DAO & Governance
A DAO is an internet-native organization where the CEO is Code. No human can unilaterally spend the treasury; specific on-chain conditions (votes) must be met for the smart contract to release funds.
The Governance Spectrum
Governance is not binary; it exists on a spectrum from informal social consensus to binding code execution. Most DAOs use a pipeline that moves from "Soft" to "Hard" governance.
Off-Chain (Soft)
Discussions happen on forums (Discourse) or chat groups. Voting happens on signaling platforms (Snapshot).
- + Check: Efficient, Free (Gasless signatures)
- - Check: Non-binding (Admins must manually enact results)
On-Chain (Hard)
The proposal is executable code. If the vote passes, the smart contract automatically executes the transaction.
- + Check: Trustless, Censorship Resistant
- - Check: Expensive (Gas), Rigid, High Risk
Voting Mechanisms
Token Weighted
The standard model. Simple and Sybil-resistant, but leads to plutocracy (rule by the rich).
Delegation
Token holders assign their voting power to "Delegates" (experts). Solves voter apathy while keeping ultimate control with holders.
Quadratic
Cost of voting is exponential (1 vote = 1 cost, 10 votes = 100 cost). Prevents whales from dominating every issue.
Capture & Attacks
The Flash Loan Attack
An attacker borrows millions in governance tokens for a single block, passes a proposal to drain the treasury, and repays the loan.
The Automation Trap
If code is law, bugs are law. If a governance contract has a vulnerability, it can be exploited "legally" according to the protocol rules.
The Governance Trade-off
Designing a DAO is balancing three competing forces. You cannot maximize all of them simultaneously.
Decentralization vs Efficiency
Security vs Agility
Frequently Asked Questions
"Code is Law" sounds scary. What if there's a typo?▼
That is the big risk. If the code says "allow withdrawing all funds," then that is the law of the protocol, even if it was a mistake. This is why Timelocks and Security Councils (emergency multisigs) are often used as safety brakes.
Do I need to be a lawyer to start a DAO?▼
No, but DAOs often interface with the physical world. "Legal Wrappers" (like LLCs) are becoming common to protect members from individual liability. Ideally, the code handles the treasury, and the legal entity handles taxes and contracts.
Why don't more people vote? (Voter Apathy)▼
Voting costs gas and takes time. Most token holders are passive investors. This is why Delegation is critical—it allows passive holders to empower active experts without giving up ownership of their tokens.