The Hottest Trend in DAOs Right Now - Quadratic Voting!
We’re sure you have heard this term floating around the DAO space - quadratic voting. But what does it mean? There are many voting mechanisms within decentralized governance that we have explored previously in the DAOs x Governance: Match Made in Heaven articles , such as the one person one vote mechanism , the one dollar one vote, and so on and so forth.
However, quadratic voting is the hottest trend in DAOs right now and definitely requires a deeper dive. 🌊
As can be seen from the image below, there is a stark correlation between quadratic voting and public goods. If you employ the quadratic voting mechanism in decentralized governance, then the value that you give to public goods consistently increases in proportion to the amount of influence that you purchase. However, as can be noted in the diagrams under the “one dollar one vote” voting mechanism, and the “one person one vote” voting mechanism, there is no consistent increase or decrease. Therefore, quadratic voting is the only voting mechanism in decentralized governance that possesses a property wherein the amount of influence you purchase is actually and definitively proportional to how much you care. On the contrary, the other two voting mechanisms displayed below simply display either over-privilege concentrated interests or they display over-privilege diffuse interests. 👇🏼
Source: Vitalik’s Blog
There have been many successful experiments around quadratic voting including the Taiwanese presidential hackathon wherein quadratic voting was used to determine the winning projects. Gitcoin Grants, one of the most famous public good grant platforms, used quadratic funding to fund public goods within the Ethereum ecosystem. Interestingly, the concept of quadratic voting, and consequently, quadratic funding has gone beyond the web3 ecosystem and was also utilized by the Colorado Democratic party in order to determine their party platform. 🔍
The Math though! 🤔
However, there is some basic math that goes into the ‘quadratic’ nature of this voting mechanism. Let’s try to break this down for you via a diagram first 👇🏼
Source: Vitalik’s Blog
What this essentially means is that the total cost of all of the votes is the total area of a triangle and the formula for calculating the area is base * height/2; hence, since in this particular case of quadratic voting, the base and height are proportionate, the total cost is automatically proportional to the number of votes that are squared, i.e., ‘quadratic’. Let’s take an example to make this easier for you. ⬇️
Let’s imagine that a company XYZ is trying to choose between New York and San Francisco as its location for the new office. This decision naturally affects all of the employees in the company as there would be potential relocation to these cities, and every city brings with it, its own costs, pros, and cons. Therefore, the choice that would be made is either a public good or a public bad, depending on the choice that the public, i.e., the employees of the company favor. Regardless of whether the decision is a public good or a public bad though, everyone would have to ‘consume’ the results of this vote and they need to accept the decision even if they don’t like it. ☹️
If we employ the one person one vote voting mechanism, then the distinction between the majority and minority is way too much. Even if 51% prefer San Francisco, while 49% (which is still a veryyy large number) prefer New York, 49% would have to suffer because simple voting mechanisms such as this are simply ineffective now. On the other hand, if we apply the one dollar one vote voting mechanism where people can buy as many votes as they want, the wealthiest voter would naturally have the advantage. Let’s say Alex is the richest in the company, so he buys the majority of the votes and votes for New York which is his preference. However, 99 other employees prefer San Francisco but their wealth does not match Alex’s and therefore, their votes go in vain. Does this seem fair to you? 🙊
No, right? Let’s make this fairer. If you execute quadratic voting instead, wherein you can make n votes in either direction (New York or San Francisco, in this case) at a cost of n^2; this would be right in the middle of the two extremes that we just elaborated on above. Therefore, quadratic voting would create the perfect balance and is less likely to result in a higher number of unhappy votes.
Solving challenges for DAOs everyday 👌🏼
The primary challenge that any DAO faces are of governance and decision-making. This is because of the diverse interests that voters hold, and the differing voting preferences that they hold. While reaching a consensus about the various proposals is the primary goal of every DAO’s decision-making wing, if the consensus is something that a lot of people are still unhappy about - then there is no true consensus being reached. 😓
Quadratic voting solves this problem by assigning voting power to the members of the DAO based on the square root of the number of tokens that they hold. This novel voting mechanism that has claimed to save decentralized governance was first proposed by the well-known economist Glen Weyl and legal scholar Eric Posner in their book “Radical Markets”. This method of voting was proposed even prior to the web3 movement and was primarily ideated in order to improve the efficiency of democratic decision-making in societies and countries. 🚀
The foundational thought process behind quadratic voting being a successful voting mechanism in governance, be it centralized or decentralized, is that by assigning voting power based on the square root of the number of tokens that the voter holds, this model ensures that each additional vote that the voter intends to cast, becomes increasingly expensive. This therefore automatically discourages members from casting multiple votes unless they truly have the wealth as well as the conviction to take the risk! HAS to be the fair-est voting mechanism that you’ve heard of, right? 🙌🏼
How and why do we implement quadratic voting, though? ⚒️
Just like how anything is implemented on-chain nowadays - through smart contracts! Members in a DAO case cast their votes by staking the tokens that they hold. The quadratic voting mechanism implemented on a smart contract will then convert these into votes with each vote costing the square root of the number of tokens that are staked. This smart contract then deploys an algorithm wherein the total number of votes cast and the total number of tokens staked by each member are taken into account, in order to tally the final voting results. 🧮
Zero voter influence and bias! Voters, through the implementation of the quadratic voting mechanism, express their true voting preferences without the fear of their vote being irrelevant simply because they could not afford to buy many tokens! Since the traditional voting stance is such that minority opinions are often either ignored or forgotten, the voting outcome is often suboptimal. On the other hand, regardless of the size or extent of the majority, the quadratic voting mechanism ensures that each member’s vote counts in proportion to their stake! ✔️
Furthermore, quadratic voting also encourages informed voting as it incentivizes members to vote strongly based on the importance that they individually attach to the subject matter of the proposal. Since every additional vote becomes increasingly expensive as it costs the square root value, members would only cast their vote if they actually care about the issue at hand. Caring about the issue at hand, and consequently casting a vote, would then result in active research about the subject matter, therefore, resulting in informed voting! 🚀
Lastly, it is pertinent to note that the intent of a DAO in replacing a traditional company is the prevention of the concentration of powers. Unfortunately, however, as decentralized and autonomous as we make our DAOs, they have continued to be plagued with issues of concentrated power. This is because of wealthy people buying upvotes and creating a disguised majority of their own or because of active voter influence. In quadratic voting, on the other hand, since voting power is assigned based on the square root of the number of tokens held, the members with a large number of tokens also do not hold an unimaginable amount of influence on the decision-making process. This, therefore, ensures that decisions are made based on the collective preferences of the voters. ✔️
There must be limitations right? 🤔
True, nothing is without its limitations. Quadratic voting may still possess a possibility of collusion as a small group of DAO members that hold a large number of tokens may coordinate to influence the outcome of the vote. However, there are various things that you can do to mitigate this situation by ensuring voter secrecy through shadow voting. To read more about shadow voting, you can check out our deep dive here!
Furthermore, let’s not forget that not everyone loves maths or knows maths, even! Quadratic voting does not require complex math but still requires some math. It requires members to calculate the square root of the number of tokens they wish to stake, and that may be challenging for those who are not familiar with the mathematical concepts behind this. This can, however, be easily resolved by providing clear instructions, or inventing a mechanism wherein automatic calculation can take place, etc.
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