govern certain operations, including:

Voting on price metrics
Managing the infrastructural design of the protocol

Governance participants receive rebates on gas fees paid while carrying out their voting task. Also, the protocol distributes 0.05% of the UMA’s current supply to governance participants, depending on the number of tokens staked for voting. Note that 1 UMA token represents one vote.

How Can UMA Holders Submit a Proposal?

As for the proposing side of the governance system, proposers have to share the details of the proposed changes on the platform’s Early Stage Forum on Discourse. Next, the proposer must draft a UMA Improvement Proposal (UMIP) and notify voters of upcoming votes. Voters are given 48 hours to review this UMIP before it is moved to the final stage, where voting will commence. If over 50% of the total votes support the proposal, then it is approved for implementation.

Conclusion

The dynamics of the DAOs listed in this guide demonstrate that crypto communities are increasingly adopting innovative solutions to eliminate governance risks and establish fully decentralized ecosystems. However, note that we are still in the early stage of this movement. Therefore, existing and new platforms are bound to come up with more improved approaches to decentralized and autonomous governance.

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