Introduction
Effective governance participation is crucial for the sustainability and success of DAOs. However, DAOs face challenges in fostering active, meaningful involvement in governance processes. Low engagement can hinder decision-making quality, impact project momentum, and stall the alignment of governance actions with community goals.
This report investigates strategies to boost governance participation, emphasizing the importance of synergy between foundational structures and community-led governance. By analyzing different org structures and existing DAO governance models, such as Delegate Reward Programs, we identify practices that successfully motivate sustained engagement and support governance efficiency. The recommendations outline a roadmap for transitioning governance responsibilities to a working group (GWG) model, ensuring a balance between operational structure and adaptability to evolving DAO needs.
Mapping these priorities is essential to harnessing community insights, retaining knowledgeable contributors, and fostering a governance culture that supports both immediate and long-term objectives.
1. DAO Governance strategies and comparative analysis
An exploration of governance strategies around the DAO space and what we can learn from them
Comparative Analysis of Successful Strategies and Lessons Learned
1. Delegates Reward Program
DAOs currently using this structure: Arbitrum (Delegates Incentive Program), Uniswap (Delegate Reward Initiative), Aave (Orbit Program).
It aims to reward delegates based on their onchain governance activity, such as voting participation and proposal engagement. The proposed incentives include rewards in the DAO’s tokens, calculated using a quadratic voting formula to emphasize engagement quality over quantity. It seeks to boost governance participation and retention of active, committed delegates.
This has been a well-adopted strategy by DAOs to foster governance participation. In Arbitrum DAO, this structure has been active for over six months now and an updated prop to elongate for another 12 months already passed temp check.
2. Retro Governance Participation Rewards
DAOs currently using this structure: Optimism.
This suggests rewarding active contributors in the governance process — similar to the strategy above. It emphasizes incentives for delegates, voters, and proposal creators, aligning rewards with meaningful engagement. The major difference is compensation is done retroactively as rewards will be distributed based on the impact and involvement in governance activities, fostering stronger community involvement.
3. Outcomes-based Resource Allocation Framework (OBRA)
DAOs currently using this structure: SAFE DAO.
The OBRA framework focuses on distributing resources in DAOs based on measurable outcomes rather than upfront funding. It encourages goal-setting, milestones, and accountability for projects receiving funding. OBRA aims to improve efficiency by ensuring resources are only allocated when clear outcomes are achieved, reducing waste and mismanagement. It also includes mechanisms for feedback and performance evaluation, ensuring funds are directed toward initiatives that drive impact. Stats to consider here.
Current Foundation Efforts
Delegates Launchpad Initiative
This is the current DAO focus where 2k veRARI is handed to 15 delegates over a period of six months for them to actively participate in governance.
The process has been good but judging from the Staking Tally proposal, we see a disconnect immediately after the tokens distributed to the 15 delegates become ‘0.’ Thus, the process is not sustainable.
Recommendations based on Insights
Our recommendation is for the DAO to implement a Delegate Reward Program.
This is a strategic approach to incentivize active governance participation. By rewarding delegates based on engagement quality, this model aims to retain committed participants and enhance governance outcomes. For instance, Arbitrum and Uniswap have successfully implemented delegate reward initiatives, which calculate rewards using metrics like voting participation and proposal engagement. This model addresses common DAO challenges by motivating sustained involvement and aligning delegate efforts with long-term objectives. Recommending this program could help improve delegate retention, quality of input, and accountability in governance.
It also stands out over the Retro Governance Participation Rewards and OBRA frameworks because it offers structured, consistent incentives for ongoing engagement. Unlike retroactive rewards, which may delay feedback, or OBRA, which is focused on project outcomes, the Delegate Reward Program encourages continuous participation by providing delegates with regular rewards for governance actions. This approach fosters immediate alignment with governance goals, actively engages delegates in real-time, and is better suited for DAOs aiming to boost governance activity consistently over time.
2. Transitioning Responsibility to GWG
Deep dive into current state of the DAO as well as other DAOs to understand the best practices that can be adopted and how to go about this change.
Understanding the current state
1. Overview of responsibilities of the Foundation.
- Management of Governance tools (such as Telegram, Discourse, Tally).
- Owner of main DAO wallets.
- Delegate Launchpad.
- DAO treasury management.
- Externally facing Communication channels (such as Twitter)
- Compliance and legal.
