What's a Good DAO Governance Model to Choose?

In the corporate world, governance is crucial because it creates a framework for how a company operates and makes decisions.

It consists of all the policies, practices, and processes that a business currently implements. For decentralised autonomous organisations (DAOs), governance largely means the same thing—even if we're dealing with AI governance.

As a DAO grows, good governance helps the DAO run smoothly and makes sure every member is aligned with the organisation’s goals. This is why it’s vital for participants to vote on a governance model which fits the DAO’s specific needs.

So, how do you choose the right governance model when you’re creating your DAO? Read on to learn about the various governance models, along with the considerations you need to make before finally deciding on one.

What Is DAO Governance?

As mentioned above, governance largely means the same thing for DAOs and ‘traditional’ organisations. However, one key difference between them is that the former doesn’t have centralised leadership. This makes it even more important for DAOs to have sound governance as every member has a vested interest in the organisation’s success.

To ensure a DAO has proper governance, every decision it carries out is subject to a fair vote from participants. Because all votes are recorded on the blockchain, transparency is guaranteed. Furthermore, smart contracts automatically execute decisions once a consensus is reached, preventing any form of tampering from participants.

Now, let’s take a look at which governance models DAOs commonly use.

5 Common DAO Governance Models

1. Token-Weighted Voting

Pros

Each governance token carries one vote, making this model easy to understand for participants. Furthermore, it encourages members to invest more in the DAO, providing the organisation with more development resources.

Cons

Power has the potential to be concentrated in a few large token holders. Remember, one governance token has one vote. This might discourage smaller token holders from participating or even holding onto their coins.

Which DAO uses this governance model? ENS DAO.

2. Quadratic Voting

Pros

Voting is fairer as smaller token holders can have a larger say. This prevents whales from dominating every proposal that’s brought forward. Also, token holders will need to be more mindful in considering which proposals to allocate their assets to.

Cons

This governance model isn’t the easiest to understand as it requires a certain level of mathematical knowledge. Therefore, more work is required from participants to make sure each proposal undergoes a fair voting process.

Which DAO uses this governance model? CityDAO.

3. Reputation-Based Governance

Pros

This model encourages members to participate and contribute to the DAO, as opposed to simply hoarding tokens. Participants who are active contributors will have greater say as opposed to more passive members.

Cons

As is the case in reality, one’s reputation can be hard to measure. Although DAOs mark every member with a reputation score, it’s hard to pin down exactly how trustworthy and credible a member is.

Which DAO uses this governance model? MakerDAO.

4. Multi-Signature Governance

Pros

Decisions can be made efficiently when a group of representatives are chosen to act on behalf of the DAO. The majority of this group still needs to agree before any proposal or decision can be carried out, ensuring both fairness and efficiency.

Cons

As the DAO grows larger, there’s the risk of power being concentrated in the few representatives chosen. The organisation may make decisions just as efficiently, but it can’t eliminate the potential of the representatives abusing their power.

Which DAO uses this governance model? Safe DAO.

5. Hybrid

Pros

These DAOs get the best of many worlds, blending elements of different governance models to suit their organisation’s needs. They can even adopt elements of traditional governance structures to counter the weaknesses of what DAOs typically utilise.

Cons

Opting for the perfect hybrid model requires careful consideration. DAO governance models by themselves are fairly complex, and if done poorly, the organisation can be left with both models’ inefficiencies without any of the benefits.

Which DAO uses this governance model? Decentraland DAO.

DAO Governance Models, Summarised

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6 Factors to Consider When Choosing a Governance Model

1. Purpose

Is your DAO simply looking to invest in a particular asset? Or is it looking to accomplish a larger goal over time? This impacts whether you should pick a simpler governance model which boosts the speed of decision-making, or a more complex one which requires participants to put much greater thought into their votes.

2. Community Size

If your community is small, a simple governance model like the multi-signature or token-weighted voting one will do. However, as your DAO grows, you need to consider models which are able to ensure proposals and decisions are made as fair as possible.

3. Incentives

This is related to your DAO’s purpose. Identify what will encourage participants to actively contribute to the DAO’s success, aside from the capital gains of the governance token. This is especially important if you’re considering a reputation-based governance model.

4. Scalability

Will the governance model you’re considering still be feasible as the DAO grows? Remember, each model has its pros and cons, so if your DAO needs to be extremely large while still retaining efficiency, perhaps a more complex one wouldn’t be appropriate.

5. Decentralisation

Remember, there are DAO governance models that have the potential to result in power being concentrated by a small group of individuals. You need to consider guardrails to prevent this from happening.

6. Flexibility

Despite the DAO governance models being distinct, you can still tweak them to adapt as your organisation's changes over time. However, if you believe your DAO’s goals are malleable, select a model that can be modified easily.

Build the DAO You Deserve With TMRWDAO’s Tools

With TMRWDAO, setting up a DAO for any purpose is a cinch. Nine quick steps are all it takes, and you’re ready to recruit like-minded members to join your cause. How do you decide on your governance model? Simply pick one and adjust the parameters according to your needs.

Furthermore, TMRWDAO’s comprehensive AI tool suite boosts your DAO’s operating efficiency. From AI-assisted data analysis to the potential for AI agents to be incorporated into your organisation, this DAO creation is built for the future of AI governance.

Set up your organisation on TMRWDAO today!

In Closing

There are various DAO governance models to choose from when you’re setting up your organisation. Each model has its strengths and flaws, even the hybrid one which appears to combine the best of multiple governance structures.

It’s up to you to decide which one is appropriate for your DAO, with factors such as scalability and flexibility playing extremely important roles in your decision.

Take the time to research each governance model carefully, and you’ll reap the rewards when your DAO gets off to a running start and succeeds in achieving its purpose!

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*Disclaimer: The information provided on this blog does not constitute investment advice, financial advice, trading advice, or any other form of professional advice. TMRWDAO makes no guarantees or warranties about the accuracy, completeness, or timeliness of the information on this blog. You should not make any investment decisions based solely on the information provided on this blog. You should always consult a qualified financial or legal advisor before making investment decisions.

About Tomorrow DAO

Tomorrow DAO (TMRWDAO) is an advanced decentralised governance platform built on the aelf blockchain, a high-performance Layer 1 network. Launched in 2024, TMRWDAO leverages cutting-edge AI technologies and intuitive no-code interfaces to empower communities in establishing and managing decentralised autonomous organisations (DAOs) with unparalleled efficiency. Committed to revolutionising governance, TMRWDAO stands at the forefront of the movement towards a more transparent, inclusive, and democratically governed digital future.

For more information about Tomorrow DAO, please visit: https://tmrwdao.com

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