In the world of cryptocurrencies and governance tokens, "whales" are those individuals or entities that own a large number of tokens, which gives them considerable influence over the decisions and direction of a project. We already know that.
In DAOs, voting power is based on the number of governance tokens one owns. But how does this affect decision-making, and what role do whales play in DAOs? What happens when whales have too much voting power?
Consequences of whale domination
The concentration of tokens in the hands of whales can raise serious concerns about fairness and representation in decision-making. A concrete example was The DAO.
"Black Thursday" led to the liquidation of many loans on the platform. Following this event, compensation was proposed for the affected users. However, the proposal was rejected in the vote, mainly due to the intervention of a whale holding 27% of the MKR tokens in circulation.
When whales dominate voting in DAOs, several concerns can arise:
- Biased decisions: interests that do not always coincide with those of the rest of the DAO members. Clearly, this can lead to decisions that favor their own interests rather than the overall interests of the project.
- Disincentivization of participation: disproportionate influence may discourage members with fewer tokens from participating in decision-making, reducing the project's diversity of opinion and innovation.
- Market manipulation: Whales can influence the price of governance tokens and manipulate the market in their favor. This can hurt other members and decrease confidence in the project.
How to balance the power of whales in DAOs?
We have a strong example (Hive) that all of this can be avoided. In addition, we can look at several possible solutions to mitigate the impact of whales on DAOs ecosystems. I have taken as an example some of the decisions made by this great community since its creation:
- Voting limits: Set limits on the number of votes a member can cast, regardless of the number of tokens held. This helps to balance the game and promote a more equitable representation.
- Delegation of votes: Allowing members to delegate their votes to other members increases participation in decision-making and reduces the concentration of power in the hands of the whales.
- Quadratic voting: Implement quadratic voting systems, where voting costs increase exponentially with the number of votes cast. In this way, it is possible to deter whales from exerting inordinate influence on decisions.
- Rewards for participation: Incentivize participation in decision-making through rewards, such as additional tokens or benefits on the platform. Encouraging members to get involved counteracts the power of whales.
- Transparency and communication: Encouraging transparency in decision-making and maintaining open channels of communication among members goes some way to ensuring that concerns are adequately addressed.
While it is true that whales can bring stability and expertise to projects, it is crucial to find a balance that ensures that power is not concentrated in the hands of a few. Because, in the end, the goal of DAOs is to bring balance and democracy