2. Research from other DAOs.
In general, DAOs are structured as a collective of three entities, a Foundation, a tech company, and a DAO each with a distinct but sometimes overlapping set of responsibilities. Below is an overview of the responsibilities in each category.
| DAO | Foundation | Labs | |
|---|---|---|---|
| SKY | Whitelisting contracts, tokenomics, marketing, risk service providers, research and analytics, contract updates, treasury management | Dissolved | Unclear |
| Arbitrum | Governance (Incentives, Multi-sig Services), Grants, Treasury, Events, Security Council, Research | Compliance, Marketing, Events, Grants, Investor relations | Product development |
| Optimism | Grants, Governance (code of conduct, Developer advisory, AntiCapture commission), Security Council, Research | Compliance, Marketing, Governance Incentives, and RPGF designs, Investor relations | Product development |
| ENS | Treasury (Investment, Financial reports), Grants, Governance (contract upgrades, compensation, DAO tooling) Ecosystem (events, hackathons, newsletters, audits), Public Goods, Integrations/partnerships | Compliance | Product development, Litigation, |
| DyDx | Grants, Operations (Compliance, Financial Reporting, Internal Comms, DAO playbook, Product Development) | Product development support, Partnerships, Marketing, Events, investor relations | Unclear |
| AAVE | Governance (Risk Service Providers, Delegate Incentives, tokenomics, Ambassador program,), treasury management, Security Council (Guardian) | Does not exist | Product development, Marketing, Events, investor relations |
In the context of DAOs, clearly delineating responsibilities among different entities is crucial for effective governance and operational success. Assigning key responsibilities to a legal entity such as a Foundation offers numerous advantages. Below are the key reasons why some responsibilities should continue to lie with the Foundation.
- The Foundation typically comprises professionals with expertise in specific areas which DAOs have yet to master. By placing those responsibilities within the Foundation, the DAO can ensure that knowledgeable individuals are managing complex issues, reducing risks and improving decision-making.
- As examples from other DAOs show, a legacy legal structure is still the best way to efficiently allocate resources across initiatives such as marketing campaigns, event organization, and compliance efforts. This approach enables a more strategic deployment of resources, ensuring that funding and efforts align with the ecosystem’s overarching goals.
- Responsibilities related to legal compliance and risk management are critical in navigating the regulatory landscape surrounding DAOs. The Foundation, with dedicated compliance staff, can proactively address potential legal challenges, ensuring that the DAO operates within the law and mitigating risks associated with governance failures or financial mismanagement.
- A centralized legal entity with well established management practises is in a superior position to think strategically about the ecosystem’s long-term vision. By overseeing initiatives like marketing and product development, it can ensure that efforts align with the DAO’s goals, creating a sustainable ecosystem that supports builders and users alike.
- As a bridge between the DAO and external stakeholders, the Foundation plays a crucial role in maintaining investor relations. Effective communication and transparency can help secure funding and support, which are vital for the ecosystems’s growth and sustainability.
- With a well established track record of managing certain operations, the Foundation can be more agile in responding to changes in the market, community needs, or regulatory environments.
Based on this analysis, the general observation is that the Foundation should continue to steward the following initiatives going forward:
- Compliance and legal.
- Marketing & Events.
- Investor Relations.
- Product Development and Support.
Based on experience from other DAOs, the community should explore delegating the following responsibilities to the delegates with the help of delegates or professional governance organisations who have experience in these matters for the first few epochs in order to leverage their learnings from other DAOs and use their expertise in dealing with these matters.
Grants
The current iteration of the grants program has two representatives from the Foundation and the DAO each. This represents a step in the right direction and both parties should continue to explore ways which empowers the DAO to make its own funding decisions. This could take the form of greater representation of the DAO in the existing grants program or completely separating the grants programs led by Foundation and DAO which is seen to be a common practise in other DAOs which were surveyed.
To ensure the Grants Committee (GC) can replicate past successes and improve in future rounds, the following strategies can be implemented:
- Create clearer and more accessible Requests for Proposals (RFPs) that specify criteria and expectations. This will help potential grantees understand what is required, leading to more targeted applications.
- Increase the frequency of updates shared with the community about GC activities and grant cycles. This can include progress reports, challenges faced, and success stories.
- Expand the measurement of user metrics to include engagement levels, retention rates, and feedback from users impacted by funded projects. This will provide deeper insights into the effectiveness of grants.
