The are two classes of problems with coin voting that cause worry:
- Inequalities and incentive misalignment in the absence of attackers
- Various forms of attacks which involve (often obfuscated) vote buying
Absence of attacker
The problems of coin voting without explicit attackers is threefold.
A small group of whales are better at coordinating than a large set of small-holders
- This is because of the tragedy of the commons amidst small holders, individually they do not hold enough stake and power to motivate them to make valid and well-thought out decisions.
Coin voting governance empowers coin holders at the expense of the other parts of the community
- When only token holders are empowered amidst the wide set of constituencies that a project might serve, there is an overvalue of coin price which leads to harmful rent extraction.
Conflict of interest
- When an small group (especially the wealthy) are empowered to make decisions, it’s more likely that they have a conflict of interest with other related projects
Prescence of attackers
One of the primary motivators of coin voting is to bundle up the right to vote in governance with economic interest in the protocol’s revenue. In principle, it seems credibly neutral as anyone can go buy a protocol’s token. However, due to issues mentioned above, it is often not.
Rather, it is quite simple to decouple the two properties of economic interest and right to vote. Even through a decentralized lending platform, $ETH can be locked up to borrow governance token to use in voting.
This mean that it is easy to mount bribe related attacks on DAOs, exemplified by various ‘meta-governance’ projects.
Other Related Meanderings: futarchy