This article was originally posted as Orca Protocol on orca.mirror.xyz.
Written by Dan Wu (@itsdanwu), Julia Rosenberg (@JulzRoze) and zkchun
Metagovernance has become an increasingly popular topic within the DAO ecosystem over the last several months. It is commonly defined as holding one DAO’s token in order to influence decisions in another DAO(s). The benefits of metagovernance are clear - DAO2DAO relationships are positive-sum incentive-alignment mechanisms that amplify the voices of individuals.
Some recent proof points of the swift maturation of metagovernance knowledge and practices include:
But why now?
Over the past year or two, the evolution of governance participation within DAOs has looked something like:
Looking back, it’s easy to see why individual delegate participation has not yielded the results token holders have been looking for; individual delegates have misaligned incentives, unclear delineation of responsibilities, and an inherent inability to scale their impact. However, not all hope is lost. Metagovernance committee delegate models can improve governance effectiveness and participation that result from individual delegate models.
The remainder of this article will cover:
Token holders lack context and have issues accessing relevant information required to vote on most governance decisions within DAOs. The result? Low voter turnout and little forward progress in DAO growth and maturity.
Governance architects and token holders historically believed that the solution to this apathy was delegation of voting power to individuals with competence, discipline and bandwidth to effectively participate in DAOs. However, we have seen ineffective and poor delegate participation run rampant in some of the largest protocols. For example, nearly three quarters of all $COMP delegates have never voted on-chain (Governance Participation: Perils and Promise).
Some of the shortcomings of most individual delegate models include:
MakerDAO outlines clear requirements and expectations for Recognized Delegates. There are strict application requirements and code of conduct, performance-based compensation plans tied to governance participation, and explicit expectations on the role played in balancing the power that other governance actors within MakerDAO hold. Most DAOs have not been as diligent.
With a number of delegation problems surfacing recently, it’s evident that governance frameworks must more clearly outline who the governance participants are and the areas of governance they must participate in.
Misaligned incentives between token holders and delegates are another reason why expectations are not met, leading to ineffective governance participation. The two primary reasons for this misalignment are:
Individual delegate reputation is often built on a different set of capabilities: As of today, the reputational capital of delegates today is rarely built through actual governance participation. Instead, they rely on their reputation as builders, investors or thought leaders. The delegate’s credibility with their primary base will continue to depend on their success in these channels. The result of this is that delegates have even fewer reasons to decline requests to speak on podcasts or chat with builders.
This may change as the space matures, but given the nascency of the ecosystem, reputational misalignment threatens to continue.
Lack of meaningful financial incentives: Whether we like to admit it or not, financial incentives help motivate humans to work on complex tasks and projects.
If individual delegates 1) hold a small portion of their net worth in the protocol that they have been granted governance power in or 2) the protocol is not their primary employer, they simply will not be financially incentivized to meaningfully participate.
In addition, there has been little to no experimentation with introducing formal compensation models to incentivize governance participation of individual delegates. For example, in ENS’ call for delegates in the fall of 2021 there was an explicit call out that there will be no additional tokens awarded to delegates, nor any mention that there will be room for experimentation in the future with the compensation model of delegates.
MakerDAO, which is one of the oldest (formed in April of 2020) and most mature DAOs from a governance perspective, only introduced their Recognized Delegate compensation framework in October of 2021. In the future, DAOs cannot wait two years after inception to introduce financial incentive mechanisms for delegate roles.
Ultimately, individual delegates have little to lose, because their incentives aren’t aligned with the actions DAOs require of them.
There are a few reasons why individual delegate models can lead to insufficient governance impact for DAOs:
Single point of failure: Potential single points of failure are created when you rely on individual delegates to participate in governance. For example, if a specific individual delegate is best equipped to weigh in on topics related to core working group performance assessment, they potentially become the bottleneck that the DAO may depend on for this activity, which leads to inefficiency in the governance process.
Linda Xie describes the pressure that comes with being an individual delegate best in a recent tweet:
Unfortunately, it is not possible for delegates to temporarily assign their voting power to another delegate. This means that if a delegate becomes inactive–either temporarily or permanently–it is the delegator’s responsibility to redelegate their voting power. Most token holders, however, come into delegation with a set-and-forget approach. The forgetting part is made especially easy by the lack of visibility around voting behavior. The combination of delegation limitations and poor visibility around voting behavior creates inflexible and fragile structures and processes and degrade governance system impact and efficiency over time.
Less effective at analyzing complex decisions: Much academic research has been published related to the advantages that diverse groups provide over individuals when participating in complex decision-making. Even with the potential downside of groupthink and conflict surfacing throughout group decision-making, in general, the knowledge, perspectives and options that groups provide lead to better solutions.
DAOs are constantly faced with complex governance decisions, which an individual is not always equipped to handle. One example where we can see some of the difficulty associated with an individual coming up with a perspective on a complex decision is when MonetSupply, a highly competent Recognized Delegate for MakerDAO, changed his vote from ‘Abstain’ to ‘No’ for the recent offboarding of the Content Production Core Unit of MakerDAO. The decision-making associated with offboarding individuals/core working groups based on performance is complex, likely driven by objective and subjective factors.
Given the general lack of legal clarity in this space, required resources it takes to determine appropriate legal structures, and billions of dollars on DAO balance sheets today waiting to be effectively allocated, governance participation introduces a level of risk that deters individual delegates from proactively and confidently participating in DAO governance.
We’ve seen examples of this governance participation aversion due to legal risk–the MakerDAO Governance Core Unit provided anecdotes of delegate candidates objecting to take delegate positions because their proposed ‘Recognized Delegate’ compensation wasn’t enough to overcome potential legal and regulatory uncertainty.