- Test new approaches or funding models in smaller pilot programs before scaling them up. This allows for experimentation without significant resource commitments.
- Introduce different tiers of grants (small, medium, large) with varying requirements and timelines. This can attract a wider range of applicants with diverse project scopes.
- Explore matching fund opportunities, where the DAO matches funds raised by grantees, incentivizing them to seek additional support and increasing overall project viability.
- Establish mentorship opportunities where experienced builders can guide newer grantees, fostering a collaborative environment.
- Offer workshops, resources, or training for grantees to help them better manage their projects and meet milestones.
- Facilitate networking events where grantees can connect, share experiences, and collaborate, strengthening the ecosystem.
Security Council
The first two iterations of the Security Council consisted of members of the Foundation and service providers hired by the Foundation. DAOs surveyed in our analysis have a stronger representation of value aligned community members or delegates in the Security Council, hence the future iterations could explore having a balanced representation between the Foundation and the DAO.
Treasury Management
The DAO treasury is currently being stewarded by service providers hired by the Foundation. While this is a good first step, many DAOs which were surveyed worked directly with service providers for treasury management or have a treasury management working group which facilitates these activities for the DAO. Additionally, many DAOs also produce regular financial statements on the health of the DAO and the current state of its treasury management initiatives.
Governance Incentives
Almost all the DAOs that were surveyed engage in incentivising governance activity either via delegate incentives or specific work groups which steward governance activities. The GWG trial run is a great step in this direction and the DAO should continue to explore how this WG can continue to assist the DAO in the future. Further details can be found in the Governance Incentives part of this report.
Risks
- Expertise:
RARI DAO is relative new and many delegates who do not have previous experience in DAO governance will find it challenging to steer the complexities of DAO governance. Professional Governance organizations with experience from other DAOs can be a great way to get RARI DAO up to speed in this area.
- Coordination
As responsibilities shift to the DAO, coordination between different working groups may become more difficult without clear governance and communication protocols. Hence, having clear roles and responsibilities, communication frameworks, and decision-making processes to ensure smooth coordination is advisable.
- Accountability
Without proper accountability mechanisms, the delegation of critical functions to working groups or individuals may lead to mismanagement or lack of transparency. Hence, setting up regular performance reviews and implementing KPIs for delegates and working groups is advisable.
- Participation
If the community or delegates do not remain consistently engaged, it could affect the quality of decision-making and governance execution. Providing ongoing governance incentives to ensure active and sustained participation is a strategy worth exploring.
- Financial Risks in Treasury Management
A lack of financial expertise within the DAO could lead to poor treasury management decisions, impacting the sustainability and growth of the DAO. Initially working with experienced treasury service providers or professional delegates to guide the DAO and establishing a Treasury Management Working Group (TMWG) with financial experts and regular financial reporting to keep the community informed is advisable.
Mitigation
The risk section dives into general risks and suggestions for mitigation, while this section dives into specific ‘must-haves’ in order to ensure that the GWG is sufficiently equipped to meet the challenges.
- Tools and Technology
Research and implement tools used by other DAOs, and provide tutorials or demos to ensure the GWG is proficient in using them.
- Adequate Funding
Allocate a specific budget for governance activities, and set up a treasury process that allows the GWG to request funds for specific initiatives.
- Assessments and Feedback
Set up feedback loops and periodic progress reports to adjust the structure and support as necessary.
- Cross-DAO Collaboration
Encourage cross-DAO meetings, delegate exchange programs, or joint governance forums where GWGs from different DAOs can learn from each other.
- Incentivize Governance Participation
Define clear incentive structures tied to governance KPIs and track contributions using token incentives for active participation.
Communication Protocols
To ensure a smooth transition and effective collaboration between the Foundation and GWG, clear communication protocols are essential. Here are some suggestions on how this could be carried out:
| Protocol | Description | Frequency | Participants |
|---|---|---|---|
| Regular Sync Meetings | Review progress, address challenges, and ensure alignment between the Foundation and GWG. | Monthly | Representatives from Foundation, GWG, and working groups |
| Transparent Reporting System | Regular reports on activities such as grants management, governance, and treasury, shared with both the Foundation and the community. | Quarterly financial reports and governance updates | GWG, Foundation |
| Joint Decision-Making Protocols | For decisions requiring both Foundation and GWG input a clear approval system should be established. | As needed, based on decision type | Foundation, GWG, Security Council (if necessary) |
| Dedicated Communication Channels | Real-time communication for updates, discussions, and announcements between Foundation and GWG | Ongoing | Foundation, GWG |
| Emergency Communication Protocols | Rapid communication protocols for urgent issues like security breaches or legal concerns. | As needed (for emergencies) | Foundation, GWG, Security Council |
A multi phase approach to transitioning responsibilities
In order to smoothly transition responsibilities we recommend a time-boxed multi-phase approach which consists of focusing on specific topics and outcomes in each stage.
