DAOs and Don’ts – The Underlying DAO Problem and a Solution

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DAOs (decentralized autonomous organizations) are fantastic for driving products forward with unique community involvement.

They provide a governance model that enables DeFi projects to fully involve their ecosystems in decision-making and help direct their future. They facilitate easy on-chain governance, neatly delivered by blockchain and smart contract technology.

With more than 10,000 DAOs estimated to be in operation, the model is now well-adopted by the industry. There is presently $12 billion locked up in treasuries, and more than six million governance token holders have been issued. Promising numbers.

All of this gives testament to the industry’s adherence to its founding ethos of decentralization.

The problem

And yet, success remains limited for this governance model. There is a clear engagement and retention issue.

Of the approximately six million governance token holders, only 1.8 million can be defined as active voters. That’s a 28% voter turnout. Putting that into some democratic perspective in regard to national elections, just three countries in the world have electoral turnouts lower than that amount.

Participation is key for a DAO to properly function as a healthy governance structure – just as for any democratized system.

Seemingly, for most DAOs, value propositions and product market fit have not been properly defined. Community governance alone just isn’t enough of a product offering for most.

DAOs need to be more

There are three main ways to address these issues and bolster engagement and retention.

DAOs need to be fun

Being active in a DAO should be an engaging and interactive experience. Sheer governance alone is clearly not enough of a value proposition for token holders to participate at scale. There need to be added elements that make the user experience enjoyable. Simply put, a DAO needs to be fun.

DAOs need to be easily accessible

There exists a high technical barrier to entry right across the DeFi industry, and DAOs are not immune. Being part of a DAO shouldn’t require much technical knowledge. Terms should be digestible with onboarding simplified.

This is the only path to wider adoption and scale as an industry. Ideally, DAOs should even be leveraged as primary onboarding tools to expand project ecosystems. Done correctly, they have the potential to attract new users and introduce them to products/protocols.

DAOs need to offer more

For a DAO to be sustainable and maintain engagement and retention, it needs to offer more than just voting and proposals. A DAO should have a whole ecosystem under its umbrella, with many different community objectives.

It should offer systems to token holders that are specifically aimed at marketing, product growth, onboarding and discussion – all with clearly defined growth objectives.

Thibault Binier is the strategy and growth lead at Hashflow, a decentralized exchange that allows users to trade any asset on any chain in seconds simply by connecting their wallet.

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