HOPR DAO v0.2 Analysis
The second governance experiment for the HOPR DAO ended on October 21st with two votes on how to allocate around $300k in HOPR tokens and DAI earned by the DAO for providing liquidity.
You can see an overview of the results and participation levels here. But now we want to embark on a deeper analysis of what happened: was the process fair, accurate, and a good reflection of the will of the community? Do the incentives properly reward constructive input, or do they skew participation towards self-interest? What improvements can we make for next time?
Backstory
HOPR DAO v0.2 was actually our third DAO vote. The first was organized in 2021 so the Genesis DAO could determine the details of the HOPR token launch. Next, HOPR DAO v0.1 decided how the funds in the Uniswap DAI-HOPR pool should be distributed among decentralized exchanges. Both votes had high participation levels, which was extremely gratifying to see — governance is a hot topic in crypto in theory, but in reality, participation is often minimal, sometimes with disastrous results.
But despite overcoming this major hurdle, there were still issues. In the Genesis DAO vote, our concerns about low participation led us to overcompensate and set the thresholds too low. As a result, the discussion and proposal making stage lasted barely an hour, and many proposals were not well-formed. We corrected this by implementing formal discussion and referendum phases for our v0.1 governance experiment, based on Swiss semi-direct democracy.
This worked very well to give a voice to the community, producing a great discussion and high-quality proposals, but ultimately the vote was swayed by a single large account holder.
Our system is strongly designed to mitigate this, by giving all token holders the same power in the discussion and referendum phases. This means that only proposals which are generally supported by the community at large can make it to a vote. Still, it’s not ideal that a single whale can swoop in and ensure their chosen option wins, even if those options are all pre-vetted and approved by the rest of the community.
HOPR DAO v0.2: New Voting Models
To address this, for our second experiment we turned to weighted preference and quadratic voting. Whereas in all previous votes you had no choice but to throw all of your tokens behind a single proposal, weighted voting lets you split your vote power among several options.
This is obviously a huge improvement, particularly for larger holders. Maybe the whale who swung the vote in the first governance experiment didn’t even want to wield that much power?
A more controversial choice was to start dabbling in quadratic voting, where each token you allocate to a proposal is worth less than the previous one. This massively dilutes the power of larger token holdings, strongly dampening the whale effect. Quadratic voting — and its cousin, quadratic funding — have received a lot of attention in crypto, but there’s currently very little hard data available.
We took the opportunity to run a comparison by using a different method for each vote: the vote for how to allocate HOPR tokens was run using just weighted preference voting, while the vote for how to spend DAI was run using weighted preference AND quadratic voting. We then reran the votes as a simulation to see what would have happened if we’d applied the other methodology to each.
The results here were striking, particularly for the DAI vote. Under quadratic voting (the yellow bars), the winning proposal was a runaway success, scoring almost as much as the other proposals combined. Under one token, one vote (the dark blue bars), the results would have been extremely close, although the winner would have been the same. The light blue bars show what would have happened in the extreme situation where each voting account is only given one vote.
The full results here were so interesting that we’re going to have an entire blog dedicated to quadratic voting next week.
Streamlining Discussion
We also used this experiment as an opportunity to see what would happen if we streamlined the discussion phase. In one half of the vote, we provided ready-made proposals for how to allocate HOPR tokens and asked the community to just decide between them. For the DAI part of the vote, we ran the full HOPR governance system with proposals, validity checking, and signature gathering.
The results here were interesting. The streamlined HOPR discussion was interesting, but it didn’t really achieve much that couldn’t have been achieved by putting it straight to a vote.
Discussion in the DAI part of the vote was lively and generally on topic, but there was some frustration with the procedural aspects of creating valid proposals and then gathering support for them. Partly this was the fault of our forum setup, which is confusing and chaotic when the number of topics gets large. We’ll be looking hard at moving to a different platform for future votes, or at least building a dedicated signature function so the referendum phase is clearer.
But a more worrying issue was the rush to get proposals “locked-in” as soon as possible, rather than holding back and optimizing them. The intended process was that people would make a general proposal, discuss and revise for a few days, and then request to have the proposal made official once it was optimized. This involved tagging the proposal for checking by a moderator, who would apply a predefined list of criteria and mark the proposal as valid, invalid or incomplete.
What actually happened was that people almost universally tried to tag their proposals for checking as soon as they wrote them, which meant most proposals were rejected and, even worse, became locked in as official as soon as they met the minimum validity threshold.
It’s unclear whether this happened due to the incentive scheme, which rewards proposal making, or just a general lack of clarity over the expected procedure. We’re working hard on improving this for next time.
Participation
Participation remained good, although it dropped a little from the previous experiment. It’s not clear whether the complexity of the system played a large role here: some people expressed confusion about the multiple votes and the way the discussion and referendum phases worked in the forum. Hopefully finding a more streamlined platform will boost participation next time.
Incentivization
There were two levels of incentivization for the DAO v0.2 experiment: HOPR Boost NFTs and 50,000 HOPR tokens. Everyone who voted received at least a bronze NFT, but like last time, the token incentives (and higher ranked NFTs) were limited to the discussion and referendum phases, not the vote.
We wanted to ensure that people were rewarded regardless of their token holdings and were encouraged to participate in the crucial first phases of the HOPR DAO.
We used the same incentive structure as last time, with dozens of data plugins running in the background of the forum to score people’s contributions. The system is designed to reward actions that enrich the discussion without a huge overhead in terms of system design or manual moderation. Creating a valid proposal is the most rewarded action, but everything from signing proposals to making and liking posts is rewarded.
In detail: The payout was split between three categories, each with three subcategories, trying to reward a balance of behaviours:
- Proposals: 35% across three subcategories to reward people for creating and signing proposals.
- Discussion: 30% across three subcategories, to reward people for creating high-quality posts.
- Miscellaneous: 30% across three subcategories, to reward people for consistent participation throughout the entire process.
To balance out the inherent issues with trying to automate such a messy process, there are several balancing features where scores in particular categories are reweighted if they fall too far out of step from the rest of the scoring system.
The incentive pool grew based on the number of users who participated. In the end, we had 189 participants — this meant the reward pool was 50,000 HOPR tokens.
The average payout was just over 120 HOPR tokens, with the median payout at 90 tokens. The highest payout was 4703 HOPR tokens, to the user who created the winning proposal. Twelve out of the top 15 recipients created proposals.
Reward distribution, with users anonymized by numbers.
These results suggest that the incentive system works as expected. We were particularly gratified to see that last time wasn’t a one-off: no one tried to game the system, and the rewards seem to end up allocated to the right places even though the rules were known in advance.
Full analysis of the HOPR DAO v0.2 payout results.
This iteration of the DAO solidified our beliefs that for now, the incentives play a crucial role in maintaining active participation. We also received positive feedback from the community on the development.
Next Steps
Our next step will be to consult a legal advisory on the proposals put forward on the DAI vote. After this has been cleared, we can proceed to start a new vote on refined proposals regarding the DAI funds of our Uniswap liquidity pool.
We’re also going to execute the proposals that won the HOPR vote over the coming months.
Thanks to everyone who participated!
Rik Krieger,
HOPR Co-Founder
Website: https://www.hoprnet.org
Twitter: https://twitter.com/hoprnet
Telegram: https://t.me/hoprnet
Discord: https://discord.gg/dEAWC4G
LinkedIn: https://www.linkedin.com/company/hoprnet
Forum: https://forum.hoprnet.org
