Every token matters? Dead treasury tokens waste governance potential.

Uniswap flipping Coinbase in quarterly swap volume is the latest of many signs that DeFi is here to stay. According to Statista, DeFi revenue’s CAGR through 2027 is expected to be at 19.6%, reaching $34.7B.

DeFi TVL follows the bull/bear cycle but the overall trend is still upwards. A large portion of DeFi’s TVL is in DAO treasuries, hovering around $20B according to DeepDAO. And here is where it gets interesting. We earlier wrote about the many ways DAOs use their treasuries. But has anyone thought about how every token is a governance vote? And this vote just sits there wasted.

Currently, there are no ways to delegate out treasury tokens so they could participate in governance. But what if there were? How could those votes be used? By whom? To what end?

Every community has members who contributed something tangible and meaningful, people who have earned the trust, respect, and thanks of the community (and DAOs are certainly not exceptions). But those members don’t necessarily have a lot of voting power, unlike — for example — whales who accumulated a lot of governance tokens without actively contributing to the DAO. In a “one token = one vote” system, a single inactive whale can far overshadow in voting power a thousand of the most dedicated contributors. Maybe giving the most dedicated contributors some voting power from treasury tokens could amplify their voices and balance out overall voting power? After all, these are the people who have demonstrated how much they care about the community. Maybe giving them a stronger voting voice would strengthen the community?

Besides, the DeFi world is moving at lightning speed. Changes in technical, legal, and social trends often happen too fast for DAO communities to react to in time. Yet there are so few proposals (among more than 25.6k voting spaces, there were only 28 active proposals in the past week — none of which were of the high-priority kind; only 1 was focused directly on governance!).

Wouldn’t it be beneficial to have people or organizations involved in DAO governance whose professional skills, job, and interests are to look out for such happenings? Those experts may not necessarily be governance token holders of that DAO already. And forcing them to purchase governance tokens in addition to volunteering their professional expertise may be a bit too much to ask.

Yet, if they get votes from the treasury, the DAO could gain new stakeholders with valuable professional abilities — and interest — to keep an eye and help prevent issues. Wouldn’t that be a way to add value for all of the DAO’s stakeholders? Could that increase the number and quality of proposals (not to mention the timeliness)? For example, when Arbitrum’s first proposal was to retroactively approve giving $700M to the Foundation, someone discovering the problem was almost an accident.

But if Arbitrum had voting power delegated to a legal team or expert, it would probably get caught earlier and with more likelihood, right? Not to mention how it would help even out the governance away from the team, early investors, and the treasury (87.2% combined):

If the team and investors wanted to pass a proposal together, what recourse would that leave to the individual wallets? With 1 token = 1 vote and so many tokens sitting dead in the treasury, do individual holders have any real governance power against Arbitrum’s team and investors?

Beyond Arbitrum, who knows how many other such questionable governance decisions passed without being challenged because a skilled set of eyes never got a look at them.

Remember when Tornado Cash had its treasury drained by a hacker who just minted for himself enough governance tokens to execute a 51% attack? Imagine if Tornado Cash had delegated treasury token votes to a couple of security firms that would catch the exploit backdoor before it was exploited. This is a make-or-break type of event for DAO.

It’s interesting to imagine what preventive proposals could be introduced before possible problems become definite disasters. Same with imagining how dead treasury tokens can even out the democracy of governance. Would you use them in your DAO? If yes, to whom would you delegate?

Stay tuned!

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