Given the shortcomings with individual delegate models, we are starting to see an evolution from individual “protocol politicians” to dedicated voting coalitions that represent a set of values and principles. One example of this is she256–an organization that aims to increase diversity & break down barriers to entry in the blockchain space. In November of 2021, they announced their governance initiative, which was bootstrapped by being delegated voting power to Compound, Uniswap and ENS:
There are many reasons why dedicated and structured metagovernance committees are better suited to participate as delegates within DAOs:
In contrast to individual delegates (whose reputational capital can be built and maintained in many ways outside of their governance participation within DAOs), metagovernance committees serving as delegates have the sole purpose of effectively stewarding governance towards achieving the mission of the DAO, while representing the needs and values of their constituency. The brands, identities and value creation and capture models of these metagovernance committees are intimately tied with their ability to effectively participate in governance. Because of this, metagovernance committees have more skin in the game and much greater downside risk when ineffectively participating in governance, especially relative to individual delegates.
Combining extrinsic reputational incentives with extrinsic financial or social incentives unlocks powerful self-fulfilling flywheels that drive greater levels of accountability and performance.
As mentioned earlier, there are several traits of individual delegate models that lead to an inability to scale effective governance participation within DAOs. Individual delegates tend to be over-committed to various projects, introduce single points of failure, and are less effective at complex decision-making relative to groups.
With structured metagovernance pods, a flexible container is created that supports the cycles of onboarding and offboarding individuals dedicated to metagovernance participation. These governance participant entities are highly aligned and responsible stewards of delegated governance rights - which should address the low on-chain delegate governance participation that we have historically seen.
In addition, dedicated metagovernance committees are better equipped to support the complex and nuanced decision-making that DAOs require of delegates. Delegators and stakeholders should have confidence that the decisions being made by this delegate group are informed–the multiple values, perspectives, and knowledge bases of committee participants ensures there is a level of depth and breadth in the decision-making process.
Even with its advantages, several operational and experiential pain points stand in the way of metagovernance committee delegate models providing an outstanding stakeholder experience.
Improving this stakeholder experience is the primary way in which metagovernance committees will build positive brand reputations, instill confidence from the broader market, and position themselves as long-term leaders in the space.
Metropolis is positioned to help metagovernance committees support their stakeholder’s experience in a few ways:
Today, there are several areas in the web3 ecosystem where metagovernance committee identities present themselves (e.g., governance forums, governance platforms, etc), but no easy-to-use methods for creating and maintaining a web3 ecosystem compatible visual representation of said identity.
Metropolis pod membership is represented as an NFT with a custom image (of your choice). As metagovernance committees continue to perform the hard work of governance participation with DAOs, this visual brand identity is essential to building constituent loyalty, credibility, and trust. Metropolis is working closely with the web3 ecosystem to ensure this NFT image metadata is presented accordingly within various applications and UIs.
Providing transparency into the members of a specific metagovernance committee is one way of providing confidence to vested stakeholders. Today, when a delegated wallet address votes on a proposal within a governance platform (e.g., Boardroom, Tally) it is unclear who the individual decision-makers were that were responsible for the vote. The lack of transparency leads to an inability to drive accountability and ultimately opens up room for misaligned incentives.
Metropolis pods address this issue in lack of transparency. We are working with each of the governance platforms to build a standard for what these composable governance units and members look like–from both a data structure and UI presentation perspective.
Pod membership management provides scalable and modular ways to manage memberships of metagovernance committees. The durability of pods combined with accessibility of pod membership management functionality ensures the most qualified and motivated individuals always have their stakeholders’ best interests in mind. When the right pod members are making decisions the stakeholder experience (and ultimately the metagovernance committee brand) improves.
Pods enable metagovernance committees to click together and recompose into completely new networks, forming an evolving connective web of multi-DAO governance activity. This type of modularity, nesting and network formation is not currently possible with existing standards today.
For example, a metagovernance committee pod could sit on a larger “metagovernance council” – amplifying the voices of their collective stakeholder bases even more in the process.
These metagovernance networks may begin to look like the “multi-hub” network described by David Ehrlichman in his book Impact Networks. In his book, David describes the importance of networks that have distributed hubs in which information flows through and decisions are made, “Reaching the multi-hub stage is a necessary step toward unlocking the special qualities that make networks a powerful force for change.”
Metropolis’ pods support the evolution of these metagovernance networks. And as these metagovernance networks evolve, their stakeholders will become less reliant on central figureheads and groups–ensuring that their voices, wants and needs are represented broadly in governance activity.
While the trend of governance delegation to individuals had all the best of intentions, it is clear that it has fallen short of expectations. The combination of the time-commitment and depth required for participation, misaligned incentives and accountability mechanisms, and legal complexity has made it impossible for governance delegation to fulfill its promise.
Because of this underperformance, it is clear that the rising prevalence of metagovernance committees is the next logical experiment to drive meaningful progress within DAOs. Metagovernance committees are better positioned to create aligned incentives with stakeholders and have structures suited to provide scaled governance impact.
With that said, Metropolis is proud to partner with some of the leading organizations driving the future of metagovernance, including Wildfire DAO.
Wildfire DAO is a governance focused community pushing forward partner DAO objectives through deep engagement with proposals, community calls and project updates. Metropolis will support Wildfire DAO by promoting transparency to their committees, proliferating their brand and identity throughout the web3 ecosystem, and driving decentralization goals with flexible and fluid membership management.
Metropolis builds tools that enable DAOs to reach their full potential by uncomplicating collaboration. The pod primitive is a critical piece of DAO infrastructure that is designed to put people first. This flexibility allows for dynamic and composable structures to be created around any party of actors, while introducing mechanisms for accountability, incentive alignment, and checks and balances.