How Widespread Are DAOs in Tezos?

How Widespread Are DAOs in Tezos?

Many projects on Tezos have governance tokens and smart contracts enabling the community to make proposals for development and express its will. Tezos itself is also one big DAO with regular votes for updates.

Many projects on Tezos have governance tokens and smart contracts enabling the community to make proposals for development and express its will. Tezos itself is also one big DAO with regular votes for updates.

Let’s find out how popular DAOs are in Tezos, how they help the largest projects to adjust to market conditions and how decentralized they are.

Some Context

We became interested in the DAO topic due to the story of a whale who accounted for 95% of total deposits and 86% of the debts of a large lending protocol. The developers even held an emergency vote to take temporary control of the whale’s wallet, and the whale voted aye, too. Later, the community called the decision unethical and illegal, and, having held a second vote, left the whale alone.

So we decided to check the self-governance portals of popular Tezos projects and find out whether Tezos has such whales, or if everything is really decentralized and safe. Fortunately, governance tokens are well-distributed, and project communities are actively voting and accepting proposals.

Self-governance in Tezos

Tezos protocol updates are managed by bakers through voting for different protocol update proposals. The “weight” of the vote depends on the number of owned and delegated tez.

The voting process consists of five periods of 14 days and 5 hours:

  • Proposal: bakers post proposals to the blockchain in the form of code ready to implement, rather than a textual “let’s do it.” They then vote on the proposals to move them to the next period. This requires a 5% of aye votes;
  • Exploration: bakers study the proposals and vote for the best one. To advance to the next period, a proposal must reach a quorum of 50% of the total votes and receive at least 80% of the affirmative votes, not including those who abstained;
  • Cooldown: the proposal is run on a separate testnet for the community to try it out;
  • Promotion: bakers discuss the testing experience and vote on whether to implement the proposal on the mainnet. A quorum and supermajority must again be reached to activate the update;
  • Adoption: extra time to adapt the code and infrastructure to the new version of the protocol. When it is completed, bakers synchronously update nodes, and Tezos moves to the new version.

If no proposals gain enough votes at any period, the protocol resets the progress to the Proposal period. The same happens if bakers vote against the upgrade at any stage, as was the case with Ithaca.

There are usually between 160 and 200 bakers (more than half of the total) who vote for an upgrade. That said, Tezos has no oligarch bakers who can single-handedly influence votes. For example, Coinbase Custody, the largest private baker, owns 13.3% of tez in staking but does not participate in votes.

Kolibri Governance

Kolibri Finance issues algorithmic stablcoin kUSD collateralized by tez. The safety and stability of such tokens can be expressed as a formula with many components: the threshold of oven collateral, reserves, liquidation fees, deductions to the stabilization fund and developer fund, and others.

With the help of the Kolibri Governance Portal, the Kolibri community changes the values of the components and manages the funds. For example, initially the Stability Fee was 24% per annum. Over time, the fund filled up, and the value of kUSD rose to $1.03. The community held regular votes on the portal Kolibri Governance, and eventually reduced the percentage deduction to 0.5% per annum to encourage the issuance of new kUSD and reduce the rate to $1.

To put the proposal on Kolibri Governance, you have to put 1,000 kDAOs ($360) into an escrow mechanism. The initiator of the vote will get it back when the proposal gets at least 20% of the positive votes.

Kolibri Governance does not specify the number of votes cast, only the number of kDAO votes. The community is very active: over 400,000 kDAOs are involved in the latest proposals out of a total issue of 1 million.

Youves Governance

Youves issues an algorithmic stablecoin backed by tez, tzBTC, and SIRS, and provides farms and liquidity pools for token exchanges.

Voting on Youves Governance involves launching new token trackers, adding assets as collateral, and changing collateral levels and other values. Thus, in the most recent vote, the community approved the development of an adaptive adjustment mechanism for the uUSD minting commission, a bonus for eliminating “sinking” vaults, and other platform parameters.

Suggestions are made by the developers of Youves. You need to own YOU tokens to participate in the voting, and the tokens the user has contributed to liquidity pools or staking pools are taken into account as well.

There were between 40 and 110 YOU holders out of 1,300 who participated in the voting.

Plenty Vote

Plenty DeFi provides token exchange pools, farms, staking, and a bridge for transferring assets from Ethereum to Tezos.

The Plenty developers are voting on plans to develop the platform. For example, in the most recent proposal, the community voted to launch Flat Curve and regular CPMMs for more stablecoins and wrapped assets, reduce farm rewards to tackle inflation and close down the farms for unpopular trading pairs.

You must own xPLENTY tokens to vote. Proposals are made by the developers of the project.

Voting ranged from 70 to 364 xPLENTY holders out of 2,600.

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