30s Summary

The governance structures of decentralized autonomous organizations (DAOs) require reevaluation to prevent manipulative control attacks, following a recent incident on the Compound platform. The current one-token-one-vote system allows large token holders to possibly misuse voting power. Suggested solutions range from improving governance models using a multi-tier share structure as seen in Meta to introducing a form of KYC that preserves user anonymity. DAOs need to prepare for worst-case scenarios and incentivize token holders for responsible protocol stewardship.

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DAO governance needs a fresh look. Like Meta and Silicon Valley giants, the shares should be structured to have multiple classes. This can help prevent governance attacks, like the recent one on the Compound platform.

Even Meta, as powerful as it is, is pretty much safe from a governance attack. That’s because Mark Zuckerberg’s company has a dual-class share structure: Class-B shares held by insiders have more voting weight than Class-A shares that the public can buy. This gives Zuckerberg about a 58% voting power over his company.

In the crypto world, decentralized autonomous organizations (DAOs) operate a bit differently, and most of them work on a one token equals one vote basis. This has recently led to issues – like a large token holder, known as Humpy, and his group, GoldenBoys, manipulating the lending protocol Compound.

They took control of the voting and redirected $24 million worth of COMP tokens into a yield-bearing protocol named goldCOMP, controlled by them to generate passive income.

There are talks about introducing an initiative to better govern DAOs. Michael Lewellen from OpenZeppelin, a security audit firm that Compound’s DAO works with, said that while blockchain’s decentralization principle ensures trust and security, implementing it for governance might be a challenge.

He believes that some form of Know-your-customer (KYC) is needed. It should be done in a way that doesn’t compromise anonymity and prevents individuals from creating multiple delegate profiles to manipulate governance.

Lewellen said: “If someone has significant governing power, they should be upfront about it. People should have the chance to recognize exactly what sort of influence they have and have the ability to counter it if necessary.”

He further suggests that DAOs should always prepare for worst-case scenarios. This involves having the right answers to questions like – What if a malicious actor acquires significant voting power? How do we respond on-chain?”

Lastly, he said that DAOs need to give token holders a reason to be responsible stewards of the protocol. “By rewarding participation, we can ensure that governance decisions are made by informed and engaged stakeholders,” he remarked.