Realigning Incentives: How to Distribute Governance Tokens Effec…

Incentive DesignTokenomics are a tool for aligning the incentives of participants in a network. It is extremely important to identify what behavior is required from each participant in an ecosystem in order for the network to achieve a virtuous cycle. Equally important is designing suitable token incentives that encourage the desired market behavio... See more

Governance rights face similar challenges with both fungible and non-fungible tokens: ownership naturally tends to have a power-law distribution so the question becomes: what do you do about whales? This recent essay by Vitalik paints a clear picture for why this will become an increasingly problematic issue for DAOs, both in terms of incentive mis... See more

Theoretically, governance should be structured in a way that both focuses on the primary users who are the most engaged in the community as well as the largest token holders. A simple mechanism for this may be that governance can be split past just token allocations and instead issued like multi-class stocks, whereby ownership and voting rights are... See more

-Governerable by communities, creating more aligned incentives.

Without a specific idea of the good to build towards, the financial interests of large tokenholders have become over-represented in protocol governance. In our view, this constitutes a centralization risk.

The rise of financial incentives In order to encourage participation in DeFi (decentralized finance), new DAOs offered financial incentives. Those who do not have financial incentives would not invest time, money, and energy in networks, vote on proposals to improve them, or care about their futures. Here are some examples that can help builders un... See more

Using the proposed approach, nine different-by-design value capturing mechanisms were identified: value transfer*(1), work “staking” token(2), protocol consensus token(3), dividend(4), backing by another asset(s)(5), discount token(6), internal product governance(7), meta-governance(8)**, and hedonic value(9)

The limited representation of DAO membership is problematic because important decisions about DAO governance, equity and operations can only take single-dimension token ownership as input, or else rely on manual human assessment.