| Phase | Timeline | Scope | Measure of Success |
|---|---|---|---|
| 1 | Q1 2025 | Treasury Management, Governance, Incentives, Grants | - Consensus gathering forum post on trial running a treasury management WG followed by a proposal - Consensus gathering forum post on Governance Incentives followed by a proposal - Kickstart DAO led Grants Committee Trial Discussion |
| 2 | Q2 2025 | Treasury Management, Security Council, Governance, Incentives, Grants | - Consensus gathering forum post for next steps to decentralize security council - Kickstart Treasury management WG - Report on Governance Incentives - Trial run an updated version of DAO led Grants Committee |
| 3 | Q3 2025 | Treasury Management, Security Council, Governance, Incentives | - Security Council elections - Treasury Management Trial Report |
| 4 | Q4 2025 | Grants, Treasury Management, Security Council, Governance, Incentives | Report of all activities undertaken by the Governance Working Group along with key metrics |
3. Recommendations
This section offers a summary of the recommendations of the GWG
Improving Governance Participation
Delegate Reward Program:
- Implement a structured reward system for active governance participants, emphasizing engagement quality through consistent incentives.
- This program has proven effective in DAOs like Arbitrum and Uniswap, where rewards are based on metrics such as voting participation and proposal engagement.
- It encourages continuous delegate engagement, unlike retroactive rewards or outcome-based programs, fostering sustained participation in governance.
Transitioning Responsibilities from Foundation to Working Groups (GWG)
- Responsibilities Retained by Foundation
- Continue stewardship of legal compliance, marketing & events, investor relations, and product development for strategic alignment and risk management.
- Delegation to DAO and Working Groups
- Grants: Gradually increase DAO representation or separate grants programs managed by the DAO.
- Security Council: Balance representation between Foundation members and value-aligned community members.
- Treasury Management: Establish a Treasury Management Working Group (TMWG) to steward the DAO’s financial assets and enhance community involvement.
- Risks and Mitigation Strategies
- Expertise: Work with professional governance organizations initially to help delegates manage governance complexities.
- Accountability: Set performance reviews and KPIs for delegates and working groups to ensure transparency.
- Treasury Risks: Initially collaborate with experienced treasury service providers and produce regular financial reports.
- Phased Approach for Transitioning Responsibilities
- Gradually transition responsibilities from the Foundation to Working Groups over a four-phase timeline from Q1 to Q4 2025.
- Activities include trial runs of Treasury Management and Governance Incentives initiatives, Security Council elections, and updated grants management structures.
- Communication Protocols
- Establish clear, regular sync meetings, transparent reporting, joint decision-making, and emergency communication channels between the Foundation and GWG for effective collaboration.
4. Conclusion
This report offers a comprehensive analysis and actionable recommendations to enhance governance participation and effectively transition responsibilities from the Foundation to community-led working groups. By emphasizing structured reward systems, such as the Delegate Reward Program, the report addresses the challenges of sustaining engagement and improving decision-making quality within DAOs. It highlights a phased approach for delegation, ensuring gradual handover and risk mitigation through professional expertise, clear accountability, and robust communication protocols.
The recommendations for structured grants management, balanced representation in the Security Council, and the establishment of a Treasury Management Working Group are well-grounded in comparative analyses of successful DAO strategies. These measures aim to foster a governance culture that balances operational efficiency with community alignment, ensuring both short-term efficacy and long-term sustainability.
This report underlines the need for adaptability, strategic delegation, and community empowerment to navigate the complexities of DAO governance effectively. By implementing the proposed strategies, RARI DAO can cultivate a governance model that is both inclusive and resilient, driving its evolution.
Credits: Governance Working Group @WinVerse @Jose_StableLab @Matt_StableLab @addie @jengajojo
